Commons Sitting of 11 June 1947

Preamble
The House met at Half past Two o'Clock
PRAYERS
[Mr. SPEAKER in the Chair]
PRIVATE BUSINESS
  BRIGHTON CORPORATION (TROLLEY VEHICLES) PROVISIONAL ORDER BILL

    KINGSTON-UPON-HULL PROVISIONAL ORDER BILL
    MARRIAGES PROVISIONAL ORDERS BILL
    MEXBOROUGH AND SWINTON TRACTION (TROLLEY VEHICLES) PROVISIONAL ORDER BILL
    MINISTRY OF HEALTH PROVISIONAL ORDER (GLOUCESTER) BILL
    MINISTRY OF HEALTH PROVISIONAL ORDER (LEEDS) BILL.
    MINISTRY OF HEALTH PROVISIONAL ORDER (TORQUAY) BILL.
    MINISTRY OF HEALTH PROVISIONAL ORDER (TUNBRIDGE WELLS) BILL
    Read a Second time, and committed.

ORAL ANSWERS TO QUESTIONS
  CIVIL AVIATION

    Air Accidents (Inquiries)
    Air-Commodore Harveyasked the Parliamentary Secretary to the Ministry of Civil Aviation if, having regard to the findings of his Department's reports on the air crashes at Speke in August, 1946, and Gambia in September, 1946; he will give an assurance that in future air accidents will be inquired into by a judicial body.
    The Parliamentary Secretary to the Ministry of Civil Aviation (Mr. Lindgren): For the reasons given in my reply to the
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    hon. Member for Orpington (Sir W. Smithers) on 28th January last, my noble Friend proposes that a court of inquiry in connection with an aircraft accident should be appointed only if the case presents problems of exceptional difficulty and public importance. No such appointment has been made since the inquiry in 1931 into the destruction of the airship R.101. My noble Friend has no power to appoint a court of inquiry to be held in any of the Colonies.
    Air-Commodore Harvey: Is the hon. Gentleman aware that the British Air Line Pilots Association is very dissatisfied with the findings of the inquiries, and can he say how, if an official from his own Department should be held to be responsible for an accident, another official from the Ministry of Civil Aviation can possibly inquire into that accident?
    Mr. Lindgren: Though, technically, the officer conducting the inquiry is an employee of the Ministry of Civil Aviation he is, quite rightly, apart from the Ministry and is not interfered with in the course of his duties in any shape or form either by the Minister or anyone else So far as the courts of inquiries are concerned, they are fact-finding bodies, and there is often disagreement as to the facts at the end of inquiries.
    Mr. Quintin Hogg: Could the Parliamentary Secretary consider the analogy of railways accidents, because there is a well-known procedure in respect to them which has been followed with great success for a very long time?
    Mr. Lindgren: Yes, Sir, this is exactly the same principle, and if my noble Friend can only establish the same confidence with regard` to civil aviation accidents as my right hon. Friend the Minister of Transport has established with regard to railway accidents, we shall be very happy. But I would point out that railway inquiries are by no means judicial inquiries. They are fact-finding investigations, and, should court proceedings follow, they follow independently of such inquiries.
    Mr. Rankin: In view of the fact that the tendency of these reports has been to lay the blame more and more on the pilot who, naturally, is seldom there to answer the charges, would not a judicial body allow his interests to be better represented?
    Mr. Lindgren: No, Sir. This is a fact-finding body, and does not in any way rule out a court of inquiry, if the Minister thinks that the public interest demands it. It is an inquiry to find the facts, and to publish a report, as the inspector decides.
    Mr. Boyd-Carpenter: Is the Parliamentary Secretary aware that the confidence which he very properly desires for these inquiries is more likely to be obtained if persons whose interests or reputations are concerned were given the full right to cross-examine witnesses, so as to avoid the kind of farce that took place at yesterday's inquiry?
    Mr. Lindgren: No, Sir, my experience has always been that the informal inquiry—man to man—is a far better way of securing real information as to cause, and that where court proceedings were likely to follow what a man said at the inquiry as to cause, the man was like an oyster, and, indeed, was told to be like an oyster by those who represented him.
    Mr. Sydney Silverman: Is there not this very important difference between a railway inquiry and an air inquiry that, whereas a passenger in a train who is injured by the negligence of the railway company or its servants can bring an action for damages against the company, the aircraft passenger is excluded by the terms of his contract from ever getting a penny by way of damages, whether there has been negligence or not?
    Mr. Lindgren: That is a legal question entirely outside the scope of an inquiry into the cause of an accident.
    Mr. Godfrey Nicholson: The hon. Gentleman says that it is a fact-finding body, but does it not express an opinion at the end of its inquiry, and, indeed, something very nearly approaching a verdict?
    Mr. Lindgren: It expresses an opinion as to the cause of the accident according to the facts as the inspector finds them.
    Air-Commodore Harvey: In view of the very unsatisfactory nature of the reply, I beg to give notice that I propose to raise the matter on the Adjournment.

    Dundee, Perth and Angus
    Mr. Maclayasked the Parliamentary Secretary to the Ministry of Civil Aviation how soon it is anticipated that facilities
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    will be available for passenger air transport to and from the Dundee, Perth and Angus area of Scotland.
    Mr. Lindgren: I would refer the hon. Member to the reply I gave to my hon. Friend the Member for Dundee (Mr. Cook) on 4th June last.
    Mr. Maclay: Does the Parliamentary Secretary realise that that reply referred the hon. Member for Dundee (Mr. Cash) to a previous reply? May I further ask whether he realises the extreme urgency and need for these air facilities in that part of the world, and could he state when the review to which he referred in the reply before the last reply is likely to be available?
    Mr. Lindgren: Not for some considerable time. The facts are that we have attempted to establish trunk routes, and Dundee is only a two-hour road or rail journey from Edinburgh and about 50 or 60 miles from Perth. It is felt, in the light of the present availability of aircraft, that the main trunk service is the one that serves best, bearing in mind both road and rail facilities.
    Mr. Maclay: Does the Parliamentary Secretary realise that it is not possible to get a train between the Angus area and the South after eight o'clock in the evening? That is one of the reasons why an air service from Dundee to the South would be of great convenience.
    Mr. Lindgren: That is all appreciated, but as I said in reply to that Question last week, Scotland is very important, but we are being pressed from Wales, the West Country and the North-East, which, in fact, have so far no air service whatever.
    Sir Ronald Ross: Is the Parliamentary Secretary aware that he is also being pressed by Northern Ireland?
    Mr. Lindgren: Yes, Sir.

    Air Training, Limited (Accounts)
    Mr. Beswickasked the Parliamentary Secretary to the Ministry of Civil Aviation if the accounts of Air Training, Limited, will be submitted to Parliament in the same way as those of the aviation corporations.
    Mr. Lindgren: Yes, Sir. It is proposed to regard Airways Training, Limited, as a subsidiary for the purposes of Section

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    21 (2) of the Civil Aviation Act, 1946, and accordingly that the Corporations' statements of accounts should include in a separate appendix an audited statement of accounts of this undertaking.
    Mr. Beswick: Can my hon. Friend, therefore, give the name of any director or directors who have been nominated by the Minister? Will any such director, who is receiving a salary as an employee of the Corporation, receive in addition fees as a director of the subsidiary organisation?
    Mr. Lindgren: This is an organisation which is financed from capital subscribed by the airline Corporations, B.O.A.C. and B.E.A.C. The Directors are Mr. G. T. Meller, Sir Victor Tait, Mr. P. Wills, and Mr. J. E. V. Tysack. Two are from B.O.A.C. and two from B.E.A.C. and they are officials of those airlines. They are receiving salary as officials of those airlines, and they work in conjunction with these corporations as part of their normal duties, and there is no additional fee.

    West Country
    Mr. Douglas Marshallasked the Parliamentary Secretary to the Ministry of Civil Aviation if he is aware that in 1939, under private enterprise, the West Country was served by an air service, but at the moment no service is in operation with the exception of the Isles of Scilly; and when Cornwall and the West Country is to have an air service.
    Mr. Lindgren: I am aware that in 1939 there were a number of services, which were almost entirely seasonal, catering for holiday traffic in the West Country during the summer months, mainly to and from the Scilly Islands. The present services to the Scilly Islands by British European Airways are operated to a larger frequency than before the war. As regards introduction of further services in e West Country, I regret that I cannot ke any statement until the completion the review referred to in my reply of May last to the hon. Member for New rt (Mr. Peter Freeman).
    Mr. Marshall: May I ask the Parliamentary Secretary to give really active consideration and not just consideration to this matter of giving an air service to the West Country and Cornwall?
    Mr. Lindgren: Yes, Sir, but I should be misleading the House and the hon. Member if I led him to believe that there was any likelihood of these services being introduced during this summer.
    Mr. Medland: Can the Parliamentary Secretary say when the airport at Harrowbeer, near Yelverton, will be opened, and can he direct his attention to the West Country, instead of spending so much time in Scotland?
    Mr. Lennox-Boyd: If it is true that the Corporation cannot do so this season, will the Parliamentary Secretary allow charter companies to run regular scheduled services to the West Country this summer?
    Mr. Lindgren: No, Sir. That would be at variance with the Act.

    Edinburgh—London
    Mr. Willisasked the Parliamentary Secretary to the Ministry of Civil Aviation if he is aware that the present timing of the air service from Edinburgh to London is unsuitable for the needs of Edinburgh; and whether he will make arrangements for additional services to be inaugurated to serve these requirements.
    Mr. Lindgren: Yes, Sir. Owing to the shortage of suitable aircraft, the British European Airways Corporation is able to operate only one service daily on the route Northolt—Edinburgh—Aberdeen—Shetlands. The Corporation is, however, hoping that circumstances will permit a reciprocal service to be brought into operation during the early autumn.
    Mr. Willis: Is the Parliamentary Secretary aware that we are holding a very important international musical festival and also an "Enterprise Scotland" exhibition within the next three months? Will he not consider providing extra facilities before that time?
    Mr. Lindgren: Yes, Sir, the Edinburgh Music and Drama Festival is a very commendable effort, and my noble Friend has promised the Lord Provost that everything possible, continentally and internally, will be done.
    Mr. Boothby: Can the Parliamentary Secretary explain why, two years after the war, he cannot supply an efficient service from the capital of England to the capital of Scotland?
    Mr. Lindgren: Mainly because of the lack of aircraft.

  GERMANY

    Food Supplies
    Mr. Peter Freemanasked the Secretary of State for Foreign Affairs what increased amounts of food have now been allocated to Germany to meet the serious shortage; and what is the present calorific value of the amount now being actually received per head.
    The Secretary of State for Foreign Affairs (Mr. Ernest Bevin): A special emergency allocation of cereals, equivalent to 137,000 tons of flour, will increase the expected arrivals of cereals for human consumption in the combined zones to the equivalent of about 400,000 tons of flour in both June and July. The average daily calorie value of the ration actually available to normal consumers was slightly less than 1,000 calories in May and is likely to remain at about this level in June.
    Mr. Freeman: Does my right hon. Friend consider that this amount—1,000 calories daily—is really adequate to keep the Germans from starving?
    Mr. Bevin: I do not think it is adequate, but the whole world is short of food, and I have to take into consideration representations made to me on behalf not only of Germany, but of countries she invaded.
    Mr. Skeffington-Lodge: Will my right hon. Friend be good enough to bear in mind the common sense and desirability of only announcing publicly in Germany the total ration which can be fully honoured?
    Mr. Bevin: Yes, Sir. I am going into that. I think it is very desirable to make sure of what can be got, and tell them only about what is available. I am altering and reorganising the whole of the Cereals Division of the control body.
    Mr. Vane: Will the right hon. Gentleman tell us the country of origin of this special allocation? Is it Eastern Europe or America.
    Mr. Bevin: I do not understand that question.
    Mr. Stokesasked the Secretary of State for Foreign Affairs whether he is satisfied that the maximum advantage is being taken of vegetable supplies from Holland
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    in order to ease the food situation in Germany; and whether he proposes to enter into arrangements with the Dutch Government to this end as and when vegetables become available.
    Mr. Bevin: Negotiations are now in progress between the bizonal authorities and the Netherlands Government with a view to obtaining the maximum quantity of Dutch vegetables for the Western zones of Germany.
    Mr. Stokes: Will my right hon. Friend bear in mind that last year similar negotiations were initiated, and that a very considerable proportion of the vegetables available were not taken, and were thrown away? Will he make quite sure that that does not happen again?
    Mr. Bevin: I am doing my best to carry on all these negotiations to get the maximum amount of food to the Germans, but my hon. Friend must remember that the dollar situation does interfere with things, and that I have to deal with the American authorities as well.
    Sir Waldron Smithers: Is not the main reason for the food shortage in Germany the fact that Russian policy refuses to allow Germany to be treated as an economic whole?
    Mr. Bevin: That does affect the situation, but I have described that in the recent Debate. I am now taking steps to overcome that.
    Mr. Dribergasked the Secretary of State for Foreign Affairs how many tons of grain, potatoes, sugar and other foods have been sent from the Soviet zone to Western Germany in the past year.
    Mr. Bevin: Up to the end of May, 126,000 tons of grain, 110,000 tons of potatoes and 24,000 tons of sugar were delivered from the Soviet zone to the Combined British and American zones of Germany and the British and American sector of Berlin. All these deliveries were from the 1946 crop.
    Mr. Driberg: While we all wish that these figures had been larger, is it not unfortunate, in view of these figures, that a public statement should have been made less than a fortnight ago to the effect that no food at all had been sent; and is it not now clear that that statement was a lie?
    Mr. Bevin: No, Sir. What I said then was perfectly true, that there had been no food put into the pool for Germany which corresponded to the amount we had had to buy outside by dollar purchases. All this food to which I have referred has been paid for by barter in steel, or some other way.
    Mr. Hogg: Can the right hon. Gentleman tell us how these figures compare with the total import requirements of the zone in question?
    Mr. Bevin: I should want notice of that Question.
    Mr. Richard Law: Could the right hon. Gentleman say how these figures which he has just read out would have compared with the comparable figures for a prewar year? They would, presumably, have been very much greater then.
    Mr. Bevin: It would be infinitesimal compared with the distribution of food from that zone to the Ruhr before the war.
    Mr. Skeffington-Lodgeasked the Secretary of State for Foreign Affairs whether he will consider classifying Hamburg, Bremen and the Ruhr as distressed areas to be afforded priority in respect of food imports, if necessary at the expense of their agricultural hinterland.
    Mr. Bevin: Large towns in the British zone are already being given a slight preference over other districts in the allocation of food, both for normal and for priority consumers. It would be unwise to make too great a distinction between town and country, since many rural districts are now short of food owing to the large numbers of refugees who have been sent to them.

    Heavy Industry (Socialisation)
    Mr. Bramallasked the Secretary of State for Foreign Affairs when he anticipates that he will be able to take action to implement his declared policy of socialising heavy industry in the British zone of Germany.
    Mr. Bevin: Every effort is being made to overcome the obstacles, which have hitherto delayed the fulfilment of our policy, but I am not yet in a position to state when a further announcement will be made. One of the main difficulties is connected with the drawing up of an equit-
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    able basis of compensation for foreign interests in Germany.
    Mr. Bramall: Will my right hon. Friend bear in mind that he does lay himself open to a very great deal of criticism when the policy the Government are carrying out in this country cannot be carried out over there?
    Mr. Bevin: I quite agree that I have announced a policy, but I cannot override the rights of other countries, and when these rights exist, I have to negotiate about them.
    Mr. Walter Fletcher: Will the right hon. Gentleman make certain that socialising does not in due course become subsidising, to the great detriment of the export trade of this country?
    Mr. Bevin: That has not occurred in this country.
    Viscount Hinchingbrooke—
    Mr. Speaker: This is becoming hypothetical, I think.

    Administration (Dutch Government)
    Air-Commodore Harveyasked the Secretary of State for Foreign Affairs if any parts of the British zone in Germany are yet being taken over by the Dutch Government for administration.
    Mr. Bevin: No, Sir.
    Air-Commodore Harvey: Does not the right hon. Gentleman agree that the Dutch, who made a great contribution in the war, could improve the economic situation in Germany by taking over part of the British zone, and, at the same time, save the British taxpayer money?
    Mr. Bevin: The Dutch have provided a certain number of troops, but as for taking over a zone—
    Air-Commodore Harvey: P of it.
    Mr. Bevin: Do let me answer the question. Taking over a zone has other implications. They are a part of the Allied British occupation at the present moment, which is, I think, the correct method to adopt.

    Children (British Fathers)
    Mr. Sorensenasked the Secretary of State for Foreign Affairs whether any

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    arrangements are now possible to enable the British fathers of children born to German mothers to despatch to Germany essential requirements for their children, apart from or beyond the parcel weight limit heretofore allowed; and if the investigation on this matter has been concluded.
    Mr. Bevin: No, Sir. The despatch is allowed of 44 lb. of second-hand clothing in a month, and of food and medicines on certain conditions. In my view, these arrangements are adequate.
    Mr. Sorensen: Is the right hon. Gentleman aware that I was promised, many weeks ago now, that an investigation would be made into this matter, and led to believe that such fresh arrangements might be made available; and in view of the fact that so many British fathers of children born to German mothers desire to fulfil their obligations, could not this matter be further considered?
    Mr. Bevin: I am willing to consider it further, but, you know, the weight which is allowed is pretty adequate.

    Bipartite Economic Council
    Mr. Bramallasked the Secretary of State for Foreign Affairs whether arrangements were made during the recent discussions with the U.S. authorities in Germany to ensure that the efficiency of the Bipartite Economic Council is not jeopardised by delays in obtaining sanction for each item of legislation from the Bipartite Board.
    Mr. Bevin: No formal arrangements of this kind were, or could be, made since the Bipartite Board must clearly itself reach agreement on the Ordinances submitted before it can approve them. The British and American authorities are, however, not likely to jeopardise by their own action the efficient working of a scheme they themselves have introduced to deal with pressing economic problems.
    Mr. Bramall: Will these measures have to be submitted to Berlin, or will there be the necessary machinery in Frankfurt to deal with all except important questions of policy?
    Mr. Bevin: Yes, Sir, in Frankfurt.

    Postal Services
    Mrs. Leah Manningasked the Secretary of State for Foreign Affairs whether he is now in a position to make a statement regarding the resumption of postal and telecommunications services for business purposes to and from Germany.
    Mr. Bevin: Yes, Sir. Quadripartite agreement has now been reached to the admission of transactional correspondence in the international postal service to and from Germany. The service will commence on 15th June.

    Saar Frontiers (French Proposals)
    Mr. Richard Law(by Private Notice) asked the Secretary of State for Foreign Affairs whether he can make a statement regarding the action taken by the French Government to alter the frontiers of the Saar.
    Mr. Bevin: Yes, Sir. The French Government proposed to the Council of Foreign Ministers that the Saar should be economically integrated with France. They have not proposed political incorporation and they have made it clear that the Saar would have separate institutions from France. The French Government have recently put forward new proposals for the boundaries of the Saar. These proposals involve a considerable withdrawal from the present administrative frontier in the area between the old Saar and Luxembourg, but in the North-East and East certain districts containing lateral railways which serve the Saar industrial concentration are included. In these circumstances, I have informed the French Government that, subject always to decisions to be taken at the final peace settlement and to a satisfactory agreement being reached on the adjustment of the French reparations claim so as to take into account the value of the Saar, His Majesty's Government have no objection to the boundaries of the Saar as now proposed nor to the French intention to proceed with their plan to issue a new currency within the boundaries of the Saar as now defined, in place of German marks.

    U.N.O. (U.K. Delegation, Cost)
    Sir Ralph Glynasked the Secretary of State for Foreign Affairs what is the estimated annual cost of the British delegation to U.N.O.; and whether the special cost-of-living allowances to members of

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    the secretariat have been revised to meet the increased expenses they have now to meet in the U.S.A.
    Mr. Bevin: The estimated annual expenditure of the permanent United Kingdom Delegation to the United Nations is £214,000. This includes salaries and allowances of staff payable by the Foreign Office, in addition to those paid by the Service Departments, and includes also the cost of rent, telephones and telegrams, etc. It does not include provision for certain high ranking officers who also serve with the Military Mission in Washington. The allowances of the senior member of the Foreign Office staff of the United Kingdom Delegation are at present under consideration; those of the subordinate staffs were revised last year. His Majesty's Government are not responsible for the salaries and allowances of the Secretariat of the United Nations. It is understood, however, that the new scales of Cost-of-Living Allowances were instituted from January 1st, 1947, for certain categories of the United Nations staff. The whole question of salaries and allowances is under consideration by the Secretary-General of the United Nations.
    Mr. Henry Usborne: Does the figure which my right hon. Friend gave us include the cost of special conferences, such as the one recently held at Moscow? If not, can he tell us how much that conference cost?
    Mr. Bevin: No, Sir. That is nit the Question on the Order Paper, and I would ask my hon. Friend to put down a separate Question. This one deals with U.N.O.

  GREECE

    Trade with Yugoslavia
    Mr. Dribergasked the Secretary of State for Foreign Affairs if he is aware that British embassy officials in Athens have consistently tried to obstruct the revival of trade between Greece and Yugoslavia; and if he will reverse this policy.
    Mr. Bevin: There is no truth whatever in this allegation.
    Hon. Members: Withdraw.
    Mr. Driberg: Why? Let hon. Members keep quiet a moment. Can my right hon. Friend give an absolute assurance that at no time during the last 18 months has
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    any Embassy official spoken or acted in the way suggested in the Question? Will he do his best positively to encourage this trade, for the mutual benefit of the two countries?
    Mr. Bevin: Why should I be asked to give such an assurance when the whole conception of the Question is a lie?
    Mr. Driberg: On a point of Order, Mr. Speaker. Is the right hon. Gentleman entitled to use that un-Parliamentary word about a Question by an hon. Member?
    Mr. Speaker: The right hon. Gentleman did not say that the hon. Member was a liar. He said that the statement which is reported is a lie. That is a different thing.
    Mr. Driberg: Is there any difference, Mr. Speaker, with great respect?
    Mr. Speaker: The right hon. Gentleman first of all said that the statement was quite untrue and without foundation; and then he used stronger words; but he did not refer to the hon. Member; he referred to the statement. I think that the right hon. Gentleman was justified.

    Frontier Commission (Investigations)
    Professor Savoryasked the Secretary of State for Foreign Affairs whether the Greek Frontier Commission stationed in Salonika has been allowed to send its members into Bulgarian and Albanian territory to investigate the allegations made by Greece against these countries of giving aid to rebels in their attacks upon the Greek army.
    Mr. Bevin: I assume the hon. Member refers to the subsidiary group of the Frontier Commission based on Salonika, which the Security Council decided to send to Northern Greece pending its consideration of the main Commission's report. The sub-Commission notified the Bulgarian Government on 28th May that it wished to investigate Greek allegations that bandits had evaded pursuit by crossing the Bulgarian frontier, and asked for facilities on Bulgarian soil. The sub-Commission arrived at the frontier on 2nd June, but was refused admission to Bulgaria. The Bulgarian Government in the meantime informed the sub-Commission that it would be allowed to enter Bulgaria as from 10th June. The sub-Commission has, as yet, put forward no request for permission to enter Albania.
    Professor Savory: Were the Commission not received on the Bulgarian frontier on 4th June with fixed bayonets?
    Mr. Bevin: I do not know how they were received.
    Mr. Molson: In view of the fact that the Treaty with Bulgaria has not come into operation, and that there is an inter-Allied commission in control of Bulgaria, how does it come about that the Bulgarian Government were able to refuse entry to this commission?
    Mr. Bevin: The Bulgarian Government, notwithstanding the Allied commission, I think, are Sovereign within their own frontiers, and I am not too sure, speaking from memory, whether or not the existence of an Allied council would determine who should or who should not be allowed into the country. I should like notice of that question.
    Mr. Mack: In view of the fact that the Bulgarian Government have already agreed to let the commission enter their territory to make investigation, are not the questions coming from the other side of the House only jeopardising the situation, and making it more difficult?

  INTER-PARLIAMENTARY CONFERENCE, CAIRO (REPORT)
  Sir R. Glynasked the Secretary of State for Foreign Affairs whether he has considered the Report of the recent Inter-Parliamentary Conference held at Cairo, a copy of which has been sent to him; and if he has any statement to make on the recommendations agreed to by that conference.
  Mr. Bevin: Yes, Sir. I am carefully considering the report which was passed by the Conference, and which includes useful resolutions on migration and transfers of population, reparations, codification of international law and the abolition of restrictions on travel.
  Sir R. Glyn: Would the right hon. Gentleman care to say whether those recommendations are in line with the policy of His Majesty's Government?
  Mr. Bevin: Yes, Sir, in the main, and subject to detailed examination; and I should like to express my gratitude for the
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  work done by the Inter-Parliamentary Conference, for I think it is making contacts and recommendations of great use.

  POLES, U.K. (REPATRIATION)
  Major Tufton Beamishasked the Secretary of State for Foreign Affairs in view of the fact that the Polish Government has withdrawn Polish citizenship from a number of senior Polish officers who had made outstanding contributions to the Allied war effort, and that these officers cannot therefore be expected to, follow the recommendation of His Majesty's Government that all Poles in this country and in the British zones of Germany and Austria ought to go back to Poland, what provision is being made for the future of these officers.
  Mr. Bevin: The offer of His Majesty's Government to assist members of the Polish armed forces unable to return to Poland to re-settle here or overseas applies to these as to other officers and men.
  Professor Savory: Has the right hon. Gentleman received an assurance that these Polish officers and soldiers who have joined the Resettlement Corps will not be deprived of their Polish nationality, because many of them are under that impression?
  Mr. Bevin: I have been assured by the Prime Minister of Poland that, if these men return to Poland, not only their nationality but all their rights will be secure. Having regard to both the character and the work of these men I do earnestly hope they will return.
  Major Beamish: Does that reply refer also to the 75 senior officers specially named by the Polish Government as having had their citizenship withdrawn?
  Mr. Bevin: I should not like to commit myself on that. If the hon. and gallant Gentleman will put down a Question I will look into it.

  INTERNATIONAL REFUGEE ORGANISATION (DIRECTOR-GENERAL)
  Mr. Derek Walker-Smithasked the Secretary of State for Foreign Affairs what machinery exists, or is to be brought into

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  existence, to elect a Director-General of the International Refugee Organisation; and how the duties of this organisation are discharged pending such an election.
  Mr. Bevin: According to the constitution of the International Refugee Organisation, the Director-General is to be nominated by the Executive Committee of the Organisation and appointed by the General Council. Pending the establishment of the Organisation, the Preparatory Commission, which met in Lausanne between 1st and 21st May last, has decided to assume operational responsibility as from 1st July in order that there should be no gap in the continuity of refugee work after the demise of U.N.R.R.A. and the Intergovernmental Committee on Refugees, and has authorised the Executive Secretary of the Commission to exercise the powers of the Director-General.
  Mr. Walker-Smith: Is the right hon. Gentleman able to make any forecast as to when the nomination is likely to be made?
  Mr. Bevin: I should like notice of that question.

  SOVIET DISPLACED PERSONS, BOLOGNA
  Mr. Stokesasked the Secretary of State for Foreign Affairs what information he has regarding the number of British and United States soldiers killed or wounded and the number of Soviet displaced persons from camps in Rimini and Pisa killed or wounded in course of forcible repatriation at Bologna on or about 10th May.
  Mr. Bevin: My information is that there were no British soldiers, no United States soldiers and no Soviet displaced persons either killed or wounded in the operation to which my hon. Friend refers.
  Mr. Stokes: Does the term "displaced persons" in the answer include also ex-prisoners of war?
  Mr. Bevin: Yes, Sir.
  Mr. Stokes: Is my right hon. Friend aware that my information comes from Reuters correspondent, who is usually very authentic? I will supply my right hon. Friend with details if he will look into them.
  Mr. Bevin: I shall be very glad to get details if they controvert the facts given to me. I understand that nothing happened in this case. I have great respect for Reuters, but I cannot accept the report my hon. Friend has as final.
  Mr. Nicholson: Can the right hon. Gentleman tell the House how often these operations take place? Is he aware that the whole idea of repatriating people to any country against their will is foreign to this country?
  Mr. Bevin: It is abhorrent to this country. On the other hand, I cannot allow these people to exploit that fact. Really, we are carrying a very great burden. I am willing to give asylum to the utmost, but I cannot tolerate people exploiting it by being permanently on our backs.
  Mr. Nicholson: May I ask if the right hon. Gentleman would give us this amount of consolation—that we do not forcibly repatriate people who thus would be sent back to certain death?
  Mr. Bevin: I do not think we have done that. We have had cases where citizens of particular countries have committed suicide rather than go back. But on the basis of the Yalta Agreement my duty is quite clear.
  Mr. Stokes: In view of the very unsatisfactory situation, and of the fact that the Foreign Office do not seem to know the facts, I beg to give notice that I shall raise this matter on the Adjournment at the earliest possible moment.

  AUSTRIA

    German Assets
    Professor Savoryasked the Secretary of State for Foreign Affairs whether the British representative on the Austrian Treaty Commission has now been successful in his demand that a committee of experts, as laid down at the Moscow Conference, should examine the details of German assets in Austria.
    Mr. Bevin: I regret that up to the moment it has not yet been possible to obtain agreement with the Soviet Delegation in the Treaty Commission at Vienna on the terms of reference to enable the

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    Committee of Experts to get to work on the establishment of concrete facts relating to German assets in Austria, and so to carry out the intention of the agreement on this subject reached at Moscow. The discussions are continuing.
    Professor Savory: Is not the right hon. Gentleman aware that the vast proportion of these so-called German assets consists really of bona fide Austrian assets confiscated by the Nazis?
    Mr. Bevin: Well, that is a very disputable point. The hon. Member had better wait for the facts.

    Carinthia (Protection)
    Professor Savoryasked the Secretary of State for Foreign Affairs whether he is aware of the anxiety of the inhabitants of Carinthia, who are in daily fear of a Yugoslav invasion of this frontier province; and whether the British representative on the Austrian Control Commission has been given instructions to reassure the Austrian people that this Austrian province in the British zone will receive adequate protection.
    Mr. Bevin: I am aware that rumours of possible Yugoslav incursions have lately been prevalent and have produced some nervousness in Carinthia. I am informed, however, that this nervousness has now decreased as a result of the firm attitude of the three Western Powers during the Moscow Conference to the Yugoslav claims. The British Information Services in Austria have made the position of His Majesty's Government clear to the Austrian people, and it would seem unnecessary to instruct the High Commissioner to take any further action. The situation will, however, continue to be carefully watched.
    Professor Savory: Many thanks.

  ASIA AND FAR EAST (ECONOMIC COMMISSION)
  Mr. Rees-Williamsasked the Secretary of State for Foreign Affairs who is to be the British representative on the Economic Commission for Asia and the Far East, which is due to meet at Shanghai on 16th June; what are the terms of reference of the Commission; and what is the agenda for this meeting.
  Mr. Bevin: The United Kingdom representative is Sir Andrew Clow, formerly secretary of the Industries and Labour Department of the Government of India. He was latterly Governor of Assam. The terms of reference of the Commission, which are still subject to alteration or addition, provide that it shall initiate and participate in measures for facilitating concerted action for the economic reconstruction of Asia and the Far East; make or sponsor investigations and studies of economic and technological problems and developments; and collect appropriate economic data. The full text is being placed in the Library of the House, together with the provisional agenda of the first session. The first session will be largely concerned with procedural matters.
  Mr. Harold Davies: Is my right hon. Friend aware that we cannot get economic stability in the Far East until the nations who participated in the war come to some agreement with regard to the issue of reparations from Japan; and, while I gather from my right hon. Friend that this will be taken into account by this Economic Commission, will he say whether it would be or would not?
  Mr. Bevin: I am afraid that does not arise out of the Question. If I am to deal with reparations from Japan I should like notice. My hon. Friend should put down a Question about it, because that is a separate subject.
  Mr. John Paton: Will my right hon. Friend take steps to ensure that adequate reports of the proceedings of the Commission will also be placed in the Library?
  Mr. Bevin: Yes, Sir.

  JAPANESE GOVERNMENT (POLICY)
  Mr. Rees-Williamsasked the Secretary of State for Foreign Affairs what steps he is taking, through our representative on the Allied Council, to assist the new Japanese Ministry in putting into practice the announcement by Mr. Chozaburo Mizutani, Minister of Commerce, that the policies of the British Labour Party will form the basis of his own party's political philosophy.
  Mr. Bevin: The function of the Allied Council is to advise the Supreme Commander for the Allied Powers, not the

  1055
  Japanese Government. It is the responsibility of the Supreme Commander to ensure that Japan fulfils her obligations under the Terms of Surrender, but not to intervene in matters of Japanese internal politics except in so far as intervention may be necessary in order to secure the objectives of the occupation.
  I am not, therefore, contemplating taking action on the lines envisaged by my hon. Friend. However, it is the policy of His Majesty's Government always to make information available to progressive forces in other Countries who look towards this country for an example. The Head of the United Kingdom Liaison Mission in Tokyo is kept fully supplied with material illustrating the trends and policies of social development in this country. He is able to make effective use of this material through his information officers.
  Mr. Rees-Williams: In view of the fact that the Supreme Commander in Japan is an Allied Commander and not an American Commander, and in view of the fact that we are responsible for what is happening in Japan, would it not be a good thing for our representative there to make the feelings of the people of this country quite clearly known to the Japanese Government?
  Mr. Bevin: I think we are doing that, but that is a different thing from intervention.

  U.S.A. (BRITISH CONSUL GENERAL, CHICAGO)
  Mr. Osborneasked the Secretary of State for Foreign Affairs if he will appoint a person of high qualifications to the vacant post of Consul-General in Chicago, in view of the great opportunities for British trade in the Middle West.
  Mr. Bevin: Yes, Sir. I agree about the importance of this post, and I hope shortly to make a new appointment.
  Mr. Osborne: Will the right hon. Gentleman bear in mind the fact that the people of Chicago feel that the important British visitors go only to Washington and New York; and will he see that that area, which could provide a lot of trade, will be looked after?
  Mr. Bevin: Yes, Sir. I have been giving consideration to both this and the
  1056
  question of the information services, and the whole re-organisation of our methods in the Middle West, and particularly on the West Coast.

  EUROPEAN COUNTRIES (ECONOMIC PROGRAMME)
  Mr. Warbeyasked the Secretary of State for Foreign Affairs (1) whether he will give an assurance that the United Kingdom is prepared to join with other European countries in the drawing up of a combined programme of import credit requirements for 1948 and subsequent years, with a view to the presentation of joint proposals to the U.S.A. and any other country willing to make loans for economic recovery;
  (2) whether he will propose to the second session of the Economic Commission for Europe the appointment of a special committee to study the import requirements of the European countries during the next few years, with a view to the drawing up of a combined programme for European economic recovery as a basis for requests for external financial assistance.
  (3) whether he will propose to the second session of the Economic Commission for Europe the appointment of a special committee to study the respective national economic plans of the European member nations of the commission, including the United Kingdom and the U.S.S.R.; and to make recommendations for their co-ordination in the common interest.
  Mr. Bevin: These matters are at the present moment under the urgent consideration of His Majesty's Government and I am not vet in a position to make a statement. My hon. Friend will, no doubt, Shave seen the official statement on Mr. Marshall's speech at Harvard which was given to the Press on 6th June.
  Mr. Warbey: When my right hon. Friend is considering his statement, will he bear in mind that the offer made by Mr. Marshall presents a great opportunity for British initiative to overcome the present economic divisions in Europe; and will he consider making it clear that Britain is prepared to play her part in such a combined European effort, on condition that there is no exclusion of any country on political or ideological grounds?
  Mr. Bevin: Yes, Sir, if that is reciprocal.
  Sir Arthur Salter: Will the right hon. Gentleman, in following up Mr. Marshall's proposals, be careful to choose a procedure which will reduce to the minimum the risk of delay or deadlock?
  Mr. Bevin: Yes, Sir. This question of following up Mr. Marshall's proposals is a very delicate subject. It not only has an effect on Europe, but I need not remind the House that we have a problem of our own coming upon us very shortly.

  HUNGARY (POLITICAL SITUATION)
  Mr. Blackburnasked the Secretary of State for Foreign Affairs whether he will send a further note to the Soviet occupation authority in Hungary demanding a public investigation into the alleged plot on the part of M. Nagy, former Prime Minister of Hungary, to overthrow his own Government.
  Mr. Bevin: I am not yet in a position to add anything to the reply given to my hon. Friend the Member for Norwood (Mr. Chamberlain) on 9th June.
  Mr. Blackburn: May I ask the Foreign Secretary to press hard and quickly for these facts, which should have been furnished to him long ago, so that the people of Britain and Europe may make up their own minds whether they are witnessing a revival of totalitarian power?
  Mr. Bevin: I have asked our Ambassador to see the Soviet Foreign Minister. When I left the office telegrams were coming in, but I have not had time to read or study them in the last half hour.
  Mr. Eden: In view of that and the concern of the House to be fully informed as soon as possible, will the right hon. Gentleman consider making a statement, perhaps tomorrow, after he has had time to examine the reports.
  Mr. Bevin: Yes, Sir.
  Mr. Gallacher: Will the right hon. Gentleman also consider sending a note to M. Nagy advising him to return to his country and challenge his accusers?
  Mr. Bevin: I could not send that advice without having a preliminary guarantee of security from another country.
  Several Hon. Members—
  Mr. Speaker: I gather that a statement is to be made tomorrow. In view of that it is surely a mistake to put further questions.

  BULGARIA (M. PETKOV, ARREST)
  Mr. M. Philips Priceasked the Secretary of State for Foreign Affairs what action he is taking in connection with the arrest of Mr. Nicola Petkov, the deputy of the Bulgarian Parliament, in view of Bulgaria's obligations under the peace treaty.
  Mr. Blackburnasked the Secretary of State for Foreign Affairs what action His Majesty's Government are taking, by diplomatic note or otherwise, in respect of the recent arrest of M. Petkov, the leader of the opposition in Bulgaria, in view of the clause in the Bulgarian peace treaty providing for freedom of speech and political association.
  Mr. Bevin: The British Political Representative in Sofia sought an interview with the Bulgarian Prime Minister on 7th June, and stressed the concern which would be felt in this country at the arrest of a respected public figure such as Monsieur Petkov, whose courageous attitude during recent years should have won him the respect even of his opponents. Monsieur Dimitrov gave the British Political Representative his personal assurance that not one hair of Monsieur Petkov's head should be harmed while he was under arrest, and that he would receive good treatment in prison. He stated that the trial would be public, that Monsieur Petkov would have access to his legal adviser and that no torture or other means of physical coercion would be employed. In these circumstances His Majesty's Government can only await the formulation of the charges to be brought against Monsieur Petkov. Meanwhile I can state-that this arrest, following on the suppression of the two remaining opposition Bulgarian newspapers and other measures to deprive their political opponents of their freedom of action, has aroused serious anxiety in the mind of His Majesty's Government lest it may be the intention, of the Bulgarian Government to extinguish the last vestiges of liberty in Bulgaria. Nevertheless, I hope that in spite

  1059
  of these disturbing developments, the Bulgarian Government will realise how greatly the respect in which they are held abroad will depend upon their abiding by the undertakings which they will shortly assume under Article 2 of the Peace Treaty.
  Mr. Philips Price: Has the right hon. Gentleman any information as to the nature of the charges being made against Mr. Petkov?
  Mr. Bevin: No, Sir. That is one of the troubles in these cases; it is so difficult to get the charges.
  Major Cecil Poole: In view of the fact that freedom is in process of disappearing in South-Eastern Europe, does not the Foreign Secretary deem it wise to make it known to the world that this Government's policy is to give support only to democratic governments freely elected by a free vote, irrespective of the political complexions of those governments?
  Mr. Bevin. That certainly has been our policy. I do not care whether it is a Communist, Socialist, Conservative or any other form of government. What we want is a government which is freely elected, and able to conduct the business of government without foreign interference.
  Mr. Blackburn: In view of the fact that Mr. Petkov's follower in the Bulgarian Parliament, M. Koev, was tortured for three month3 will the right hon. Gentleman instruct our Ambassador to watch this case very closely to see that we do all that is possible for this very brave man?
  Mr. Bevin: I have already instructed him to do that. I regard this as a test case.
  Major Mott-Radclyffe: Does not the Foreign Secretary agree that the arrest of M. Petkov so soon after the signature of the Peace Treaty gives the unfortunate impression that the Bulgarian Government are paying scant attention either to the spirit or letter of that Treaty?
  Mr. Mack: In view of the fact that there is nothing known about the charges against M. Petkov, and of the fact that M. Dimitrov, the great leader of the working classes and present Prime Minister, has given an assurance that this will be a free and open trial, is it not wrong to approach this matter by casting aspersions on the gallant Bulgarians?
  Mr. Eden: Is not the position in this country that no one objects to charges being brought against any individual, but with our own sense of justice, we like to know what these charges are and to see the individuals fairly and freely tried?
  Mr. Bevin: Two points arise from these questions. I would say this to my hon. Friend. I hope that Bulgaria will not be misled by him or others as to the real character of the British people.
  Mr. Mack: That is a cheap gibe.
  Mr. Bevin: I assure my hon. Friend that it is not a cheap gibe.
  Mr. Mack: It is most unworthy of the right hon. Gentleman.
  Mr. Bevin: I have great difficulty when dealing with these countries to get them to believe that we are adopting a different attitude from that which some would lead them to suppose, and I ask my hon. Friend to have regard to that fact. With regard to the prosecution, I have asked that the charges shall be named and that the trial shall be fair. I hold no brief for anyone who acts against the State, either in this country or any other country, but what I am anxious about is that—having signed the Treaty, although it is not yet ratified, the spirit of the Treaty shall be given effect to.

  PALESTINE (POLICE FORCE)
  Mr. William Teelingasked the Secretary of State for the Colonies whether he has yet been able to reach a decision with the Government of Palestine about ex-members of the Palestine Police Force receiving a free credit of unemployment insurance contributions.
  The Secretary of State for the Colonies (Mr. Creech Jones): I have carefully considered this matter in consultation with the High Commissioner for Palestine. There are wide differences in the terms of service of the Palestine Police as compared with those members of the Armed Forces who are entitled to a free credit of unemployment insurance contributions on discharge. Their pay and allowances are very much higher than in the Services, and they have the option of continuing with the Force on a long-term basis if they so desire. Moreover, they serve

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  under civilian contract with the Government of Palestine and are, therefore, properly classed for this purpose with other civilians employed outside the United Kingdom, to whom no such concession in regard to unemployment insurance contributions applies. In these circumstances, it has not been thought necessary to arrange for a free credit of unemployment insurance contributions to members of the Palestine Police Force.
  Mr. Teeling: Does the right hon. Gentleman realise that his answer will cause considerable disappointment, not only to ex-policemen from Palestine, but also to those who are now serving, and who ought to be receiving the greatest possible support from him?
  Mr. Creech Jones: I appreciate the magnificent work these men are doing, but if the hon. Member will study my reply I am sure he will agree that there is a very real difference between military service and the police force.
  Mr. Hogg: Is not the right hon. Gentleman aware that only recently there was a widespread poster campaign in this country, urging people to do their national service with this Force? As some may have been misled by that campaign, will tie see that any who may have done so are given terms equivalent to those in national service, or at least as good?
  Mr. Creech Jones: I do not accept the hon. Member's suggestion, and I think he must be under a complete misapprehension in regard to the terms of employment of members of this Force.

  SINGAPORE (WAR PRISONERS' CLAIMS)
  Mr. Gammansasked the Secretary of State for the Colonies why he has not replied to the representations made to him by the War Prisoners (Singapore) Association; and what action he proposes to take regarding the claims made by this organisation.
  Mr. Creech Jones: I regret that no reply has been made to this Association, and I am doing all possible to expedite this matter. I am in communication with the Governor of Singapore on the subject.
  Mr. Gammans: Cannot the right hon. Gentleman get this fixed up quickly?
  1062
  Would he not agree that it is most unsatisfactory that this grievance should go on for well over 18 months?
  Mr. Creech Jones: I appreciate that it is extremely unsatisfactory that no reply has been given to this Association until now.
  Major Beamish: What is the nature of these grievances?
  Mr. Creech Jones: Perhaps the hon. and gallant Member will put that question on the Order Paper.

  SIERRA LEONE (UNEMPLOYED, FREETOWN)
  Mr. D. Marshallasked the Secretary of State for the Colonies how many unemployed persons are there at Freetown; and what plans have been made with regard to the rehabilitation of these men in the vicinity of Freetown who served in His Majesty's Forces during the war.
  Mr. Creech Jones: Because of the length of the answer, I will with the hon. Member's permission circulate it in the OFFICIAL REPORT.
  Following is the answer:
  At the end of May, 2,700 unemployed persons were registered at the Freetown Employment Exchange. In addition it is estimated that about 2,000 general labourers and stevedores, whose attendance at the exchange is irregular, are on the look-out for casual employment in Freetown. Of the 2,700 registered unemployed, 1,138 are ex-Service men. Most of them are unskilled labourers and nearly all are villagers from the Protectorate who have returned to Freetown in search of work, after being repatriated to the Protectorate on demobilisation. I understand that employment is available for them in the Protectorate, either at their prewar occupation of farming, or on development works. The same is true of most of the 2,000 casual labourers.
  The resettlement of ex-Service men with a claim to employment in the Freetown area was, to all intents and purposes, completed some time ago, although there are still some seamen for whom there is inadequate employment in the Merchant Marine. Under local legislation ex-Service men have the first claim on

  1063
  vacancies and new work, but it is not possible to provide wage-earning employment in Freetown for the considerable number of ex-Service men from the Protectorate who were not normally so employed before the war. Throughout the process of demobilisation and resettlement the Sierra Leone Government have always emphasised the need for such men to return to their farms.

  MINISTRY OF DEFENCE

    Non-Warlike Stores (Standardisation)
    Mr. D. Marshallasked the Minister of Defence how many committees are at the moment dealing with matters concerning the standardisation of non-warlike equipment.
    The Minister of Defence (Mr. A. V. Alexander): There are numerous Departmental and inter-Departmental bodies dealing with the standardisation of particular categories of non-warlike stores used by the Services. I have recently appointed a Joint Non-Warlike Stores Standardisation Committee to give some central direction to the study of this matter, and to co-ordinate the activities of these bodies.
    Mr. Marshall: Is the right hon. Gentleman aware that there are over 70 committees dealing with this subject at the present time?
    Mr. Alexander: We are not dealing with a central subject. There may be a number of small expert committees dealing with the many particular commodities which require standardisation.
    Mr. Stokes: Whatever the number of committees involved, will my right hon. Friend assure us that standardisation will not lead to disastrous consequences in design, as it so often does?
    Mr. Berry: Will my right hon. Friend avail himself of the services of the British Standards Institution, which has done such marvellous work in this direction?
    Mr. Alexander: I think my Department is in close touch with that Institution.
    Mr. Usborne: What is the definition of, "non-warlike equipment," if it comes under the jurisdiction of the Minister of Defence?
    Mr. Alexander: It covers such items as military clothing, boots and shoes, and perhaps nuts and bolts.

    Reserved Hotel Accommodation, Copenhagen
    Mr. Gammansasked the Minister of Defence how many rooms are being reserved in the tourist and other hotels in Copenhagen; and when it is expected that this accommodation will be released.
    Mr. Alexander: I am informed that four British Naval officers and 40 Army officers are at present living in requisitioned accommodation in the Tourist Hotel, all of which is being vacated on 1st July. The Tourist is the only hotel in Copenhagen occupied by British Service personnel.

  FOOD SUPPLIES

    Cheese
    Mr. Spenceasked the Minister of Food what quantities by weight, of cheese were available for civilian consumption from home production and by importation, respectively, for each of the following years: 1944, 1945, 1946, and for the period June, 1946, to June, 1947.
    The Parliamentary Secretary to the Ministry of Food (Dr. Edith Summerskill): As the answer contains a number of figures, I will, with the hon. Member's permission, circulate it in the OFFICIAL REPORT.
    Following is the information:
    The figures are given in lbs. per head per year, as this is the most convenient form of comparison:

    CIVILIAN CONSUMPTION OF CHEESE IN LBS. PER HEAD PER ANNUM.

    —

    Home Produced.

    Imported.

    Total.

    1944

    0·7

    9·6

    10·3

    1945

    1·1

    8·6

    9·7

    1946

    1·2

    8·8

    10·0

    1946–1947

    1·1

    8·1

    9·2

    Fats and Oils
    Mr. Spenceasked the Minister at Food the relative amounts of fats and edible oils, including butter, in lbs. of equivalent fat content available per capita per year, for the average of the years 1934–38, and for the year 1946–47.
    Dr. Summerskill: I would refer the hon. Member to the answer given to his similar Questions on 4th June.
    Mr. Spence: Could the hon. Lady say when the further information will be printed and made available to the public?
    Dr. Summerskill: I am sorry I cannot give a definite date, but it will be very shortly.

    Consumption (Domestic Survey)
    Mr. Spenceasked the Minister of Food what is the basis of his Department's survey of the consumption of food in homes; whether the sample covers persons living alone; what is the size of the sample; whether he is satisfied that the sample is taken at random; and how it compares with the survey of the spending habits of 12,000 working-class families undertaken by the Ministry of Labour in 1936–37.
    Dr. Summerskill: The basis of the survey is to obtain information on the food supply of working and middle class homes. Each month a sample of about 900 families, including people living alone, is taken at random. The Ministry of Labour survey was taken in 1937–38 to provide information for the revision of the cost-of-living index. This gave for January, 1938, an average expenditure on food eaten in the home of 8s. 9d. per head per week. Our present survey gave an average of 11s. 1½d. in January, 1947. It is essential, however, to remember that these figures are not comparable. The two surveys differed in method and purpose; there have been changes in eating habits since 1938, and, also, various price changes have occurred. These, together with rationing, welfare schemes, and changes in the types of food available, have affected the pattern of the diet.
    Mr. Spence: Will the hon. Lady consider making available to Members of the House, either by way of publication or in the Library, a precis of the monthly survey? Does she not think that it would be most valuable at the present time, when there is so much criticism of our diet?
    Dr. Summerskill: If any Member would like a copy I will certainly let him have one.
    Mr. S. Silverman: When my hon. Friend talks of changes in eating habits, does she include the acquisition of the habit of eating, which was almost lost by millions of our people before the war?
    Dr. Summerskill: Yes, Sir.

    Tea Contracts, Uganda
    Sir Waldron Smithersasked the Minister of Food in view of the fact that one factory alone in Uganda produces enough tea to supply 65,000 people with two ounces per week, for one year, and that the growers there prefer to help Britain than to sell at higher prices elsewhere, why he has recently refused to renew contracts with tea growers in Uganda.
    Dr. Summerskill: The hon. Member appears to have been misinformed. My right hon. Friend has not refused to renew contracts with tea growers in Uganda.
    Sir W. Smithers: Has a contract been obtained?
    Dr. Summerskill: We have offered to buy all the tea offered to us in British East Africa. Uganda is rather slow in tendering, but we are prepared to take anything she offers.
    Sir W. Smithers: Would not the difficulty be overcome by letting Mincing Lane do the job?

    Cohune Nuts
    Mr. Skinnardasked the Minister of Food if he will consider the possibility of making extensive use of the cohune nuts which grow wild in British Honduras in large quantities, as an alternative Empire source of vegetable fats.
    Dr. Summerskill: The cohune kernel is enclosed in a thick shell so hard that no satisfactory large-scale method has been devised for removing it. Of the whole nut, only about 7 per cent. is oil.
    Viscount Hinchingbrooke: Is that a description of the Minister of Fuel and Power?

    Cattle (Rail Transit)
    Mr. Peter Freemanasked the Minister of Food whether he is aware that 30 head of cattle, carried in three trucks, recently spent 37 hours on a railway journey from Fakenham, Norfolk, to Aldershot; that this journey took much longer than it

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    should have done; that on arrival at Aldershot one beast was found to be dead and all showed a great degree of fatigue and distress; that due to the filthy state of the 'trucks the battens fitted to prevent the animals slipping were ineffective; that there is no evidence that the animals were fed and watered during the journey; and whether, to avoid such cruelty to cattle in the future, he will arrange to slaughter the animals at the markets and distribute the carcases.
    Dr. Summerskill: I presume that the Question relates to 30 cattle despatched from Fakenham to Aldershot on 8th May. These were watered and received attention at Feltham, and there is no evidence to show that the trucks used were not in the usual clean condition when the animals were loaded. The time spent in transit was too long, and my right hon. Friend the Minister of Transport is examining, with the Railway Executive Committee, what steps can be taken to avoid a recurrence. I am afraid that the suggestion that animals should be slaughtered at the market, and the meat distributed in carcase form, is impracticable.
    Mr. Freeman: Is my hon. Friend aware that in one of the other trucks some cattle were lying on the floor, and were trampled on by others, causing considerable cruelty? This is not an isolated instance. Would she instruct the police to take more effective action, and ask the railway companies to take steps to prevent incidents like this?
    Dr. Summerskill: This is a matter for the railway companies; we are awaiting their report.

    Imported Carrots
    Mr. Jannerasked the Minister of Food whether he is aware of the grievance of United Kingdom merchants arising from the inaccurate information given by his Department about the ending of the period for the importation of new carrots; and why, in view of the fact that the Rotterdam merchants had been advised officially from London that the period was to be extended for two or three days, similar official information was not given to United Kingdom merchants interested in such importation.
    Dr. Summerskill: The period of importation ended on the 31st May, but as it was learned that some consignments which had already been bought could not arrive here until two days later, the shippers were notified that they would be accepted. It is regretted that this information was not at the same time communicated to merchants on this side, but I must point out that the concession was made to help those already committed and not to permit new business.
    Mr. Janner: Will the hon. Lady take the necessary precautions in future to see that this kind of incident does not occur again, because it places British importers in a very difficult position?
    Dr. Summerskill: Yes, Sir.
    Mr. Walkden: In view of the fact that there is still a shortage of carrots and other spring produce, why should we refuse to accept anything that Holland can produce in the way of food?
    Dr. Summerskill: Because the crops in Holland at the moment are infested with Colorado beetle.

EQUAL PAY (GOVERNMENT POLICY)
The Chancellor of the Exchequer (Mr. Dalton): His Majesty's Government desire to thank the members of the Royal Commission on Equal Pay for their valuable Report. This Royal Commission was not asked to make recommendations. Their terms of reference—I quote—were:
"To examine the existing relationship between the remuneration of men and women in the public service, in industry, and in other fields of employment."
and
"To consider the social, economic, and financial implications of the claim of equal pay for equal work."
The Government are, of course, primarily concerned with the problem of equal pay for equal work within the field of public employment, and especially in the non-industrial Civil Service, the local government service, and the teaching profession, but, in the Government's view, there could be no question of confining equal pay to these occupations. Its introduction in industry and in other professions would inevitably follow.
As a broad affirmation of a general principle, the Government accept, as regards their own employees, the justice of the claim that there should be no difference in payment for the same work in respect of sex. But such acceptance leaves unsettled many difficult questions of interpretation. It also leaves open the very important practical question of when effect should be given to this principle, and over what range of cases. The Government are definitely of the opinion that this principle cannot be applied at the present time. In making proposals to Parliament for incurring additional expenditure and for extending the social services, the Government must be the judge of priorities.
In the light of the Royal Commission's Report, the estimated cost of the immediate introduction of equal pay in the public services alone would be more than £24 million a year—that is to say £10 million for the Civil Service, £11 million for teachers, and £3½ million for other local government staffs. Of this total, some £16 million would fall on the Exchequer, and the rest upon the rates. The cost of equal pay for teachers would gradually rise by a further £6 million a year. When the National Health Service comes into force, the Exchequer will take
1070
over the cost not only of the local government nurses, for whom equal pay would cost £2,750,000 out of the £3½ million already mentioned, but also of the voluntary hospital nurses, for whom it would cost a further £5 million a year.
The cost of equal pay for all these public services would, therefore, be about £35 million a year, of which at least £8 million would fall on local authorities. This would be equivalent to an average rate of about 6d. in the £, and a good deal more in the poorer areas. In addition, the cost of equal pay for women in the Armed Forces would be between £3 million and £6 million a year. Moreover, if the pay of unmarried women were raised to equality with that of married men, a married man with a family would be left in a relatively worse economic position than any other section of the community, and there would undoubtedly be claims, which might soon be of universal application, for a system of occupational family allowances. The cost of these right well reach a very high figure.
This heavy burden on the Exchequer and local rates would be increased, as equal pay extended to the industrial employees of the Crown and of the local authorities. At the same time the new public boards and the whole body of occupations and trades in private industry would also have to face heavy expenditure on equal pay, with the result of a further increase in production costs, without any assurance of a compensating increase in production.
The Government do not consider that this is the time when it would be in the national interest for these additional burdens to be undertaken. With the authority of Parliament, the Government are now pressing forward with important developments of the social services and with plans for redistributing more justly the purchasing power of the people. Family allowances have been introduced, a National Health Service is being established, new schemes of national insurance and public assistance are being brought into effect. The Government are proud of these achievements, but their cost is substantial, and some limit must be set to the rate at which new projects, involving fresh expenditure, can be undertaken. One of the principal factors fixing this limit is the rate at which production ex-

1071
pands. So long as there is no corresponding increase in output, any step which adds to the total of money incomes is wholly inflationary in its consequences, and thus tends to cancel through higher prices the gains already conferred.
The introduction of equal pay in the services for which local authorities are responsible would also necessitate reexamination of the relation between national and local finance, and so might postpone the much-needed reforms in this field which the Ministers of Health and Education are now discussing with the representatives of the local authorities.
This then, in the view of the Government, is not the time to introduce equal pay in the public service. This question should be further examined at a later date, in the light of the development of social policy and of the economic and financial circumstances of the country.
Mr. W. J. Brown: In view of the fact that it is now 26 years since the men and women in the clerical, executive and administrative grades in the Civil Service were put into a common class, recruited by a common examination at a common age, and were employed interchangeably on common work, does the Chancellor think that there is any point in his saying that the Government accept the principle of equal pay, when, after 26 years, they propose to do nothing about it?
Mr. Dalton: I think we must distinguish between one Government and another. I am not concerned today with what any past Governments may have said, I give the view of His Majesty's present Government, who have been in office for a comparatively short time. In that time they have performed tremendous benefits to all sections of the community, including women. It has been a peaceful revolution in this country in which the majority are behind us; we are setting up a social security system second to none in the world, and the view of the Government is that we must assimilate this great wave of social improvement first before we go forward.
Miss Jennie Lee: Is the Chancellor aware that the problem which really confronts us at this moment is the danger that both the wages of women in industry and the salaries of professional women will fall if there is any reduction in real
1072
money wages, and, therefore, cannot he reconcile the just and impatient demands of women that they should be paid the same amount when they are doing the same work as men by putting the emphasis on the principle that for every pound of additional money put into circulation at the present moment, there should be a corresponding increase in production, which I suggest means that the emphasis should lie on incentives? In the cotton mills, where the rate for the job applies, the incentives are inadequate.
Mr. Dalton: I am sure the hon. Lady has most admirably expressed the views many of us take in this matter. In the case of the cotton industry, equal pay for equal work has applied for a great many years, yet we are still short of operatives, particularly in the spinning section. The sooner we get them in, the sooner we shall be better clothed and able to export more textile articles.
Mr. Hogg: Is the right hon. Gentleman aware that, not for the first time, he has claimed the credit for a number of social improvements agreed to during the time of the Coalition, and does not his answer mean that the principle of equal pay for equal work, like other social advances, will have to wait for the return of a Conservative Administration?
Mr. Dalton: If that were indeed so, I should despair of this principle ever being put into operation.
Mrs. Castle: Is my right hon. Friend aware that while the women affected by his statement fully appreciate the economic difficulties which face the country, they will be deeply disappointed by the suggestion that they alone should be expected to forgo any satisfaction of.a just claim so long as inflationary pressure lasts, and will he not consider making a partial beginning by one or other of the methods which have been put to him from various quarters, in order to distinguish this Government from previous Governments, which have had the opportunity but have not made use of it?
Mr. Dalton: I think there are already sufficient grounds for distinguishing between what we have done in our short term of office and what others were able to do in much longer periods.
Mr. Frank Byers: Since the introduction of equal pay for equal work depends

1073
on increased production, is it not about time that the Government produced a proper plan for increasing production?
Mr. James Callaghan: As the Chancellor's twin objections are cost and inflation, will he consider putting into force at some future date a scheme which would cost very little and would not create inflationary pressure, for example, by giving the women the men's rate of increment, which in the case of the Civil Service would mean giving them four shillings a week instead of three shillings? It would cost very little and would not raise the inflationary bogy.
Mr. Dalton: I am always ready to discuss with my hon. Friend, or with hon. Members in any part of the House, any constructive suggestions in matters of public policy. That is a new one on me.
Mr. David Eccles: In view of the fact that all parties are agreed on the principle of the rate for the job, and in view of what the Chancellor has said, is not this wrongly described as a social service? Is it not a question of economics, or whether it is good for the production drive or not? As the whole matter is extremely complicated and many of us do not believe that the Chancellor's arguments would stand up to criticism, may we have a Debate on the subject in the House?
Mr. Dalton: That question should be addressed to my right hon. Friend the Leader of the House.
Mrs. Leah Manning: In view of the very great disappointment that the Chancellor's statement will mean to millions of women in this country, may I press him to make, at a very early date, some gesture such as has been suggested by my hon. Friend the Member for South Cardiff (Mr. Callaghan), namely, to put women on the men's scale of increments, which would cost very little and would not lead to inflation?
Mr. Dalton: I can only repeat what I have already said. I am always most willing to confer with any hon. Member of this House on contributions which they can make. This is a new suggestion and I shall be very happy to look at it, but that must not be taken as diminishing the emphatic statement I have made on behalf of His Majesty's Government that this is not the time tot assuming heavy additional burdens.
Mr. Frederick Lee: Is the right hon. Gentleman aware that in certain skilled industries there is reluctance on the part of the men to teach the women the most skilled jobs, because of their unfortunate experience in the past, which indicates that women may be used as cheap labour?
Mr. Dalton: I think I would rather confine myself this afternoon to the question of the views of His Majesty's Government.
Mrs. Middleton: While recognising fully the economic arguments put forward by the Chancellor, I would like to ask him whether he has taken into consideration any system of deferred credits, by which when production reaches the level which we hope and believe it will before long the women will have made up to them what they are losing at the present time by the deferment of equal pay?
Mr. Dalton: I have no ministerial responsibility for the system of postwar credits for Income Tax. If I had, it is conceivable that that system would never have been introduced, as I regard it as being administratively very difficult. I hope we shall not go any further in putting out these post-dated cheques, post-dated without any reference to the situation as it may be when the cheques fall due for payment.
Mrs. Nichol: Is my right hon. Friend aware that while it may be true that the rate for the job is paid in the cotton textile industry, that state of affairs does not apply to the woollen industry, and that there is a great desire on the part of the men in the woollen industry that there should be the rate for the job?
Mr. Dalton: They have only to follow the example of the cotton industry. They are free to do so.
Mrs. Ayrton Gould: Is the Chancellor aware of the disappointment which will be felt because he is giving no assurance of any kind that the principle to which the Government are bound will not be implemented, even in the smalle part, in any measurable time?
Mr. S. Silverman: In view of my right hon. Friend's reference to the cotton industry, does he appreciate that the reluctance of women to return to the industry, which is not being overcome, is not due to the fact that they get equal pay, but that the pay, though equal, is very low?
Mr. Dalton: That illustrates the possibility that perhaps we attach undue importance to the principle now under discussion.
Mr. W. J. Brown: Admitting that the cost of applying equal pay in the public service immediately would be very large, is the Chancellor aware that many years ago proposals were made to the Exchequer whereby equality would be attained by stages, spread over a period of years, and if it is impossible to apply it altogether immediately, would the right hon. Gentleman be kind enough to disinter those proposals from the pigeon-holes of the Treasury and see if he can help us in that direction?
Mr. Dalton: I am always prepared for historical research in old files.
Mr. Usborne: Is it not a fact that there is unnecessary confusion on this issue, because we seem to use two definite phrases meaning two different things indiscriminately—"equal pay for equal work" and "the rate for the job"? Is it not the rate for the job we want to establish, regardless of sex, and not equal pay for equal work, which means a totally different thing?

ORDERS OF THE DAY

  FINANCE BILL
  Considered in Committee [Progress, 10 th June].
  [Major MILNER in the Chair]
  Clauses 19 and 20 ordered to stand part of the Bill.

  FINANCE BILL

    CLAUSE 21.—(Amendment of s. 4 of Income Tax Act, 1945.)
    Motion made, and Question proposed, "That the Clause stand part of the Bill."
    3.50 p.m.
    Captain Crookshank: May we have some little explanation of these difficult questions? Perhaps the Financial Secretary to the Treasury will tell us about Clause 21. If the Chancellor of the Exchequer does not know, that is my justification for asking.
    The Financial Secretary to the Treasury (Mr. Glenvil Hall): Clause 21 makes an Amendment to Section 4 of the Income Tax Act, 1945. It removes a defect under Part I of that Act which relates to allowances which can be given in respect of industrial buildings. It has been discussed with representatives of industry, and they have agreed to the provisions of this Clause and its inclusion in the Bill. As the law stands, it is possible that a total allowance may be given in respect of a part of the cost of a building, and that, of course, would not be fair to other taxpayers. It can be given by way of an allowance for the year 1946–47 under Section 19 of the Finance Act, 1941, which relates to seasonal depreciation, and also by way of an allowance under Part I of the Income Tax Act, 1945, which we now hope the Committee will agree to amend, and thus close this particular gap.
    Question put, and agreed to.
    Clause ordered to stand part of the Bill.

    CLAUSE 22.—(Exemption from income tax of gratuities payable to certain women who re-engage in the Women's Services, etc.)
    Motion made, and Question proposed, "That the Clause stand part of the Bill."
    Mr. Oliver Stanley: I hope the Chancellor will have a word to

    1077
    say on Clause 22 in view of the fact that it deals with another aspect of women's rights. In this case he has found himself able to give them some, assistance, and it would be interesting to know on what ground he has based this preferential treatment for this one class of State women employees.
    Mr. Glenvil Hall: It is not preferential treatment. Actually it is bringing the women in the Forces into line with the men. The Committee will remember that last year we exempted from Income Tax the gratuities and bounties payable to the men in the Forces. We propose to apply the same principle to the women's gratuities. The question of exempting the bounty does not arise because they do not get it.
    Mr. David Eccles: I cannot let this Clause pass without suggesting that the same principle might be extended to the women who are employees of corporate bodies.
    Question put, and agreed to.
    Clause ordered to stand part of the Bill.

    CLAUSE 23.—(Transfer of assets under Coal Industry Nationalisation Act, 1946.)
    Motion made, and Question proposed, "That the Clause stand part of the Bill."
    Captain Crookshank: I think we should like an explanation about this Clause.
    Mr. Glenvil Hall: The object of the Clause is to simplify the Income Tax adjustments which will be necessitated by the transfer of the collieries from the present undertakers to the National Coal Board. The proposal contained in this Clause has been agreed to by the Ministry of Fuel and Power on behalf of the National Coal Board and the Mining Association and it does not prejudice the revenue in any way. Under the Income Tax Act, 1945, the collieries concerned became entitled to a new allowance for capital expenditure on certain industrial buildings. Unless the Committee, so desire, I will not recapitulate what those allowances were, nor the type of building and machinery on which they were approved; but on the transfer of those assets to the National Coal Board certain charges under the 1945 Act would become payable if on transfer the residue—that is the difference between the written-off
    1078
    value and the value of the assets transferred—were higher or lower than the written-off value. In that event a balancing charge became payable either to the colliery concerned or to the Revenue.
    As the collieries were transferred on 1st January, 1947, and these balancing charges under the 1945 Act came into operation on 6th April, 1946, there was a gap of nine months, and it was felt by all concerned—in fact, the first move was made by the Mining Association—that something should be done to prevent the collieries concerned having to do a tremendous amount of work in order to arrive at the various figures. Therefore they decided—and that decision is embodied in this Clause—to assume that the Act of 1945 should come into force as at the vesting date. These balancing charges for or against the Revenue will accrue to, or become a liability against, the National Coal Board instead of the collieries concerned. I hope with that brief explanation that the Committee will let us have this Clause.
    Sir Hugh Lucas-Tooth: On page 21, line 4, these words are used:
    "such adjustments may be made by way of additional assessment or otherwise …"
    I should like to draw attention to the use of that word "may." As I understand it, the provisions of the Sixth Schedule of the Bill are mandatory, and one would have thought that this word should have properly been "shall." I am a little surprised that there is some discretion in the matter, and I should like to have some explanation.
    Mr. Glenvil Hall: This Subsection refers to an adjustment. I have been dealing with the principle on which this Clause is based, and it is quite obvious that when we deal with it in detail, there will have to be a certain amount of adjustment as between the Inland Revenue and the National Coal Board. As a matter of fact, this Clause is rather in favour of the colliery concerns, because it means they can go back over a period of years and take the whole of the war years together when assessing the balancing charge or the allowance as the case may be.
    Sir H. Lucas-Tooth: The right hon. Gentleman has told us that this Subsection is in favour of the collieries concerned, and for that reason I am disappointed at

    1079
    the use of the word "may," because, as I understand it, it would be possible to refuse the benefits of the Clause as the Subsection stands. I should have thought the more appropriate word was "shall," and if the right hon. Gentleman cannot give an undertaking in regard to this adjustment now, perhaps he will look at it between now and a later stage of the Bill.
    Mr. Glenvil Hall: Most certainly, but I should add that, as I said earlier, this has been agreed with the Mining Association who are quite satisfied. We will, however, look at it again to see if what the hon. Gentleman says has anything in it.
    Question put, and agreed to.
    Clause ordered to stand part of the Bill.

    CLAUSE 24.—(Rate of the profits tax.)
    4.0 p.m.
    Mr. Gammans: I beg to move, in page 22, line 7, at the end, to insert:
    "(4) Where there falls to be included in the profits of a trade or business for any chargeable accounting period any interest payable under Subsection (5) of Section ten of the War Damage Act, 1943, the amount chargeable by way of the profits tax in respect of that period shall be reduced by an amount equal to seven and a half per cent. of the amount of that interest."
    I think I can explain the point of this Amendment quite briefly. Under Section 10 (5) of the War Damage Act, 1943, interest is payable on value payments at 2½ per cent. from the time the building is damaged until such time as the money is actually paid. The Chancellor has not made any value payments yet, although I gather he hopes to do so before long. As the Bill stands, the interest which would be received by the owner of property on value payments would be taken into account in the computation of profits for the purposes of the Profits Tax. I hope that the Chancellor will not suggest that what an owner receives by way of interest on value payments bears any relation whatever to what he could have got on his property if it had not been destroyed. The suggestion of this Amendment is that this provision should be left out. I put it to the Chancellor that it is unreasonable that this payment should bear Profits Tax at the rate of 12½ per cent., and the idea is that it should be cut down to the old rate of 5 per cent.
    The Chancellor of the Exchequer (Mr. Dalton): If I have understood this Amendment correctly, it is proposed that where interest is payable under this Section of the War Damage Act the Profits Tax should be reduced by 7½ per cent., as compared with what it would be under the Bill. If we were to adopt the hon. Gentleman's proposal it would mean that interest on value payments would receive preferential treatment as compared with income from investments generally. I do not know on what grounds that could be justified. In effect, a trader who was liable to the Profits Tax and who received interest on value payments would obtain a special advantage under this proposal which would not apply to a trader who derived his income from some other source. I cannot believe that that can be justified. We shall come later to the argument as to whether 12½ per cent. is the right rate or not, but, whatever the general rate, I do not believe that a case can be made for preferential treatment for a group of persons receiving income from a particular source.
    Mr. Gammans: Does the Chancellor regard the interest payable on these value payments as profit from investments in the ordinary sense?
    Mr. Dalton: Yes, because I do not think we can differentiate for this purpose.
    Sir John Mellor: I am sorry that the right hon. Gentleman has taken up this attitude, and I should like to ask him to give the matter further consideration. After all, it concerns income of an exceptional kind which has accrued over a period of time during which people have been out of their property and deprived of income from it. I think it rather hard that this sort of income, exceptional as it is, should be caught by the Profits Tax provided under this Bill. It is a special tax discriminating against the distributed portion of profits. The purpose of introducing that discrimination against the distributed portion is to encourage businesses to plough back their profits rather than distribute them. Assuming for the purposes of argument that that is a reasonable proposition in the case of profits generally, I submit that it would not be reasonable to apply it to this particular and quite exceptional source of income. After all, the proprietors have been out of their property and have been

    1081
    deprived of any income horn it over a period of years. I think it would be rather hard to expect them to plough this deferred interest back into their businesses. Surely they should be entitled to distribute that money without paying any special penalty. If the Chancellor would be good enough to look at the matter in that light, I think he would come to the conclusion that it would be fair to differentiate in favour of this class of income for this special purpose.
    Mr. Dalton: I am very anxious that we should not have any more polemics than we need. There is not a big question of principle involved in this, but, at the same time, I cannot pretend that I am persuaded up to this moment. The particular case of the grounds on which we are imposing this tax of 12½ per cent. will come up later on, and those grounds are a little wider than the hon. Baronet has suggested. If, however, he will leave it there and not press this Amendment, I undertake to have another look at it, but, I must not delude hon. Members into thinking that I am even half convinced at present.
    Mrs. Middleton: Is it not a fact that if the property had received a cost-of-works award it would not come under the Profits Tax, and that it is because it comes under the value payment that it is brought within the scope of this tax? It seems to me, therefore, that there is in fact discrimination between two different categories of property that were lost as the result of the war.
    Amendment negatived.
    Motion made, and Question proposed, "That the Clause stand part of the Bill."
    Mr. Eccles: This is, perhaps, the most important Clause in the Bill because it is that which proposes to charge the Profits Tax forming the subject of Part IV of the Bill. We on this side shall vote against the Profits Tax in principle, but even if we conceded the principle, we should certainly have to vote against the form of the Profits Tax which the Chancellor brings forward in this Bill. I take the principle of this tax to be that it is desirable to single out the earnings of companies for direct taxation and, having levied that special rate of direct taxation, then to levy an additional tax on the pro-
    1082
    portion of those earnings which is distributed. The clause provides a flat rate of 2s. 6d. in the £ on all company earnings, and a rebate of 1s. 6d. in the £ on such of those earnings as are not distributed.
    This is a long and complicated matter, and I think it would be for the convenience of the Committee if I dealt first with the form of the tax as brought forward in the Bill, and then proceeded to make some remarks to show that it is not good sense to have a Profits Tax in any shape or form. On the assumption, therefore, that the objects of the Profits Tax are desirable, in what manner should the Chancellor have levied these two rates of tax, one on all earnings and the other on distributed profits? Quite clearly he ought to have discovered the most simple, inexpensive and labour saving way of getting this benefit. He ought to have been mindful of the fact that all clerical staffs and all the officers in his Income Tax offices are very much overworked. If any hon. Member has been into an Income Tax office in his constituency lately, I am sure he has found that these people are working extraordinarily long hours. Therefore, the Chancellor ought to have tried to bring the tax forward in the most simple form.
    The tax itself is set out in Clauses 24 to 40. Are these Clauses easy to understand and to apply? I do not wish to go through a catalogue of the difficulties of applying this tax. It would take a very long time. The essential point is that the Bill as drafted means that every company every year will have to wrestle with two separate computations of its earnings, one to arrive at its liability for Income Tax and the other to arrive at its liability for Profits Tax. The Bill makes permanent the separation of these two direct taxes, Income Tax and Profits Tax. The Clauses in this part of the Bill are the rules of the jungle wherein must be computed the liability to Profits Tax. The rules which govern the liability to Income Tax are quite separate and are unaltered. The duplication involved in making these two sets of calculations every year is very real and will take much labour, time and money.
    On the assumption that the Chancellor's principles are correct, there should have been one tax instead of two. He should have imposed an additional 1s. in the £ on the ordinary Income Tax in respect of

    1083
    the earnings of companies. If he had done that, only one computation a year would have been necessary in order to assess the liability of a company to Income Tax. Had he done that, thousands of black-coated workers would have heaved an immense sigh of relief, but as it is, they are bound to say hard things about the Chancellor because he has dressed up in a very thin political disguise what is really an additional rate of Income Tax—an additional Is. in the £—by calling it a Profits Tax. Suppose he had increased the rate of Income Tax on company earnings from 9s. to 10s. in the £ How would he have gone on to tax distributed profits? There is a quite simple method in use in other countries. He could have imposed a withholding tax on dividends. He could have instructed all companies to hold back a certain percentage of all the distributions they made, whether dividends or the equivalent of dividends. That is very easy to collect, and it is done in other countries. I do not defend it in principle, but it is a far simpler way to apply what the Chancellor wants to apply under these Clauses.
    There is a further objection to the form in which the Chancellor is hitting distributed profits. The proposals in this Clause place the entire burden of the Profits Tax, for which no rebate is allowed, on the ordinary shareholders. These people are the most enterprising and, therefore, the most desirable type of investors that we can have. The heyday of the fixed charge, whether it was a debenture or a preference issue, was in the Victorian era when it was thought that the capitalist system would go on from strength to strength, creating assets like the British railways which our grandfathers imagined would never be superseded. It seems to me that a fixed interest bearing irredeemable security is man's most insolent demonstration of his belief in the perfection of his own creations. We have passed that age. We no longer believe that assets last for ever and should have raised upon them irredeemable charges. It is the same in the economic sphere as it is in the military sphere. We have passed from the static warfare of barbed wire, sandbags and trenches to the mobile warfare of aircraft, tanks and commandos. We have also passed in the economic sphere from the static kind of company
    1084
    finance and production to an age of new inventions and ever-increasing changes in fashions.
    4.15 p.m.
    It is quite clear that in such an age the right kind of capital is ordinary capital. Indeed that was written into the book which the right hon. Gentleman the Chancellor of the Exchequer published some years ago. Therefore, if the Chancellor is right in principle to lay a tax upon dividends, why does he pick on that class of shareholder which is the best partner that labour and management can have? I described the ordinary shareholder as the best partner for two good reasons. First of all, ordinary capital represents what the Americans call venture capital. It is the kind of capital which is ready to run a risk on a new business or a new process. It is not very easy to raise a fixed charge until the earning capacity of the business has been proved. All our famous firms began with small sums of ordinary capital. Beginnings are adventurous. How will any firm which is to become famous in the future, start? It will start with ordinary capital. Yet it is exactly that kind of capital which this tax is hitting.
    The second reason why ordinary shareholders are of advantage is one that ought to appeal to all hon. Members. The ordinary shareholder expects a good reward in good times, but he knows that in bad times he has no right to reward of any kind. Therefore, he acts as a sort of financial cushion on which management and labour can rely when orders fall off and when unemployment is threatened. If the capital of a company is not a first charge upon the earnings of a company, then it is quite clear that work and wages can come first, as they ought to. That situation can only come about when the whole of the capital is in ordinary shares. It is highly desirable that we should encourage it. The Chancellor knows this quite well, and yet he introduces a tax which concentrates the whole burden upon the kind of shareholder who is most desirable in the interests of expansion and efficiency. I hope that he will give us some explanation why he has adopted this plan.
    So much for the form of the tax. The principle is bad and the arguments against it are divided into two, those which apply

    1085
    to the general tax on all company earnings and those which apply to the additional tax upon distributed profits. It must be wrong to single out and tax one source of earnings from all the sources of earnings, even if it is the largest source. Other sources, like the rents on property, are to escape. There is no justice in that. That is the way the tax is drafted. It is particularly bad to select a source of income which comes from the productive assets of this country, upon which our standard of life depends, and which nourishes our exports. But one ought to be quite clear about this question of profits. There are a variety of things which can be done, and can only be done out of profits as well as the payment of dividends. A profit can be used to raise wages, to cheapen the products to the consumer, and to strengthen the assets of the company. A Profits Tax diminishes the fund out of which any of these good things can be done; in fact, a Profits Tax weakens every company upon which it falls.
    If any hon. Member has any doubt about that, let him consider the effect of E.P.T. which, after all, was only a 100 per cent. Profits Tax above a certain standard. It was a socially desirable standard tax, but it has economic effects in many directions which are very bad. Many expanding firms, and many farmers paid most of their wartime profits away in E.P.T.—
    Mr. Alpass: And they had a good deal left afterwards.
    Mr. Eccles: —with the result that they are now not able to re-equip their farms as they should. The effect of a Profits Tax, if it is a general Profits Tax on all profits, must be to diminish the fund out of which improvements can be made. There is no getting away from that. I ask the Committee, is it the moment when we are seven years in arrears in re-equipping British industry, to impose a tax which falls upon a fund out of which the main part of the re-equipment would be done? I know what the Chancellor will say. He will say that his additional tax upon distributed profits will offset this bad effect. He will say that it will bully company directors to retain greater sums in the company. He may say that, but the effect of the tax will not be that. Men do not distribute less, taking
    1086
    Income Tax and dividend together, because a penalty is imposed upon them, any more than they work more if penalties are imposed upon them.
    Suppose there is a group of men whom it is desired should work overtime. Which would be the more likely method? To raise the bus and train fares at the time when they normally knock off work, thus penalising them if they go home at 5 o'clock, or to offer them more money for working overtime than the ordinary basic rates? I need not answer that proposition because it is clear that the inducement will be far more effective than any form of penalty. Why is it that, when His Majesty's Government have to deal with the middle-class, they always prefer penalties to inducements? That is the effect of this tax. This is an important point because I do not believe there is any difference in aim between the two sides of the Committee; that is to say, we both want to see a larger proportion of profits ploughed back. There is, however, a sharp difference between us as to the method which is most likely to achieve what is really a common object. On the benches opposite they prefer penalties, on these benches we believe in inducements—
    Major Bruce: Would the hon. Gentleman describe the Income Tax Act, 1945, which granted new capital reliefs, and so on, as being a penalty on industry? That has been maintained by my right hon. Friend.
    Mr. Eccles: I am glad the hon. and gallant Gentleman has walked straight into my next argument. I was about to say, as he will realise in a minute, that the proper way to deal with this is to go a step farther than my right hon. Friend the Member for the Scottish Universities (Sir J. Anderson) went in the Income Tax Act, 1945, which, after all was introduced by another Chancellor and that is indeed the sensible way. The sensible way to secure the retention of profits in a business is, as the hon. and gallant Gentleman pointed out, to increase the allowances for wear and tear, for scrapping old machinery, for buildings and extensions. That way has great advantages and if we had been in office we would have extended the 1945 Act. We would then have been certain that any allowances that were made were only given when the company did something

    1087
    with the money. Under the Chancellor's system of rebate, he has no such guarantee. For all he knows, any profits which are retained as a result of Clause 24 will be kept in cash. That is not using the Budget in a sound way.
    I come to the final point of principle. The Chancellor cannot defend this tax on economic grounds. He knows quite well that the tax, as has been admitted in past times and in textbooks on this subject, must injure private enterprise both in its efficiency and in its capacity to expand. He knows quite well that it is on private enterprise we depend for our exports. He will have then to defend this tax on grounds of social justice. He will have to say that although its effect—and any unprejudiced person will agree with this—is to make us all poorer, yet it has another effect: it will make some of us less vindictive and less jealous of each other, and that psychological advantage outweighs the economic disadvantage. I believe that argument to be quite fallacious. I do not defend any particular distribution of the products of industry as sacred from one generation to another. I think the distribution of the great products of industry must be looked at from time to time and brought up to date according as the thought of the country advances.
    I would not wish to worry the Committee with any figures, but it is well to realise what has happened in the change of the distribution of the products of industry in recent years. In 1938 the amount of profits available for distribution by public companies in the United Kingdom was £392 million. In 1940, it had sunk to £299 million. In 1945 it was £307 million, and in 1946 it was £318 million. In other words, in 1946 it was 15 per cent. or 16 per cent. below what it had been in 1938.
    Major Bruce: After E.P.T.?
    Mr. Eccles: No, I do not think so.
    Major Bruce: Is the hon. Gentleman sure?
    Mr. Eccles: The hon. and gallant Gentleman asks if that is after E.P.T. I asked the competent statistician in the Library for the figures before E.P.T. but I am prepared to go back and check that again. Average weekly earnings in
    1088
    October, 1938, were 53s. 3d.; in July, 1945, 96s. 1d.; in July, 1946, 100s. 5d. That means that earnings doubled, while the amount available for distribution of profits was down by 15 per cent. I am not here to say that that transfer, which represented an increase in one case and a decrease in the other was too big or too little, but I want the Committee to notice that there has been a large transfer, and no doubt it was that transfer which was in the mind of the right hon. Gentleman the Lord President when he made his speech at Margate.
    4.30 p.m.
    In the closing moments of my speech I want to discuss the general question of profits. What is it in the matter of profits to which the Socialist Party really objects? I do not think they object to very large profits, provided they are distributed over a large number of shareholders—the "Co-op" for example. If all the shares in Butlin's camps were held by visitors to the camps, I do not suppose that the Socialist Party would object to a high rate of dividend on Butlin's shares. I think the real objections are two: first, to an excessive rate of profit on turnover; and, second, to very large shareholdings in very few hands. I go some way in supporting those two grievances. But the Profits Tax is one of the stupidest methods ever thought of to deal with either of them It is a most ineffective system. Let us take, first, excessive profits. They arise because of the abuse of some privileged position, such as a monopoly or a near monopoly. The Profits Tax is not the way to deal with that situation. Such excessive profits should be investigated, shown up and should have light thrown upon them, and then one of two things should happen. Either they should be used to increase the salaries and wages of the producers, or they should be used to cheapen the price of the product. The Profits Tax is quite ineffective for doing either of those things. It is too low to attack monopoly profits because it can easily be passed on. On the other hand, it hits a tremendously large number of reasonable profits.
    With regard to large shareholdings, here again the appropriate instruments for dealing with them are the Income Tax and Surtax which deal with the income when it is in the hands of persons, having regard to the total size of their income, and the

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    Estate Duties when large fortunes pass at death. The Profits Tax is a hopelessly clumsy and inefficient system to deal with excessive profits or what may be considered by hon. Members opposite to be too large, sums flowing out of businesses in the direction of too few individuals. I would impress upon the Committee that the Profits Tax is bound to injure the source of revenue which it is designed to tax. We cannot afford that at this time, when any objective relating to social justice can be achieved in a much simpler and fairer way without injuring this very vital part of the mechanism of our economy. I object to the Profits Tax principle, and I also object to it in the foolish form in which it is brought forward in Clauses 24 to 40, the folly of which will become more apparent as we go through the Amendments. I do not expect the Chancellor to have the courage to take these Clauses away and bring forward a simple and just tax, but I do expect any hon. Member who cares more for the expansion and efficiency of British industry than for soaking the rich, to know that the right hon. Gentleman ought to do so.
    Mr. Douglas Jay: I believe this tax is a good one, and that this is the right time to raise it; and I am prepared to defend it not on grounds of social justice, but on economic grounds. The hon. Member for Chippenham (Mr. Eccles) quoted some figures relating to profits before the war and at the present time, but, to put the matter in perspective, we should remember that if we take the total amount of wages on the one hand, and profits and interest on the other, as a percentage of national income, we find that between 1938 and 1945 profits and interest have risen more than wages. I say that merely to put the matter into perspective.
    The hon. Member for Chippenham put a perfectly legitimate argument to the effect that it is undesirable to apply taxation too highly to the enterprising section of the community, as against the rentier section of the community receiving fixed interest. In general, I sympathise with that argument, but I suggest that it is totally irrelevant in the conditions of 1947. The hon. Member has overlooked two facts. First of all, E.P.T. is disappearing, and this tax will take the place of E.P.T. If we have nothing to take the place of E.P.T., a large number
    1090
    of companies would enjoy enormous increases in income this year, which would not be desirable from any point of view. The second point which the hon. Member has overlooked is the lesson of the Economic Survey, which is that we are living in an extremely inflationary period. In such a period prices, profits and dividends are going up. The argument that we do not want to tax enterprise as against the rentier is completely irrelevant in these conditions. The hon. Member mentioned famous companies which had built themselves up on profits. I have been looking only this morning at reports of company meetings which have been held in the last few days. Practically every one of those companies, as everyone would expect in these conditions, reports larger profits and, in many cases, larger dividends. To quote from the eloquent managing director of Morris Motors this week:
    "The recommendation of an increased final dividend, bringing the total to 22 per cent. tax free, is fully justified by the level of manufacturing activity of the various companies."
    and he added that there was a 2½ per cent. tax-free bonus. I would add that that was in spite of the fuel crisis. The chairman of John Summer, Limited, said that increased profit results for 1946 were due to improved production and greater efficiency all round. That is a very satisfactory state of affairs under a Labour Government. I would also mention that prosperous and successful company, the "Daily Mirror," which raised its dividend from 15 per cent. to 30 per cent. this year, precisely for the reason that E.P.T. had disappeared, and they, therefore, had extra sums to distribute. The "Sunday Pictorial" also showed higher profits. I could also quote the case of Colvilles, the famous Scottish steel company, and many others who are doing equally well. I only mention these to illustrate the fact that profits and dividends are going up, and that, in those conditions, there is a stronger case for increasing the Profits Tax rather than reducing it.
    I would like to refer to the classical and orthodox argument which the hon. Member for Chippenham put forward, to the effect that this tax is a restraint on enterprise. That is not really true today. I think the hon. Member knows that the reality in industry today is that we are not suffering from lack of enterprise. In-

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    deed, owing to the financial conditions, we are suffering, if anything, from excessive enterprise, in the sense that far more firms are seeking to build extensions than the Government can possibly admit. If the hon. Member had had the job of licensing factory extensions in the last two years, he would know that the Government's difficulty at the moment is to pick out a small minority of extensions which they can permit to go forward. In those circumstances, the hon. Member's argument has no substance. He is suffering from a throwback to the depressing, deflationary days when his party were in power, and when there was an insufficiency of enterprise. I believe the same applies largely to enterprise in the form of increased investment in plant and machinery, as opposed to building.
    There is no lack of money ready to be invested in plant and machinery today. There is any amount of money in excess of the machinery available. What limits enterprise of that kind is the productive capacity of the machinery industries. We all know of the familiar case of the textile machinery industry. Therefore, there is very little substance in that argument. In addition, the truth is that the people who make the active decisions in industry today are the managing directors of companies, the other directors, and also the general managers. To a considerable extent, if the directors can show a large profit for their company, it does not matter a great deal to them if the Treasury intervenes between them and the stockholder. Therefore, I defend this tax as a suitable tax in the conditions of 1947, and I defend it further as a notable part of the Government's general policy of counter-inflation in this year's Budget.
    Mr. Nigel Birch: The hon. Member for North Battersea (Mr. Jay) said very truly that we were living in an inflationary period. Unlike the Chancellor of the Exchequer, he does not think that the day of inflation has largely passed away. As he rightly said, as a result of that inflation we have both the inflation of profits and a resulting distortion of our economy in shortages of all sorts. That is a result of the inflation. The inflation is not caused by the increase in distributed profits. When he was bringing in his Budget, the Chancellor of the Exchequer said that these increased dividends were
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    the clearest case anywhere in our national economy of an inflationary element. All I can say is that if he really believes that, and if he thinks they are more powerful than his monetary policy, more powerful than the level of Government expenditure, it is quite certain that inflation will continue. If we look at the relevant figures, it is nonsense—
    Mr. Jay: Surely the hon. Gentleman would not question that one way of defeating inflation is to limit increased dividends.
    Mr. BirchClearly, it mops up some but it is not anything like the main element. As I shall proceed to show, and as I think the hon. Member for Chippenham (Mr. Eccles) did show, this is about the worst way of the lot of doing it. Nobody believes that more than the Chancellor. because as my hon. Friend the Member for Chippenham recalled in various publications and speeches made at the time of the Corporation Profits Tax, which is precisely the same type of tax, the right hon. Gentleman said many things pointing out that a tax which falls upon the equity holder is about the worst type of tax we could possibly have. In those days, the right hon. Gentleman was at the London School of Economics. We may charitably assume that he was then endeavouring to follow the light of reason. He is now endeavouring to follow his political interests. He wished to be the Voltaire of the London School of Economics; now he wishes to be its Robespierre.
    The present policy of His Majesty's Government relies on past capitalist successes, on present capitalist successes, and it postulates perfectly prodigious capitalist successes in the future Otherwise, all the plans for the future will go west. The Government are gambling on an enormous success for the private sector of industry in this country. At the same time, we are told that to try to distribute a profit, either as a bonus or as a dividend, is wrong, and in effect, that it would be bad to make any profit at all. The unctuous Pharisees opposite speak of profit as if it were something better not mentioned, like ringworm. What the right hon. Gentleman is doing is to enter this private enterprise horse in the National Derby, mounting it himself, and giving it no food. It is not very likely to be a winner. This sort of policy is like the

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    sort of policy of the Shinwell school followed by many hon. Gentlemen on the front and back benches opposite. They favour an economic policy under which we can only exist if we get American charity, and at the same time abuse America. Our economic policy can only succeed if the system is allowed to work. Hon. Gentlemen opposite are following a policy both of denigration and of abuse, and taxation which will not allow the system to work.
    The most weighty objection to this tax is that it is conservative in a bad sense. It will tend to freeze—to ossify—our economy. It is all very well for the hon. Member for North Battersea (Mr. Jay) to say that managers are the only people who count. They are not the only people who count. People are not out to risk their money on a 90 to one chance against. That will not work. Everyone perfectly well knows, it will not happen. Time will show that the Chancellor was perfectly right in what he said in the 'twenties and entirely wrong in what he is doing in the late 'forties.
    4.45 p.m.
    Mr. Norman Smith: I detest all taxation, but I support this tax at this particular time because it is expedient. Of course, any taxation is an invasion of the liberty of the subject and, as such, I resent it. I am 57 years of age and I hope to live to see substantially less taxation than there is today. But at the moment we are in 1947, and I do not think the hon. Member for Chippenham (Mr. Eccles) ought to get away with what he said about equity shareholders. That was repeated by the hon. Member for Flint (Mr. Birch). Nor do I think that the hon. Member for Flint ought to get away with what he said about my right hon. Friend depending for the future on what the capitalists are going to do.
    In reply to the hon. Member for Chippenham, I submit that, in fact, equity shareholders are not the people who take risks, except in the way that any people who gamble take risks. Many of my constituents spend their evenings filling in football pools. They put their money on their judgment, and they are taking risks. Some of my constituents buy the "Financial Times" every day and they keep graphs on squared paper of what happens to this, that or the other security. It is a fascinating game,
    1094
    especially if one keeps it up for a few years. I would not like people to assume that because securities go up for a few years they will always go up. Today the equity shareholder is merely the rentier who has changed his sphere of operations because he fears the possible consequences of inflation. He wants to hedge against it and he does not quite like the look of flied interest securities. It is only a case of studying the "Financial Times," and paying a competent investment adviser or a stockbroker, It is only a case of doing these graphs on the squared paper and doing them very patiently over a number of years. They are not taking risks. It is not the equity shareholders' investment that causes new industries to spring up.
    My hon. Friend the Member for North Battersea (Mr. Jay) pointed out that economic enterprise and all that kind of thing today is not in the hands of the money investors. It is in the hands at the managerial classes, some of whom are on the benches opposite. They perform useful work, but the equity shareholder today is in precisely the same position as those of my constituents who turn always first to the sporting page—
    Mr. Birch: Is not the hon. Gentleman arguing a little too much for himself? Not very long ago he boasted what a successful gambler he was. A great many people do not gamble.
    Mr. Smith: The equity shareholders are in a similar position to those constituents of mine who turn to the sporting columns. They are not in any way forwarding industry or contributing to enterprise. They are doing nothing whatever to augment the wealth of the country, but are only looking for a reasonable way of getting an income without having to work for it, one which will hold its value against the possibility of inflation. I submit that the equity shareholder is a vastly over-rated person. I know him perfectly well; I have lived with him for 57 years.
    I want also to refer to what the hon. Member for Flint (Mr. Birch) said about the future of capitalists. Of course, they are going to control the bulk of industry. The Government are going to leave about 80 per cent. of the total productivity of the country in the hands of the managerial classes, the people who have come into being as a result of the silent revolution

    1095
    which has been going on. Hon. Members have spoken of directors as if they were the people who had produced the great amount of wealth which the Chancellor will be able to tax, whereas the main cause has been the very rapid progress of science, invention and technology, which would not have been possible but for the wisdom of the Government in nationalising, modernising and manning-up the great sectors of basic industries, without which all other enterprise is of no avail. I think the Government have done a good job, and I hope this tax will remain.
    Mr. Spearman: I think the hon. Member for South Nottingham (Mr. N. Smith) has a most disarming way of talking nonsense. He told us how easy it was to pick winners on the Stock Exchange, and how he did it with such monotony that he gave it up. I would say to him that, if he goes into the matter more carefully, he will find that many great companies through no fault of their own, have had to write down their capital and have been making losses, and I think it would be just as well if hon. Members opposite realised that nationalising industries does not necessarily mean profits for the taxpayer; it may mean liabilities. The hon. Member for North Battersea (Mr. Jay), if I understood him rightly, was stressing the increased distribution of profits on ordinary shares, as compared with wages, and he feared the inflationary effect of that distribution.
    In order to get the right perspective, I would like to give figures for the distribution on ordinary shares, which amounted in 1944 to £350 million, or 5 per cent. of the national income, whereas the amount paid in wages in that year was £2,865 million, or 41 per cent. of the national income. I am not in any way suggesting that that is a wrong proportion, but I am saying that hon. Members should have the right perspective. An increased distribution on ordinary shares could not have such an inflationary effect as has been implied. If the Government really do not like ordinary dividends, they have only to repeat their fuel policy of last year and they will soon find a substantial fall. The hon. Member for Chippenham made such a very clear and forceful case against the tax that I feel like repeating the re-
    1096
    mark of a former Yorkshire hon. Member, a long time ago, who, when called upon to make a speech in his constituency after a tremendous oration by Mr. Burke, got out of his dilemma by saying "I say ditto to Mr. Burke."
    I would like to ask the Chancellor a question on one particular point with regard to this tax. The Chancellor obviously thinks that the differentiation between distributed and undistributed profits is a way of implementing his view that dividends should not be increased. Section 21 of the Finance Act of 1922 says that if companies in the control of five or fewer directors have not distributed a reasonable proportion of their profit, the whole are portioned over all the shareholders. If I may illustrate the point, I would quote a conversation which I had with a business man who is well known to the right hon. Gentleman; indeed, a man who made such a contribution to the return of this Government to power that he carries a heavy weight on his shoulders and is perhaps less happy today than he was a year ago. He told me that, year after year, he had wanted his company to distribute a smaller proportion of its profits, but his accountants advised him that, if he did that, he would have to pay so much in Super Tax that it would be very disadvantageous. This year he said, "At last, I can do what I want, and distribute much less." His accountant said, "No, you will gain a little on the one hand on the difference in tax between distributed and undistributed profits, but you will lose far more on the other hand owing to the great increase in the amount of Super Tax you will have to pay." That may have been all very well in 1922, or even in 1932. It may then have been a good plan to encourage greater spending by increasing distribution then when there was unemployment. But I would suggest that what may have been right in 1932 is not necessarily right in 1947, and that this Government, in this case, would appear to be at least 10 years out of date. However that may be, whether right or wrong, in those years it cannot be right at one and the same time to have two influences pulling opposite ways, one to encourage distribution and another to discourage it, and I ask the Chancellor to look again at that point and see if that anomaly cannot be removed.
    Major Bruce: The hon. Member for Chippenham (Mr. Eccles) seemed to have some quaint ideas as to what he regards as "sources of income," and he has been referring to ordinary shares as a source of income. Whatever may be said about ordinary shares and the money invested in the ordinary shares of companies for the purpose of capitalisation, in the sense in which we are discussing them here today we are discussing them rather as a mechanism of distribution than as a source of income. The source of income of a company, after the initial capitalisation, surely lies in the hands of the management and technicians and the workpeople inside the factories themselves, and the Chancellor made it clear from the outset that he had two reasons for the initiation of this tax.
    First, he was disturbed, as anybody who has studied statistics must be, by what is described as the inflationary tendency, and secondly, he was concerned with securing the maximum stimulus in order to get companies to plough back their profits into their businesses for purposes of capitalisation. My only doubt about the existing situation is whether, in fact, this proposal will be enough to achieve the purpose which the Chancellor originally set out to achieve. From certain speeches made from the Opposition Benches on 23rd April last, in the Debate on the Budget Resolutions, one would gather that the initiation of this tax was going to have an extremely bad and most depressing effect upon industry generally. The hon. Member for Chippenham talked at some length on the former occasion about the effect on small businesses. I note that today he has dropped that point from his armoury. What are the facts? If one looks at the financial newspapers—and I am referring now to the "Investors' Chronicle," which, after all, does record, broadly speaking, the activities of the investing class—one wonders what has taken place since 23rd April, when the prophets of gloom opposite were saying that this would have a depressing effect on industry. The "Investors' Chronicle," on page 982, said:
    "May was a good month for most sections of the Stock Exchange. Indeed, for industrial equities it was a banner month, to judge from our Industrial Share Index. For this Index last month not only wrote off the fuel crisis losses; it reached a higher level than
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    that established at the end of January, before the crisis."
    These are not the signs of depression, and they completely belie some of the gloom and despondency which has emanated from the benches opposite for purely party political purposes. I revert to my original contention. I expressed doubt as to the sufficiency of the tax. Since the Debate on the Budget Resolutions, when we were discussing the Profits Tax, other company figures have been issued. I hold here a copy of the issue of the "Investors' Chronicle" for 7th June. It contains a table called "Industrial Annual Results Summarised." I find that the ordinary dividend paid by Messrs. Allied Industrial Services has gone up from 36⅔ per cent. to 50 per cent.; that British Thermostat ordinary dividend has gone up from 18½ per cent. to 23½ per cent. The Leicestershire colliery and pipe company's ordinary dividend has doubled itself, having gone up from 7½ to 15 per cent. for last year. There are many other examples. One is Oddennino's Hotel and Restaurant, whose dividend has also doubled itself by going up from 10 per cent. to 20 per cent.
    5.0 p.m.
    Mr. Stanley: I forget for the moment what were the rises in the "Daily Mirror" and the "Sunday Pictorial."
    Major Bruce: I have not those figures here, but I should assume, in view of the very sensible policy which is very often followed by those newspapers, that the profits have gone up very much, increasing the return to the shareholders. Nevertheless, in view of the way in which those companies have seen fit to distribute their dividends, the Chancellor's intention in endeavouring to control the amount of money coming into circulation through the medium of distributed profits on ordinary shares, is wise and one which everybody should support.
    I now wish to refer to a point that was mentioned by the hon. Member for Chippenham during the Debate on the Budget Resolutions. He made rather much of the idea that the Profits Tax would have a very bad effect on small businesses. I do not think the owner of a small business should be made to shudder by those words of gloom from the hon. Member. During the hon. Gentleman's speech, I pointed out:

    1099
    "The hon. Member knows that in the small companies to which he is referring, it is the policy, where a director does have a large ordinary shareholding, subject to the limitation which the hon. Member has given, for him to draw the bulk of his remuneration by a salary or a fee. This business about a director drawing a dividend is not, in fact, in accordance with modern practice."
    The hon. Member replied:
    "The hon. and gallant Member does not know what he is talking about. He has only to consider the small engineering companies, and I suggest that he has a talk with the hon. Member for East Middlesbrough (Mr. A Edwards), and he will find that what he said about modern practice is not true."—[OFFICIAL REPORT, 23rd April, 1947; vol. 436, c. 1130.]
    It so happens that I have looked around further, believing that in that particular regard I did know what I was talking about. I have been fortified to find that, in the Report of the Committee on Company Law Amendment which was discussed on Friday in the House, in the Debate on the Companies' Bill, paragraph 59 says:
    "Another abuse which has been found to occur is that the directors absorb an undue proportion of the profits of the company in remuneration of their services so that little of nothing is left for distribution among the shareholders by way of dividend."
    That fortifies the view which I expressed. The hon. Member for Chippenham knows that the effect of the tax upon small businesses will be very small indeed. All classes of the community have now to pull their weight in the battle against inflation. Certain sections of organised workers have behaved with very great moderation in pressing their wage claims. We have had an announcement from the Government this afternoon upon equal pay. It must have been very repugnant to His Majesty's Government to make that announcement, as they have been committed fully to the principle very much longer than have the Opposition.
    Mr. Stanley: The hon. and gallant Gentleman need not shake his head threateningly at me. I was not disputing his claim. There is nothing particularly enviable about having been committed for a very long time to a principle now repudiated.
    Major Bruce: I cannot accept the inference contained in the right hon. Gentleman's remark. All sections of the community have to bear their share in the battle against inflation. The inflationary position is a very real one. It
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    needs only a comparatively small amount to tip the scale. If the organised workers and the women are prepared to bear their share, as I believe the bulk of them are, it is only reasonable to ask that a section of the community whose active productive energies are not of such momentous consequences should also bear their share. I regard this tax as one method of achieving that end. My only regret is that it is not large enough. I unhesitatingly support it.
    Mr. I. J. Pitman: The hon. and gallant Member for North Portsmouth (Major Bruce) has been an assiduous reader of the "Investors' Chronicle" and he has given us many examples of something which I think is clearly irrelevant. He is a very knowledgeable man in these matters, but he rather reminds me of the man who tasted whisky and soda and found it intoxicating, who tasted brandy and soda water and found it intoxicating, and then tasted gin and soda water with the same result. So he gave up soda water as a drink, because it was too intoxicating.
    The real issue is that there are many causes behind the rise in prices and the increases in dividends, and that none of these causes has been that this is a good tax. It is a bad tax and the prices-have gone up notwithstanding the tax which is a bad one. The hon. Member for South Nottingham (Mr. Norman Smith) would have us believe that the equity shareholder is not carrying out a social service. To my mind that is absolute nonsense. Somebody has to take the risk. The management must be the people to decide what risk is worth taking and what risk is not, but it is ultimately the equity shareholder who takes the risk and acts as the cushion. Profit or loss is inevitable and there must be someone whose function is to act as the cushion. The 'bus goes out in the morning and it is going inevitably to make either a loss or a profit. It is fundamentally so improbable as to be impossible that the two sides, receipts and expenditure, will exactly balance. Somebody, therefore, has to take the risk and supply the cushion, and that someone is the equity shareholder.
    I personally am considering a risk at the moment. If I go into it, I shall be an equity shareholder both as entrepreneur and as a "cushion." One of the wrong, nesses of this tax is that it is a tax upon the entrepreneur and not a tax upon the

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    debenture holder. The hon. and gallant Member for North Portsmouth has said that all of us must share in the task of stopping inflation. If the tax had been levied upon debenture holders and the others who take no risk as well as upon equity shareholders, I do not think that anybody on this side of the Committee would have objected in the slightest. If the real issue is that unearned income should be differentiated and more heavily taxed than earned income, that would have caused us no difficulty. We have that principle already; it is one of which we have approved on all sides of the Committee and it is a principle capable of extension. I should not be opposed to such an extension. What I object to is the selection of one particular kind of alleged receivers of profits for discriminatory taxation, and that the most enterprising kind. May I again give a personal example of the unfairness of this tax? In my own company, we have redeemable preference shares. I thank the Chancellor very much indeed for his cheap money policy, because it has enabled us to substitute a 3½ per cent. Note Issue for a 5½ per cent. preference share. [An HON. MEMBER: "What about the poor widow?"] The Chancellor was responsible for his policy, but there is going to be quite a nice premium on redemption for the widow; she is not going to do badly, but whether she is swindled or does well is not relevant. The issue is that, whereas now the company has to pay tax on all the preference dividends distributed, when we have substituted notes there will not be any such tax to pay. Therefore, the situation is that, when we can least afford the tax, and when we are a relatively poor company, the tax is great, but when we become a rich company and can more afford it, the tax will fall off.
    It is because this is an unfair and illogical tax that we object to it. Last year, I nearly put down an Amendment to change the name of the Profits Tax to the "Equity Profits Tax" for that is what this tax really is. The Chancellor of the Exchequer has already allowed me to change the name of one Bill, and the President of the Board of Trade has allowed me to change the name of another. The objection to the tax is that it discriminates against those people who are prepared to take the risk and to do the developing—those who take the cushion. The debentune holder—the rentier—is the fellow
    1102
    who sits tight and takes his set dividend, but no risk. All the risk falls on the equity shareholder. Later, if you are good enough to call me, Mr. Beaumont, I shall be taking the case of the Lewis Partnership where the whole of the equity is owned by the employees. The whole of this new tax will fall on these employees of that firm because it is a tax discriminatory against the equity holders, who are the staff. I want hon. Members opposite to realise that our opposition to this tax is based on logical thinking and real conviction, and that it is a wholly bad one in principle.
    Mr. S. N. Evans: The hon. Member for Bath (Mr. Pitman) said that he thinks this is a bad tax. I think it is a very good tax, and am sorry it does not go very much further. It is only right and proper that we should have regard to the inflationary trend. That is a very important matter indeed; but, quite frankly, I do not think that this very small tax will have much influence on that. There is a psychological aspect of this matter which, apparently, escapes the notice of hon. Members opposite. We are living in a period in which the workers are being asked to forgo long coveted prizes in terms of improved wages, hours, and conditions of work. Some of us are having to go into the country at weekends to explain to our constituents why this is necessary. I must say that wherever I go the position that I pose is generally accepted after a good argument; but, very often, one is asked, "What about the industrial concerns which are substantially increasing their dividends in this period during which you are asking us to forgo these long coveted advances? That, of course, is a natural and reasonable thing for them to ask.
    I have said before, and I say again, that at the present time many boards of directors are acting in a manner which can only be described as flagrantly antisocial and psychologically stupid. It is true that we are passing through a revolution by consent, but we can gat through only if a high degree of responsibility is evidenced by all sections of the community. I say very definitely that boards of directors who are engaging in these anti-social practices in the present circumstances are in a very high degree irresponsible. I am not averse from a progressive alleviation of taxation on

    1103
    earned income; I am not opposed to helping those managers and technicians upon whom very largely depends that industrial renaissance without which our living standards cannot be maintained. I understand these people. I know that men are prone to reveal their worth to the community by the clothes on the backs of their women folk, by the number of horses under the bonnet of their cars, and by the size of the house in which they live. Some may think that deplorable but, nevertheless it is human nature. As I have said, I am not opposed to a progressive alleviation of taxation on earned income, but I am opposed to increased doles for somnolent rentiers in present circumstances. For that reason, I support this tax wholeheartedly, and am only sorry that the Chancellor did not make it stiffer than it is.
    5.15 p.m.
    Mr. Pitman: Before the hon. Member sits down, will he say whether the difference between the debenture holder and the note holder, on the one hand, and the entrepreneur, on the other, is not that the debenture and note holders are somnolent rentiers, whereas the equity shareholder is the lively risk taker?
    Mr. Evans: That could be an argument for carrying the tax further.
    Lord Willoughby de Eresby: I wish to make only one small point as briefly and as quickly as possible. I think that most hon. Members who have spoken in the Debate on this Amendment have directed their remarks to public companies. I would like to say a word about the treatment of private companies in connection with the Profits Tax. As the Chancellor knows, private companies are not allowed to put more than a small proportion of their profits to reserve. The remainder has to be distributed, and comes under this 12½ per cent. Profits Tax. But it is hard to button up that with the statement which the Chancellor has often repeated that he wishes to see money ploughed back into business and put to reserve. I think that that is a policy with which all sides of the Committee agree. In the case of a private company which is not allowed to place money to reserve, it is illogical and unfair to make it pay an extra tax on the money which it has to distribute. This dual policy is particularly
    1104
    unfortunate at the present moment, especially with regard to landed estates.
    As the Committee know, we have had the Third Reading of the Agriculture Bill which makes statutory certain obligations and responsibilities on owners of properties as regards fixed equipment, improvements, maintenance, and so on. These obligations were always theirs, but were not statutory, and owners did not incur the penalty of dispossession if they were not carried out. As the hon. Member for North Battersea (Mr. Jay) so fairly and accurately pointed out, it is impossible to carry out these improvements at the present time. One cannot get the licence, the timber, or this, that and the other. It would be better in the general interest if some vigorous opposition were made to these deferred payments, if I may describe them as such. I can understand the Chancellor's difficulty. If the private company is put on the same basis as the others, a loophole is given for tax evasion; but if we cannot abolish this tax altogether, which this Amendment seeks to do, I hope the Chancellor will give instructions to his inspectors to be a little more lenient in their treatment in the future than they have been in the past.
    Mr. Gallacher: As I have sat here this afternoon, my mind has gone back 45 years. I remembered an old song of that time which began with the words:
    "You have got a long way to go."
    I heard the Chancellor this afternoon say that he was carrying through a peaceful revolution. Good luck to him. I hope he makes progress. When I listened to the hon. and gallant Member for North Portsmouth (Major Bruce) quoting from the "Financial News," I could not help recalling that old song:
    "You have got a long way to go."
    Forty-five years ago the proletarians of this country, particularly in Glasgow, used to march through the streets with banners flying, and carrying slogans. That recollection has made me think of hon. Members opposite who always seem to have the mistaken idea that capitalists are honest men. One of the outstanding slogans among the proletarians was:
    "Rent is robbery: profit is plunder."
    The people of this country are absolutely certain, from all their experience, that just as the landlord is not necessary

    1105
    for the adequate use of the land, so the capitalist is not necessary for the adequate use of capital. The people can get on very well without him. He is there only to drain the vital lifeblood of the nation whenever he can. The proletarians of this country—the whole trade union moveinent—will support the Chancellor in this tax, and will support him to any further extent he wishes to go in the matter of the taxation of profits, because, as we have often said, when the workers of this country get what they are entitled to get—the full fruits of their labour—there will be no profits left to tax. I ask the Chancellor to go ahead in the action he is taking. I shall be happy if he succeeds in carrying out a peaceful revolution. He will certainly have the support of the proletariat in the line he has taken.
    Mr. Dalton: It might be convenient if I said a few words at this stage, after a lively and interesting Debate in which my hon. Friends behind me have not abstained, as they sometimes do, out of kindly feelings towards the Opposition, from playing their full part in the exchanges, [Interruption.] We often think very kindly of hon. Members—we remember when we were in opposition. Several of my hon. Friends have encouraged me to go forward along this path—my hon. Friend the Member for Wednesbury (Mr. S. N. Evans), my hon. and gallant Friend the Member for North Portsmouth (Major Bruce), and my hon. Friend the Member for West Fife (Mr. Gallacher). I take note of what they have said. This emphasises the fact that it is a very moderate tax indeed which we are discussing this afternoon. I feel almost like Clive, when he said "I am astonished at my own moderation"—2s. 6d. in the pound after Income Tax has already been deducted from the liability. Whereas without Income Tax deduction I would have got an additional £36 million, I am going to get only an additional £20 million in a full year. I shall give an example of what should be balanced against this very small increase in this tax upon distributed profits.
    This is a very moderate proposal. I am more astonished at those who oppose it altogether, than at those who have chided me for being so very moderate about the rate proposed. I would like to recall the point made some time ago by my hon. Friend the Member for North
    1106
    Battersea (Mr. Jay). This tax is in partial substitution for the Excess Profits Tax, which has now ceased. It is a very partial substitution when we think of the substantial sums which the Exchequer received during the war from the Excess Profits Tax. If that tax had been continued in peace time, although its yield would have been much less, due to the running out of war contracts, it would still have yielded a much larger sum than I am proposing to get from this tax. It is extraordinary how ungrateful certain sections of the community are. When the Excess Profits Tax was reduced, in my first Budget, to 60 per cent., there was a great blaze of excitement on the Stock Exchange—they could not believe that it was coming down lower than 80 per cent., and when we took it off altogether in the second Budget, there was another blaze of excitement on the Stock Exchange, very naturally. All that has been forgotten, apparently, by a number of hon. Members. It would have been a mistake, for reasons which I have argued previously, to have continued the Excess Profits Tax, because it was designed for war purposes and the war period. It was based on a standard period which it was not convenient to carry forward into peace time. It should always be kept in mind, in discussions on this tax, that this is a very mild and partial replacement of the Excess Profits tax, the removal of which has undoubtedly enabled a large number of industrial concerns very substantially to raise their dividends.
    There are three broad arguments in favour of having this tax at the present time. First, it was necessary to have some partial substitution for the revenue which would be lost through my repeal of the Excess Profits Tax. Secondly, as the hon. Member for Flint (Mr. Birch) has recalled, there is no doubt that whatever may be said about other elements in the income of the community, this steep increase in the income of persons who draw their income from investments in industrial concerns is inflation—an increase in purchasing power without an increase in production for which those persons are responsible. These are people who have the good fortune to have their investments in certain ordinary shares in various ordinary companies, from which they are receiving larger dividends for no more work than before. That is inflation in the

    1107
    freest sense of the word. I emphasise that, in view of the onslaught being made upon the livelihood of widows by the hon. Member for Bath (Mr. Pitman), taking advantage of the cheap money drive and reducing interest from 5½ per cent. to 3½ per cent. Having regard to this sort of thing, which is going on all over the country, it seemed to me that there should be a balance so that the widows should not suffer any more, and that people who were getting substantially increased dividends on their investments should make a certain contribution.
    Mr. Pitman: If the Chancellor is aiming this personally at me, I would ask him to accept my assurance that there has in the case of our company been no such "substantially increased dividends."
    5.30 p.m.
    Mr. Dalton: The argument still holds. If other people have a smaller amount of money by reason of the cheap money policy, it is quite right, in my opinion, that it should be regarded as a piece of fair dealing that where certain people are having their incomes reduced in the national interest, by reason of the cheap money policy, others who have increased their income, largely through the operation of the cheap money policy, should pay a little more.
    The hon. Member for Scarborough and Whitby (Mr. Spearman) and the noble Lord the Member for Rutland and Stamford (Lord Willoughby de Eresby) have raised questions to which I should like to reply. I should like to give them some reassurance against the fear that we shall so administer the rules about distribution of one-man company profits as to cancel out the gain which lies behind this particular tax. The position is this. Where a one-man company does not make what is regarded as a reasonable distribution of its profits, the whole of the profits may be brought under charge to Surtax. That is not an iniquity that I have perpetrated. It has been the law for many years.
    Mr. Pitman: Made in 1922
    Mr. Dalton: It goes a long way back—to 1922, yes. The law does provide that, in considering whether distribution is reasonable under the terms of this statute, the Special Commissions are to have regard to the desirability of ploughing
    1108
    back profits into a business for its maintenance and development. That is in the statute. What I should like to make clear is that where there has been—this is the change in taxation now being proposed—a dividend payment made in past years and accepted by the Special Commissioners as reasonable, even if profits have increased, as they may well have done—this is an administrative arrangement to which I desire to give publicity—no objection will be taken by the Board of Inland Revenue to the continuance of the same rate of dividend even on increased profits. I hope that that will go some way to reassuring the two hon. Gentlemen. It is designed to prevent any sort of contradiction, which they thought might arise through the administrative practice of this new change in the law.
    All these taxes have roots in the past, and this tax which we are discussing was the invention of Mr. Neville Chamberlain. He called it the National Defence Contribution. It was his idea. Originally he had a different idea. There was the National Defence. Contribution Mark I, which was not viewed with great approval by Parliament at that time; and, indeed, the Conservative Party, in particular, did not like it. There was substituted for it National Defence Contribution Mark II. That is the tax which I am slightly developing and amending now. What that tax had in common with what we are now discussing was, that it deliberately picked out and discriminated against profits derived from equities and from ordinary shareholding. The only difference I am making is that I am introducing a differential element. We put the same rate as Mr. Neville Chamberlain put—there is no change here—a shilling in the pound, 5 per cent., on profits when ploughed back. The only change being made is, that I am raising the rate to 12½ per cent. on that part of the profits which is not ploughed back. I share the view of my hon. Friend that this is a very mild proposal.
    The hon. Member for Chippenham (Mr. Eccles), who always commands our attention by the way he marshals his arguments and the very clear way in which he puts them, thought it would have been better to increase Income Tax so as to achieve substantially the same result. I am inclined to differ from him. It would have involved, had we followed that course, a further differentiation

    1109
    within the Income Tax scheme—for this reason, I suggest: the Income Tax does now simply differentiate between earned income and investment; that is differentiation as between sources; but this tax imposes a differentiation as between use—not as between sources—but as between the use and purpose to which the moneys are put. If, in one case, it is ploughed back, it is at the lower rate; if distributed, at the higher rate. Therefore, we should have had a further complication grafted on to the Income Tax system. We did consider the alternatives, and it did seem to me, after consideration and advice, that it would be a very troublesome method, and it did, therefore, seem to me that this was the right way to do it.
    What part this tax will play in the future years remains to be determined, and I do not express any view here today. I merely say that I shall not get much out of this this year, as I explained in my Budget Speech. The additional £20 million which will come from this proposal will come in a full year, the next financial year. I think that this is a modest way of obtaining some of the money needed if we are to balance our finances in the year to come. I hope, therefore, we shall get the Clause.
    Mr. Stanley: We have had an extremely interesting Debate upon a Clause that my hon. Friend the Member for Chippenham (Mr. Eccles) quite rightly described as one of the most important Clauses in the' present Finance Bill. Our objections to the Clause were so well put by my hon. Friend—and by others, including my hon. Friend the Member for Scarborough (Mr. Spearman) and my hon. Friend the Member for Flint (Mr. Birch)—that there is very little for me to add. I should, however, like to say a few words about the course of this Debate. It has been well sustained from both sides of the Committee. We have had, as I expected, from the benches opposite speeches from those two hon. Members whom we have now come to regard as the classical economists of the Socialist Party, the hon. Member for South Nottingham (Mr. N. Smith) and the hon. Member for North Battersea (Mr. Jay). The hon. and gallant Member for North Portsmouth (Major Bruce) I put in a rather different category. It is not only the engaging youthfulness of his appearance and the corresponding irresponsibility
    1110
    of his words; but I do detect In him a danger which, unless he checks it, may militate, not against his influence with us on this side of the Committee, but against his future progress in the party to which he now belongs; and that is, his inveterate habit of reading the "Investors' Chronicle." The "Investors' Chronicle," among other qualities, has the excellent attribute of taking a very poor view of the present Chancellor of the Exchequer, and I think that it is unwise of the hon. and gallant Gentleman to disclose so publicly that he regards that journal as one of his chief sources of economic information.
    I was particularly struck by one passage in the speech of the hon. Member for North Battersea, because it really showed what an Alice in Wonderland life—political and economic life—we are now leading. In order to combat an argument of my hon. Friend the Member for Chippenham that this tax was a tax upon enterprise, he attempted to comfort him—and he sincerely thought that he was comforting him—by saying, "After all, there is no point in encouraging enterprise nowadays, because even if people want to be enterprising they cannot be enterprising," and he went on to describe, I gather, his experiences—his happy experiences—when he was able for two years to turn down applications made by enterprising people to extend their factories or to improve their machinery, and he contrasted that with those unhappy days before the war when, if a man wanted to build a new factory, he was actually able to do it.
    Mr. Jay: Would the right hon. Gentleman really deny that, if all who wish to build new factories today were permitted to do so, there would be nothing like the quantity of materials for those factories?
    Mr. Stanley: I quite agree that—I will not say because of, but certainly after two years of the present administration—it is quite impossible for the vast number of people engaged in private enterprise who want to be enterprising to do all they would like to do. All I am objecting to is, that that should be put forward as proof of the excellence of the age in which we are now condemned to live. The Chancellor, in his defence of this tax, repeated in a briefer form the arguments which he had used on a previous occasion. He started by saying that this tax was a very moderate one; and he proffered that

    1111
    as the first excuse for it. Well, of course, in proffering an excuse of that kind he was not original. A housemaid did it some years before. I do not think that is a really substantial argument.
    I entirely agree that the present level of this tax, even after the passage of this Finance Bill, is not yet high; but what we say is, that this is a bad tax in itself. The danger is, that once a had tax is embarked upon as a permanency, a level which is moderate one year becomes successively less moderate in succeeding years; and it is at the start, and only at the start, that it is possible to challenge the principle upon which the tax is based, even if one is not at the time seriously disturbed by the level which the tax has reached. I cannot accept as a great excuse for this tax—as put forward by the hon. and gallant Member for North Portsmouth—that after the tax was imposed the Stock Exchange values increased. I think it is probably true that they expected or feared a higher rate. But surely the hon. and gallant Member must have realised by now that Stock Exchange values depend on quite other considerations than the prospects of the companies concerned?
    Major Bruce: The right hon. Gentleman probably realises that the figures to which I was referring were not the immediate post-Budget figures, which, it is quite true, reflected a rise. There was also a further rise after 23rd April, when the Debate on the Budget Resolution took place, despite the depressing speeches of hon. Members opposite.
    Mr. Stanley: That is exactly the point I am making, that Stock Exchange values are, in fact, no more influenced now by the prospects of the companies than they are influenced by the speeches of hon. Members in this Committee. The main influence in the rise in the capital value on the Stock Exchange today is the fear of inflation, and I beg the hon. and gallant Member not to point to increasing Stock Exchange values as a sign of the economic health of the country.
    Major Bruce: Would the right lion Gentleman apply that argument when we come to consider compensation on the basis of Stock Exchange values? Would he agree that Stock Exchange values should be written down for compensation on, the basis of what he has just said?
    5.45 p.m.
    Mr. Stanley: That depends entirely on whether in the case of the particular shares, as against the fear of inflation, people have not had to take into account the fear of Government confiscation, as has been the case with those shares which, for many years, have been under the threat of nationalisation when it became the power of the Government to do so.
    Now let me continue to deal with the arguments which the Chancellor put forward. First, he said that this, after all, was not his baby at all; that it started by being the baby of the late Mr. Neville Chamberlain. That is quite true; but Mr. Neville Chamberlain introduced this tax under quite different circumstances. It was introduced as a crisis measure, to meet an impending crisis; and, now that that particular crisis has passed away, we question the necessity for retaining as a permanent tax one which was temporary in its character. Even so, there was no fiercer critic of that tax when it was imposed than the present Chancellor of the Exchequer. It was no good Mr. Neville Chamberlain saying to him: "This is only a moderate tax"—and it was a moderate tax; only 5 per cent., and not 12½ per cent. It was no good Mr. Neville Chamberlain saying that to the right hon. Gentleman, because the present Chancellor then took a much higher view: he objected to the tax in principle. His ringing words—perhaps it would be an extension of truth to say that I hear them ringing in my ears still, after all these years; but certainly I felt their effect for some time afterwards—were echoed much more mildly today by my hon. Friend the Member for Chippenham. Perhaps my hon. Friend had not time to read the speech of the present Chancellor on that occasion, and his fierce denunciation of the effect that this tax would have upon enterprise; of the iniquity of singling out for taxation one form of property, and one form of property only, and that, if anything, the most socially desirable form of property, the form of property in which risks as well as benefits were taken.
    Mr. Gallacher: That was Simon's time.
    Mr. Stanley: Well, the hon. Member is only a few years out of date. By that time it was, I think, Mr. Neville Chamberlain.
    Mr. Gallacher: No, Chamberlain first, then Simon.
    Mr. Stanley: The right hon. Gentleman then proceeded to give three reasons why he had to have this tax. The first was that, having given away a lot of money by the surrender of E.P.T., there was a gap to be filled, and that it had to be filled by some means or other. We quite recognise that. We are not at all ungrateful for the relief which was given to industry by the taking away of E.P.T. Quite clearly, as a matter of pure cash accountancy, the ordinary company' is better off now under this moderate Profits Tax than it was under the 100 per cent. E.P.T. But, as I say, it is the principle and the fear of the continuing tax, with the continually increasing rate, which adds point to our opposition to this Clause today.
    We realise that some other taxation had to be raised in order to meet this gap, but we suggest that a tax of this kind—especially if it is to be a permanency—imposed upon one section, and one section only, is an unfair way of filling it, and that it would have been far better to distribute the burden equally among property owners as a whole. I accept that in this case, as an anti-inflation measure; it is probably right that this extra money should be raised, not in a way which would be a burden upon the actual producer, but upon unearned income. We say, however, that it should be spread over unearned incomes as a whole, and not over merely one section of them.
    The second argument of the right hon. Gentleman was the need to combat inflation. I was very glad to hear the hon. and gallant Member for North Portsmouth talking about inflationary dangers, in terms which would a few months ago almost have secured his expulsion from the party. At that time the word "inflation" was one which could not be used; it was like that other word to which my hon. Friend the Member for Flint drew attention. If we on this side of the Committee then mentioned inflation, howls were heard from hon. Members opposite. Of course, that was before the Leader of the House told them that they must behave nicely to the Opposition. Indeed, it is only a few months ago that the Chancellor first brought himself to use, not the word "inflation," but the phrase "resistance to inflationary pressure." We are very glad to see that these dangers
    1114
    are now being frankly recognised and spoken of by hon. Members opposite, because the first step towards defeating inflation is to recognise its existence.
    The right hon. Gentleman has picked out the increases in dividends which have taken place in the last year as the most potent inflationary force with which he has to deal. I believe that that is wholly inaccurate. I would say that far the most inflationary forces of that character with which lie has to deal has been the increase in capital values on the Stock Exchange, and I would say that that has been largely caused by the actions of the right hon. Gentleman himself; it is the surplus of bank money he has created in order to pursue the cheap money policy beyond the normal tendency of the times, coupled with the immense amount of new stock he has created in compensation for nationalisation. These are the actions of the Government, which have caused this inflated rise in capital values, and that has been much more inflationary in its effect than any rise in dividends during the period.
    Lastly, there is the argument that he had done the widows a dirty deal, and he thought that everyone else ought to share in it—equality of misery if we cannot have equality of anything else. What has become of the old defence of the cheap money policy? That was not doing people a dirty deal, that was not so hitting widows that he had to hit the ordinary shareholders to make it up to them. He was offering them an equal advantage for what they had lost. It was true that their income was to be smaller, but how much greater was their security. There he was, the Chancellor who had been able to offer the poor widow security greater than any of his predecessors, since Gladstone. The security was well worth sacrificing ½ per cent. The right hon. Gentleman cannot have it both ways. He cannot claim that he has been benefiting the widows, and at the same time claim that he has got to be unkind to the equity holders in order that they shall share equally with the widows. I do not believe any of the three reasons the Chancellor has given for this tax. There is a fourth reason. If he had advanced it, it would not have altered my vote, but it would have given me more respect for his argument. The fourth reason is this: He had to do some-

    1115
    thing in this Budget in regard to the Tobacco Duty which was very unpleasant to the great masses of his own supporters, and he could not have a Budget which did something unpleasant to them, unless it were possible for him at the same time to point out how unpleasant he had been
    to all tile other classes of the community. In that lies the explanation of this tax, and because that is the explanation, we shall vote against it.
    Question put, "That the Clause stand part of the Bill."
    The Committee divided: Ayes, 259; Noes, 118.

    Division No 243.]

    AYES.

    [5.53 p.m.

    Adams, Richard (Balham)

    Fernyhough, E.

    Manning, Mrs. L. (Epping)

    Allen, A. C (Bosworth)

    Follick, M.

    Marshall, F (Brightside)

    Alpass, J H

    Foot, M. M.

    Medland, H M

    Anderson, A (Motherwell)

    Forman, J. C.

    Mellish, R. J.

    Anderson, F (Whitehaven)

    Freeman, Peter (Newport)

    Messer, F.

    Attewell, H. C.

    Gallacher, W

    Middleton, Mrs.

    Austin, H. Lewis

    Ganley, Mrs C. S.

    Mikardo, Ian

    Ayles, W. H.

    George, Lady M. Lloyd (Anglesey)

    Mitchison, G. R

    Bacon, Miss A

    Gibbins, J.

    Montague, F.

    Barstow, P G

    Gibson, C. W

    Moody, A. S.

    Barton, C.

    Gilzean, A.

    Morgan, Dr. H. B

    Beattie, J. (Belfast, W.)

    Glanville, J. E. (Consett)

    Morley, R

    Bechervaise, A E

    Goodrich, H. E.

    Morris, Lt.-Col. H. (Sheffield, C.)

    Benson, G.

    Gordon-Walker, P. C

    Morris, P. (Swansea, W.)

    Berry, H

    Greenwood, Rt. Hon A. (Wakefield)

    Morris, Hopkin (Carmarthen)

    Beswick, F

    Greenwood, A. W J (Heywood)

    Mort, D. L

    Bevan, Rt Hon A (Ebbw Vale)

    Grenfell, D. R.

    Moyle, A.

    Bing, G. H C

    Grey, C. F.

    Murray, J D

    Binns, J.

    Griffiths, D. (Rother Valley)

    Nally, W

    Blackburn, A R

    Griffiths, W D. (Moss Side)

    Naylor, T E

    Blyton, W. R.

    Guest, Dr. L. Haden

    Neal, H (Glaycross)

    Bowden, Flg.-Offr. H. W

    Gunter, R J

    Nichol, Mrs. M. E (Bradford, N.)

    Bowles, F. G. (Nuneaton)

    Guy, W. H.

    Nicholls, H. R (Stratford)

    Braddock, Mrs. E M. (L'pl, Exch'xe)

    Haire, John E. (Wycombe)

    Noel-Buxton, Lady

    Braddock, T. (Mitcham)

    Hall, W. G.

    Oldfield, W H

    Bramall, E. A.

    Hamilton, Lieut. Col R

    Paget, R. T

    Brook, D (Halifax)

    Hardy, E. A.

    Paling, Will T. (Dewsbury)

    Brooks, T. J (Rothwell)

    Harrison, J.

    Palmer, A M F

    Brown, George (Belper)

    Hewitson, Capt. M

    Parker, J

    Brown, T. J (Ince)

    Hicks, G.

    Parkin, B. T

    Brown, W J (Rugby)

    Hobson, C. R

    Paton, J (Norwich)

    Bruce, Maj. D W T

    Holman, P.

    Pearson, A.

    Buchanan, G.

    Holmes, H E (Hemsworth)

    Peart, Capt T. F.

    Burke, W A

    House, G.

    Poole, Major Cecil (Lichfield)

    Butler, H W (Hackney S.)

    Hoy, J

    Popplewell, E.

    Byers, Frank

    Hudson, J H (Ealing, W.)

    Porter, E. (Warrington)

    Callaghan, James

    Hughes, H. D. (W'lverh'pton, W)

    Porter, G. (Leeds)

    Carmichael, James

    Irving, W. J

    Price, M. Philips

    Castle, Mrs B A

    Janner, B.

    Pritt, D. N.

    Chamberlain, R A

    Jay, D. P. T.

    Proctor, W. T

    Champion. A. J

    Jeger, G. (Winchester)

    Pryde, D. J.

    Chater, D

    John, W.

    Pursey, Cmdr. H

    Chetwynd, G. R

    Jones, D. T (Hartlepools)

    Randall, H. E

    Cocks, F S

    Jones, Elwyn (Plaistow)

    Ranger, J.

    Coldrick, W

    Jones, J H. (Bolton)

    Rankin, J.

    Collindridge, F

    Jones, P. Aslerley (Hitchin)

    Rees-Williams, D R

    Collins, V. J.

    Keenan, W

    Reeves, J.

    Colman, Miss G. M.

    Kinley, J.

    Reid, T. (Swindon)

    Comyns, Dr L

    Kirkwood, D

    Rhodes, H

    Corlett, Dr J

    Lang, G.

    Richards, R

    Daggar, G

    Lee, F. (Hulme)

    Roberts, Goronwy (Caernarvonshire)

    Daines, P

    Lee, Miss J (Cannock)

    Robertson, J. J. (Berwick)

    Dalton, Rt Hon H

    Leslie, J. R.

    Rogers, G. H R.

    Davies, Edward (Burslem)

    Levy, B. W

    Ross, William (Kilmarnock)

    Davies, Ernest (Enfield)

    Lewis, A W J. (Upton)

    Royle, C.

    Davies, Harold (Leek)

    Lewis. J (Bolton)

    Sargood,

    Davies, Hadyn (St Pancras, S. W.)

    Lipton, Lt.-Col M

    Scott-Elliot, W

    Davies, R. J (Westhoughton)

    Logan, D. G.

    Sega, Dr. S.

    Deer, G

    Longden, F

    Shackleton, E. A A

    Delargy, H. J

    Lyne, A. W

    Share, Granville

    Dodds, N. N.

    McAdam, W

    Shinwell, Rt. Hon E

    Driberg, T. E. N

    McAllister, G.

    Shurmer, p.

    Dumpleton, C. W

    McGhee, H. G

    Silverman, S. S. (Nelson)

    Ede, Rt. Hon. J. C.

    Mack, J. D

    Simmons. C J.

    Edwards, Rt. Hon. Sir C. (Bedwellty)

    McKay, J. (Wallsend)

    Skeffington-Lodge, T. C

    Edwards, N. (Caerphilly)

    McKinlay, A. S.

    Skinnard, F. W:

    Edwards, W. J. (Whitechapel)

    Maclean, N (Govan)

    Smith, C (Colchester)

    Evans, S. N. (Wednesbury)

    McLeavy, F

    Smith, H. N (Nottingham, S)

    Ewart, R.

    Mainwaring, W. H

    Snow, Capt. J. W

    Farthing, W. J.

    Manning, C. (Camberwell, N.)

    Solley, L. J

    Sorensen, R. W

    Thomson, Rt. Hn. G. R (Ed'b'gh, E.)

    West, D. G.

    Soskice, Maj. Sir F

    Thurtle, Ernest

    White, H (Derbyshire, N. E.)

    Sparks, J. A

    Timmons, J

    Whiteley, Rt. Hon. W.

    Stamford, W.

    Titterington, M. P.

    Willey, F. T. (Sunderland)

    Stephen, C.

    Tolley, L.

    Willey, O. G. (Cleveland)

    Stewart, Michael (Fulham, E.)

    Tomlinson, Rt. Hon. G

    Williams, D. J. (Neath)

    Straus, G. R (Lambeth, N.)

    Usborne, Henry

    Williams, J. L. (Kelvingrove)

    Stross, Dr. B

    Vernon, Maj. W F

    Williams, W R (Heston)

    Stubbs. A. E.

    Viant, S. P.

    Williamson, T

    Summerskill, Dr. Edith

    Wadsworth, G

    Willis, E.

    Swingler, S.

    Walkden, E.

    Wills, Mrs. E A

    Sylvester, G. O.

    Wallace, G. D. (Chislehurst)

    Woods, G. S

    Symonds, A. L.

    Wallace, H. W. (Walthamstow, E.)

    Yates, V. F

    Taylor, R. J. (Morpeth)

    Warbey, W. N.

    Taylor, Dr. S. (Barnet)

    Watson, W. M.

    TELLERS FOR THE AYES

    Thomas, D. E. (Aberdare)

    Webb, M. (Bradford, C.)

    Mr. Joseph Henderson and

    Thomas, I. O. (Wrekin)

    Wells, P. L. (Faversham)

    Mr. Hannan

    Thomas, George (Cardiff)

    Wells. W T (Walsall)

    NOES.

    Assheton, Rt. Hon. R

    Hudson, Rt. Hon. R. S. (Southport)

    Poole, O. B. S. (Oswestry)

    Astor, Hon. M.

    Hutchison, Lt.-Cm. Clark (E'b'rgh W.)

    Prescott, Stanley

    Baldwin, A. E.

    Hutchison, Col. J. R. (Glasgow, C.)

    Price-White, Lt.-Col. D

    Baxter, A. B.

    Jarvis, Sir J.

    Prior-Palmer, Brig. O

    Beamish, Maj I. V. H.

    Jeffreys, General Sir G.

    Raikes, H. V.

    Boles, Lt.-Col. D C. (Wells)

    Joynson-Hicks, Hon. L. W

    Reed, Sir S. (Aylesbury)

    Boothby, R.

    Kerr, Sir J Graham

    Reid, Rt. Hon. J. S C (Hillhead)

    Bower, N.

    Kingsmill, Lt.-Col. W H

    Ropner, Col. L

    Boyd-Carpenter, J. A

    Lambert, Hon. G.

    Ross, Sir R. D. (Londonderry)

    Bracken, Rt. Hon. Brendan

    Langford-Holt, J.

    Sanderson, Sir F.

    Braithwaite, Lt.-Comdr. J G

    Lennox-Boyd, A. T.

    Savory, Prof. D L

    Bromley-Davenport, Lt.-Col W

    Linstead, H. N.

    Scott, Lord W.

    Buchan-Hepburn, P G T

    Low, Brig. A. R. W

    Shephard, S. (Newark)

    Challen, C.

    Lucas-Tooth, Sir H.

    Smiles, Lt.-Col. Sir W

    Clarke, Col. R. S

    Lyttelton, Rt. Hon. O

    Smithers, Sir W

    Clifton-Brown, Lt.-Col. G

    MacAndrew, Col Sir C

    Snadden, W. M.

    Conant, Maj. R. J. E

    McCallum, Maj. D

    Spearman, A. C. M

    Crookshank, Capt. Rt. Hon H F C

    Macdonald, Sir P. (I. of Wight)

    Spence, H. R.

    Crosthwaite-Eyre, Col. O E

    Mackeson, Brig. H. R.

    Stanley, Rt. Hon. O.

    Crowder, Capt. John E.

    McKie, J. H (Galloway)

    Stewart, J. Handerson (Fife, E.)

    Cuthbert, W. N.

    Maclay, Hon. J. S.

    Stoddart-Scott, Col. M

    Donner, Sqn.-Ldr. P. W.

    MacLeod, J.

    Stuart, Rt. Hon J (Moray)

    Drayson, G. B.

    Macmillan, Rt. Hon. Harold (Bromley)

    Sutcliffe, H

    Drewe, C.

    Macpherson, Maj. N. (Dumfries)

    Taylor, Vice-Adm . A. (P'dd't'n, S.)

    Dugdale, Maj. Sir I (Richmond)

    Maitland, Comdr. J. W.

    Thorp, Lt.-Col R. A. F.

    Duthie, W. S.

    Manningham-Buller, R E

    Touche, G. C.

    Eccles, D. M.

    Marlowe, A. A. H.

    Wakefield, Sir W W

    Eden, Rt. Hon. A.

    Marsden, Capt. A.

    Walker-Smith, D.

    Fraser, H. C. P. (Stone)

    Marshall, D. (Bodmin)

    Ward, Hon G. R.

    Gage, C

    Molson, A. H. E.

    Webbe, Sir H. (Abbey)

    Galbraith, Cmdr. T D

    Morris-Jones, Sir H.

    Wheatley, Colonel M. J.

    Gammans, L D.

    Morrison, Maj. J. G. (Salisbury)

    White, Sir D. (Fareham)

    Glyn, Sir R

    Morrison, Rt Hon W. S. (Cirencester)

    While, J. B. (Canterbury)

    Gomme-Duncan, Col. A

    Muilan, Lt. C. H.

    Willoughby de Eresby, Lord

    Grant, Lady

    Neven-Spence, Sir B

    Winterton, Rt. Hon Earl

    Hannon Sir P (Moseley)

    O'Neill, Rt Hon Sir H

    York, C

    Hare, Hon. J. H (Woodbridge)

    Osborne, C

    Haughton, S. G.

    Peake, Rt Hon. O

    TELLERS FOR THE NOES

    Head, Brig. A. H

    Pickthorn, K

    Mr. Studholme and

    Headlam, Lieut.-Col. Rt. Hon Sir C

    Pitman, I. J.

    Major Ramsay

    Herbert, Sir A. P

    Ponsonby, Col. C.

    Question put, and agreed to.

    Clause ordered to stand part of the Bill.

    CLAUSE 25.—(Exemption of individuals and partnerships of individuals from the profits tax.)
    6.0 p.m.
    Sir H. Lucas-Tooth: I beg to move, in page 22, line 43, to leave out "and all," and to insert "to the extent that."
    I think it may for the convenience of the Committee, Mr. Beaumont if we discuss together this Amendment and the next two Amendments to this Clause—in page 22, line 44, and in page 23, line 2. Under
    1118
    Section 21 of the Finance Act, 1922, certain small private companies may be treated as partnerships by the Revenue. If they withhold from distribution an excessive amount of the profits which they earn, the profits which are not distributed can, nevertheless, be assessed as if they were the personal income of the members of the company, and subjected to Surtax The purpose of Subsections (2) and (3) of this Clause appears to be to exempt these incorporated partnerships—if I may call them so—from the Profits I ax altogether. I think it would be wrong that these owners of property should be subject to a

    1119
    special form of taxation by way of Surtax, on the one hand, and also this new special form of taxation by way of Profits Tax, on the other It would be double taxation. The purpose of this and the other two Amendments is to deal with the case where one of the members of the company happens to be a corporation. The wording of these two Subsections would appear to mean that it is only if all the persons concerned are private individuals that the privilege of exemption, in these circumstances, arises. I do not know whether that is the intention of the Government, but if it is I think it is very unfair, and there should be some amendment made to the Bill.
    It may be that one shareholder in a private company is a trustee corporation, holding as the legal personal representative of a deceased shareholder. Curiously enough, although that circumstance is expressly dealt with in the early part of this Clause, in the last two Subsections no exception is made. If a member of a company is himself a mere trustee company that would exclude the benefit given by these two Subsections. The wording of Subsection (3) is a little obscure. There is the further possibility that a member of a private company would be beneficially entitled, as a corporation, to some part of the shares in that company. Even if only 1 per cent. or less of the shares in one of these incorporated partnerships were held by another company, it is clear that, whatever the construction of Subsection (3) may be, the benefit of Subsection (2) is ousted altogether. This Amendment is designed to cover that case, but to cover it only so far as members of the company are individuals. It brings into operation Clause 37, Subsection (2), which deals with the case where a business is carried on jointly by private individuals and a company. We seek only to bring in machinery here so as to give exemption to the private individuals, but to leave the company to be struck at by the main provisions of the Bill.
    The Solicitor-General (Sir Frank Soskice): We are much obliged to the hon. Member for putting down this Amendment, because we think that he has uncovered a defect in the Clause. If a public company does happen to be one of the sub-apportionees, it would not come within the Clause. We will look
    1120
    more closely at the wording before the Report stage, and we will give an undertaking that we will carefully reconsider the matter with a view to endeavouring to remedy it.
    Sir H. Lucas-Tooth: I am much obliged to the learned Solicitor-General, and in view of that undertaking, 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."
    Sir H. Lucas-Tooth: There is a question which I would like to ask on this Clause which arises under the proviso to paragraph (i) That proviso says:
    "The reference in paragraph (a) of this Subsection to an unincorporated society or other body shall be deemed not to include a reference to individuals in partnership or to persons acting as the personal representatives of a deceased person."
    There is no reference to trustees acting as trustees. It may be found that businesses are being carried on by trustees who are not themselves technically legal personal representatives of a deceased person. I need not go into the legal technicalities. I am certain that the Solicitor-General will agree with me when I put it to him that there are cases in which trustees may be carrying on a business for quite an extended period, and I should have thought that the intention was to cover such cases. I did not give the Government notice that I was about to raise this point, and I shall be quite satisfied with an undertaking that it will be looked into between now and the Report stage of the Bill.
    The Solicitor-General: We will willingly look into that point. It is questionable whether "personal representative" does in its ordinary connotation cover a trustee.
    Clause ordered to stand part of the Bill.

    CLAUSE 26.—(Investment income to be included in computing profits.)
    Colonel Clarke: I beg to move, in page 23, line 22, at the end, to insert:
    "(c) interim income of colliery companies within the meaning of the Coal Industry Nationalisation Act, 1947; and"
    It will be remembered that under Section 19 of the Coal Industry

    1121
    Nationalisation Act it was arranged that compensation in respect of the transfer of interests to the National Coal Board was due on the vesting day, which was 1st January last, subject to the determination of the amount of compensation. That is a pretty big proviso because though the global sum has been arrived at, it has to be divided up, and that may take up to five years to do. I think that I ought to say here that I had certain interests in colliery shares at one time. It is evident that the various claims could only be settled later and so provision was made for the payment of some interest in the meantime to the holders of colliery shares on the vesting day. It was in no sense a distribution of profits; it was something on which they might live. In general, that interim income, as it was termed, was to consist of money in the form of interest on the compensation which they would receive in due course in the form of stocks at such rate or rates as may be prescribed later by the Treasury and to be paid also on dates to be named.
    There was a smaller complication here. The interim income was first of all to be known as revenue income and to extend over the first two years, and then there were interest payments which were to cover the remainder of the time. The revenue payments which applied to colliery concerns and subsidiaries of colliery concerns entitled the holders for each of the first two years to payment consisting, by and large, of half of their profits. There were certain covering circumstances whereby they should not sink below a basis which amounted to a dividend based on an amount equal to 4d. per ton of the disposable output. It is not known when the final fund will be paid or what interest will be paid meanwhile. I suggest that there would be grave hardship if the temporary payments to be made pending the satisfaction of compensation were treated as profits subject to Profits Tax. In the case of interest payments, both the time and the amount are uncertain. The recipients will no longer receive the commercial profits which they used to receive, nor will they be enabled to invest their money, which they will get in due course, in any alternative securities. At the time of these arrangements, a good many protests were made that holders were not being fairly treated, but those protests were unavail-
    1122
    ing. We hope things will not be made worse by this rather meagre allowance being further cut down by Profits Tax.
    There is one other point which I wish to raise. It is a little involved. Under Clause 34 (3) (c) the National Coal Board are not enabled to treat as deductions in computing their liability to Profits Tax, payments they have made in recouping the Crown liabilities incurred in respect of payments of compensation, including payments of interim income, to colliery concerns. I think that suggests that this interim income should be regarded as analagous to what in Clause 26 is termed "Franked investment income"; the point being that as "franked investment income" is exempted from Profits Tax these interim payments should be exempted, otherwise it would mean that the Profits Tax would be charged twice on the money in question. I hope that I have made the last point clear. The other points are, I think, quite simple, and I ask for the sympathetic consideration of the Chancellor of the Exchequer in these cases of what, I believe, are likely to be genuine hardship unless some alteration is made.
    6.15 p.m.
    The Solicitor-General: I am sorry, but we feel we cannot accept this Amendment. After all, what is the income which is excepted under the provisos in Clause 26? It is franked investment income and income which is not beneficially enjoyed. I do not see how it can be said that the interim payments under the Coalmines Act, Sections 19 and 22, whether they consist of interest or of interim payments proper, can in any way to be said to approximate to franked investment income. It is not income which, in any sense contemplated in Clause 26, has already borne tax. The whole essense of franked investment is that one does not want to tax income twice, but this other income has not been taxed, and so far as the interim payments are concerned they are calculated by reference to the income of the colliery companies during the period up to 1st January, 1947, and cannot be affected by the imposition of the Profits Tax. Their calculation is entirely independent of the imposition of the Profits Tax on any form of income. Therefore, we feel that the income which the hon. and gallant Gentleman is referring to cannot in any way be said to be the type of income which is contemplated by

    1123
    Clause 26. In the discussion on the last Clause the general principles of the tax were investigated, and it is one of its cardinal principles that it should be imposed upon the income of the company, including investment income, with the exception of what can be fairly stated to be income which has been taxed already, namely, franked investment income or income which is not beneficially enjoyed. Therefore, I feel we must refuse to accept this Amendment.
    Mr. Eccles: I am rather sorry the Solicitor-General has taken this point of view, although I can see the flow of his argument from the narrow legal basis on which he started. Really the question boils down to this. Is it intended to regard the colliery companies as in prolonged liquidation, or is it intended to regard them as investment companies? The decision of the Government is that they are to be regarded as investment companies, and therefore they are to be taxed on those two types of income which are part of the bargain struck with His Majesty's Government for the nationalisation of the coal mines. I wonder whether there is not a practical point of view, which may come within the legal argument which the learned Solicitor-General has put to us.
    His Majesty's Government made a bargain with the owners of certain assets that they would buy them out, and after some hard argument on both sides a sum of money was fixed and published and was passed by this House, and that was the end of that. Now it is not only His Majesty's Government which is buying up assets; foreign governments also from time to time buy out the assets which belong to British investors, and it is a very bad precedent indeed that when His Majesty's Government have settled on a sum of money, or the equivalent of a sum of money—that is an income as well as a capital sum—they should then put on a tax which has the effect of reducing the value of that compensation in the hands of the people who made the bargain. I suggest to the Government that that is not a good thing to do, because we are in the position of sellers of a good many assets in different parts of the world, and we particularly want bargains to he kept
    It is very often the case that there is a long calculation to be made after the main principle of the sale has been arranged,
    1124
    and during that period we do not want to see any diminution in the amount of compensation that we get That ought to weigh with His Majesty's Government. They made a bargain with the owners of the coalmines, they will no doubt make bargains with other owners, and once those bargains have been struck they ought to be regarded as something which is not to be adversely affected by taxation introduced subsequently. The Chancellor is not here, and I am aware that the Solicitor-General cannot have very much latitude, but I hope this may be looked at again from the wider point of view that the reduction of compensation by a Government after it has been agreed is not a good precedent for this country to set.
    Colonel Clarke: I put the legal case first to the best of my ability; but not being a member of the legal fraternity perhaps I did not put it at its best. May I therefore put it in another way, from the sympathetic side? I will take the example of a man who has worked for a colliery company all his life and who has, year by year, put his few savings into that company as men often do. On 1st January last, his savings were taken over and he was promised that in about five years' time he would be given Government stock in compensation. He has a small pension and was relying on the income from his savings to live on, and now, for the first few years, he is to get roughly half the income he did get from his investment. After that he will get interest at Government rates on the capital sum due to him, an amount which he has not yet been told, but the income will obviously be considerably less than he got. He will only be half as well off for the next five years as he was, and now he is to have another 12½ per cent. taken from that. That is the case as I see it from the sympathetic standpoint, and I feel it is stronger than from the legal standpoint. I would ask the Solicitor-General to put it to the Chancellor in that form, which I feel has a much greater appeal.
    Sir H. Lucas-Tooth: I desire to add to what was said by my hon. and gallant Friend and to press the Government on this Amendment. It seems to me quite wrong to treat this interim income as if it were similar to any other form of income which might be covered by the Clause. To begin with, these colliery companies are

    1125
    for the most part not really carrying on business at all. There may be exceptional cases, of course, where they have other businesses apart from those which have been taken over under the Coal Act, but in the normal way they are in a sense, merely trustees. They are not trading companies such as are intended to be covered by these Clauses of the Finance Bill. It is physically impossible for those concerns to plough their profits back into their business, there is no business for them to plough them into; so that though the Government justify the whole machinery of these Clauses as a device for preventing excessive distribution and for encouraging companies to put their profits back again into their businesses, in this case it is physically impossible for them to do so. I should have thought, if there were no other reason, that would have been one which would take it out of the general ambit of these Clauses.
    Further, these interim payments are not in the nature of profits, or rents, or something of that kind. It is quite true of course that they are income, because they come into the hands of the recipient, are taxed in his hands, and can be treated by him as income. On the other hand, they are entirely different from any other form of income in the sense that they are merely compensation which was avowedly substantially less than the expectation of income of those to whom the compensation was given. That was the Government's own case. They said that those who were engaged in the business of coalmines were engaged in a risky business. As a result of legislation the whole of this industry was taken over and these people were to be paid a corresponding amount of income, but that payment was only to be interim payment in order to enable the recipients to carry on over the intervening period until a proper amount of compensation, which would carry income in the full sense of the word, was arrived at. These are merely some payments of sums of money to cover an uncertain period, and I should have thought that on the whole they were quite unlike any sort of income at all. They are much more in the nature of damages awarded in respect of a loss or some payment of that kind, which might very well be in the nature of income in the hands of the recipients, but quite unlike income in any other sense of the word. There are good reasons for urging
    1126
    that these payments should be treated quite exceptionally, and I hope the Government will reconsider this matter.
    6.30 p.m.
    Mr. Assheton: A strong case has been put to the Government by my hon. Friends on this side. The Solicitor-General was not very sympathetic in the reply which he made, and I am not quite sure whether the Chancellor of the Exchequer, who is not unfortunately here at the moment, appreciates what has happened. The Bill cuts into a certain kind of profit which it was never really intended to cut into. I am quite certain that when this thing was being considered no thought was given to this class of income, but when the draftsmen got to work it became apparent that it had to be dealt with in some way.
    What happened in the case of these colliery companies? A settlement was made with the colliery-owners, and that settlement is being upset by this tax which is being adopted subsequent to the settlement which was introduced. So far as I can recollect, arrangements were made with the proprietors of the colliery companies that they were to receive half of a recent year's income. There was an alternative as to which year. There was no thought in the minds of the colliery company nor do I think there was in the minds of the Government, that a new tax would be imposed which would upset the basis of the settlement that was made. I ask the Government to think this over again and see whether they cannot come to the conclusion that it is not a really fair thing to do. I do not think it is good for the credit of the Government that when a settlement has been reached it should be subsequently upset by special taxation of this sort. I beg the Government sincerely to reconsider it, and perhaps if the Financial Secretary could tell us that it might be considered before the Report stage we would not be forced to divide upon it. It is something to which we need a more satisfactory answer than we have had.
    Sir Arnold Gridley: As one of the members who sat on the Standing Committee considering the Coal Bill, I can recall the discussions which took place, on the terms which ultimately appeared in the Bill I am very jealous that this Government or any other Government

    1127
    should observe the sanctity of terms approved by Parliament. Here is certainly something which was never in the mind of anybody considering the Coal Bill at the time. There was no idea that the terms then decided upon might be subject to any whittling down by Treasury legislation which might be brought in hereafter. Therefore, I suggest seriously to the Government that if they do not accept this Amendment they will be committing a breach of contract, and that is a position in which no Government should be which has any respect for its own reputation. If I remember rightly those who were going to be dispossessed of their colliery undertakings were to receive a capital sum, but they were also to receive an interim revenue sum. If the profits were not easily ascertainable, there was to be a yardstick of 4d. a ton on the tonnage of coal previously disposed of by the individual companies. Half of that sum was the amount which was to be distributed to the shareholders. If this provision is put into the Bill is that yardstick also to be modified? Here is a point on which the Government ought to think again. This Amendment is quite reasonable and proper and one which the Government in their own interests should most certainly accept.
    Lieut.-Commander Gurney Braithwaite: We were hoping that the right hon. Gentleman the Financial Secretary was going to say a few words, because he rose in his place at the time my hon. Friend the Member for Stockport (Sir A. Gridley) was called. I hope that the right hon. Gentleman will now give us his opinion on this matter.
    Mr. Glenvil Hall: It is quite true that I did rise in my place when the hon. Member for Stockport (Sir A. Gridley) was called, but during the time he was speaking I had an opportunity to think again, and it occurred to me that it would only be prolonging the proceeding if I
    did get up, because frankly I can add nothing to what the Solicitor-General has said. The burden of his reply en this point was that this is income, and, being income, it must be subject to Income Tax law. That is the complete answer to what has been said, and I am sorry I cannot add to it, nor can I give a promise on behalf of my right hon. Friend that he will look at this again in the light of the discussion which we have had. The matter has been discussed, and we saw the Amendment on the Paper. Therefore, it has actually been called to our notice afresh, and, despite what has been said, we think that what is proposed in the Bill is right and proper and on that we cannot go back.
    Mr. Assheton: The Financial Secretary has told us that this is income and that the Income Tax law would be upset it the Government were to give way to this Amendment. We are dealing with Part IV, the Profits Tax, and not with Income Tax. Everything that has been said on this side of the Committee only confirms us in our view that the Government are doing something which is unjust. I know the right hon. Gentleman has not the advantage of having the Chancellor of the Exchequer with him at the moment, nor can I expect that the First Lord of the Treasury, whom we are glad to see in his place, would have given his personal attention to this detail, and we will not press him as head of the Treasury to offer an opinion. However, I think it would be convenient if he would authorise the Financial Secretary to say a word of comfort to this side of the Committee which put forward such a strong case against this injustice. If we do not receive an assurance, I can only advise my hon. Friends to divide on this Amendment.
    Question put, "That those words be there inserted."
    The Committee divided: Ayes, 104; Noes, 279.

    Division No. 244.]

    AYES

    6.40 p.m.

    Amory, D. Heathcoat

    Boyd-Carpenter, J A

    Digby, S. W

    Assheton, Rt. Hon. R

    Bracken, Rt. Hon. Brendan

    Dugdale, Maj. Sir. (Richmond)

    Astor, Hon. M.

    Braithwaite, Lt.-Comdr. J G

    Eccles, D M.

    Baldwin, A. E.

    Buchan-Hepburn, P. G. T

    Eden, Rt. Hon A

    Beamish, Maj. T. V. H

    Challen, C

    Gage, C.

    Bennett, Sir P.

    Clarke, Col. R S

    Gammans, L. D

    Birch, Nigel

    Conant, Maj. R. J. E

    Gomme-Duncan, Col A

    Boles, Lt.-Col D. C. (Wells)

    Crookshank, Capt. Rt Hon H.F.C

    Grant, Lady

    Boothby, R

    Crosthwaite-Eyre, Col O. E

    Gridley, Sir A

    Bower, N

    Cuthbert, W. N

    Hannon, Sir P (Moseley)

    Hare, Hon. J. H. (Woodbridge)

    Manningham-Buller, R E

    Smith, E. P (Ashford)

    Haughton, S. G.

    Marlowe, A. A. H.

    Smithers, Sir W.

    Head, Brig. A. H.

    Marshall, D. (Bodmin)

    Snadden, W. M.

    Headlam, Lieut.-Col. Rt. Hon Sir C

    Molson, A. H. E.

    Spearman, A. C. M.

    Henderson, John (Calhcart)

    Morris-Jones, Sir H.

    Spence, H. R.

    Hinchingbrooke, Viscount

    Morrison, Maj. J. G. (Salisbury)

    Stanley, Rt. Hon. O.

    Hogg, Hon. Q.

    Mott-Radclyffe, Maj. C. E.

    Stoddart-Scott, Col. M.

    Hope, Lord J.

    Mullan, Lt. C. H.

    Stuart, Rt. Hon. J. (Moray)

    Hudson, Rt. Hon. R. S. (Southport)

    Neven-Spence, Sir B.

    studholme, H. G.

    Hutchison, Lt.-Cm. Clark (E'b'rgh W.)

    O'Neill, Rt. Hon. Sir H

    Sutcliffe, H

    Hutchison, Col. J. R (Glasgow, C.)

    Osborne, C.

    Taylor, Vice-Adm E A. (P'dd't'n, S)

    Jarvis, Sir J.

    Peake, Rt Hon. O

    Touche, G. C.

    Joynson-Hicks, Hon. L. W.

    Pitman, I. J.

    Vane, W. M F

    Lambert, Hon. G

    Poole, O. B S. (Oswestry)

    Wakefield, Sir W. W

    Langford-Holt, J.

    Prescott, Stanley

    Walker-Smith, D.

    Linstead, H. N.

    Price-White, Lt.-Col. D

    Ward, Hon. G. R.

    Lucas-Tooth, Sir h.

    Prior-Palmer, Brig. O

    Webbe, Sir H. (Abbey)

    Lyttelton, Rt. Hon. O

    Raikes, H. V.

    Wheatley, Colonel M. J.

    MacAndrew, Col. Sir C

    Ramsay, Maj. S.

    White, J. B. (Canterbury)

    McCallum, Maj. D.

    Reed, Sir S. (Aylesbury)

    Willoughby de Eresby, Lord

    Mackeson, Brig. H. R

    Ropner, Col L.

    Winterton, Rt. Hon Earl

    McKie, J. H. (Galloway)

    Ross, Sir R. D. (Londonderry)

    York, C.

    Maclay, Hon. J. S.

    Sanderson, Sir F.

    Macmillan, Rt. Hon. Harold (Bromley)

    Shephard, S. (Newark)

    TELLERS FOR THE AYES:

    Macpherson, Maj. N. (Dumfries)

    Shepherd, W. S. (Bucklow)

    Mr. Drewe and

    Maitland, Comdr. J W

    Smiles, Lt.-Col Sir W

    Lieut.-Colonel Thorp.

    NOES

    Adams, Richard (Balham)

    Daggar, a

    Holmes, H E. (Hemsworth)

    Adams, W T. (Hammersmith, South)

    Daines, P.

    House, G.

    Allen, A. C. (Bosworth)

    Dalton, Rt. Hon H.

    Hoy, J.

    Allighan, Garry

    Davies, Edward (Burslem)

    Hudson, J. H (Ealing, W.)

    Alpass, J. H.

    Davies, Ernest (Enfield)

    Hughes, H. D. (W'lverh'pton, W.)

    Anderson, F. (Whitehaven)

    Davies, Harold (Leek)

    Irving, W. J

    Attewell, H. C.

    Davies, Hadyn (St. Pancras, S.W)

    Isaacs, Rt. Hon. G. A.

    Attlee, Rt. Hon. C. R

    Davies, R. J. (Westhoughton)

    Janner, B.

    Austin, H. Lewis

    Deer, G.

    Jay, D. P. T.

    Ayles, W. H.

    Delargy, H. J.

    Jeger, G. (Winchester)

    Bacon, Miss A

    Diamond, J.

    Jeger, Dr. S. W. (St Pancras, S.E.)

    Baird J.

    Dodds, N. N

    John, W.

    Balfour, A.

    Donovan, T.

    Jones, D. T. (Hartlepools)

    Barnes, Rt. Hon. A. J.

    Driberg, T. E. N.

    Jones, Elwyn (Plaistow)

    Barstow, P. G.

    Dumpleton, C. W.

    Jones, P. Asterley (Hitchin)

    Barton, C.

    Durbin, E. F, M.

    Keenan, W.

    Beattie, J. (Belfast, W.)

    Ede, Rt. Hon J. C.

    Kinghorn, Sqn.-Ldr. E

    Bechervaise, A. E

    Edwards, Rt. Hon. Sir C. (Bedwellty)

    Kinley, J.

    Benson, G,

    Edwards, N. (Caerphilly)

    Kirkwood, D.

    Berry, H.

    Edwards, W. J. (Whitechapel)

    Lang, G.

    Beswick, F

    Evans, S. N. (Wednesbury)

    Lee, F. (Hulme)

    Bevan, Rt. Hon. A. (Ebbw Vale)

    Ewart, R.

    Lee, Miss J. (Cannock)

    Bing, G. H. C

    Fairhurst, F.

    Leslie, J. R.

    Binns, J

    Farthing, W J

    Levy, B. W.

    Blackburn, A R

    Fernyhough, E.

    Lewis, A. W. J. (Upton)

    Blenkinsop, A

    Follick, M

    Lewis, J. (Bolton)

    Blyton, W. R.

    Foot, M. M

    Lipton, Lt.-Col. M

    Bottomley, A. G

    Forman, J. C.

    Logan, D. G.

    Bowden, Fig.-Offr. H. W

    Fraser, T. (Hamilton)

    Longden, F.

    Bowles, F. G. (Nuneaton)

    Freeman, Peter (Newport)

    Lyne, A. W.

    Braddock, Mrs. E. M. (L'pl, Exch'ge)

    Ganley, Mrs. C. S.

    McAdam, W.

    Braddock, T. (Mitcham)

    George, Lady M. Lloyd (Anglesey)

    McAllister, G.

    Brook, D. (Halifax)

    Gibbins, J.

    McEntee, V. La T

    Brooks, T. J (Rothwell)

    Gibson, C. W.

    McGhee, H. G.

    Brown, George (Belper)

    Gilzean, A.

    Mack, J. D.

    Brown, T. J. (Ince)

    Glanville, J. E. (Consett)

    McKay, J. (Wallsend)

    Bruce, Maj. D. W. T.

    Goodrich, H. E.

    McKinlay, A. S.

    Buchanan, G.

    Gordon-Walker, P. C

    Maclean, N. (Govan)

    Burke, W. A.

    Greenwood, A. W. J (Heywood)

    McLeavy, F.

    Butler, H. W. (Hackney, S.)

    Grenfell, D. R.

    Mainwaring, W. H.

    Byers, Frank

    Gray, C. F.

    Manning, C. (Camberwell, N.)

    Callaghan, James

    Griffiths, D. (Rother Valley)

    Manning, Mrs L. (Epping)

    Castle, Mrs. B. A.

    Griffiths, Rt. Hon. J. (Llanelly)

    Marshall, F. (Brightside)

    Chamberlain, R. A

    Griffiths, W. D. (Moss Side)

    Martin, J. H.

    Champion, A. J.

    Guest, Dr. L. Haden

    Medland, H. M

    Chater, D

    Gunter, R. J

    Mellish, R. J.

    Chetwynd, G. R.

    Guy, W. H.

    Messer, F.

    Cocks, F S

    Hall, W. G.

    Middleton, Mrs. L

    Coldrick, W.

    Hamilton, Lieut.-Col. R

    Mikardo, Ian

    Collindridge, F.

    Hardy, E. A.

    Millington, Wing-Comdr E P

    Collins, V. J.

    Harrison, J.

    Mitchison, G. R

    Caiman, Miss G. M.

    Herbison, Miss M.

    Montague, F.

    Cooper, Wing-Comdr. G

    Hewitson, Capt. M

    Moody, A, S.

    Corlett, Dr. J.

    Hicks, G.

    Morgan, Dr H. B

    Cove, W. G.

    Hobson, C R

    Morley, R.

    Crawley, A

    Holman, P

    Morris, Lt.-Col. H. (Sheffield, C.)

    1130

    1131

    Morris. P (Swansea, W.)

    Roberts, Emrys (Merioneth)

    Thomas, D. E. (Aberdare)

    Morris, Hopkin (Carmarthen)

    Roberts, Goronwy (Caernarvonshire)

    Thomas, I. O (Wrekin)

    Morrison, Rt Hon H. (Lewisham, E)

    Roberts, W (Cumberland, N.)

    Thomas, George (Cardiff)

    Mort, D L

    Robertson, J. J. (Berwick)

    Thomson, Rt. Hn. C. R. (Ed'b'gh, E)

    Moyle, A

    Rogers, G. H. R

    Thurtle, Ernest

    Murray, J. D

    Ross, William (Kilmarnock)

    Timmons, J

    Nally, W.

    Royle, C.

    Titterington, M F

    Naylor, T. E

    Sargood, R.

    Tolley, L.

    Neal, H. (Claycross)

    Scott-Elliot W

    Tomlinson, Rt. Hon G

    Nichol, Mrs M. E. (Bradford, N.)

    Segal, Dr. S

    Ungoed-Thomas, L

    Nicholls, H. R. (Stratford)

    Shackleten, E. A. A.

    Vernon, Maj W F

    Noel-Buxton, Lady

    Shawcoss, C. N (Widnes)

    Viant, S. P

    Oldfield, W H

    Shurmer, P

    Walkden, E

    Paget, R. T.

    Silverman, S S. (Nelson)

    Wallace, G. O (Chislehurst)

    Paling, Will T, (Dewsbury)

    Simmons, C J

    Wallace, H. W (Walthamstow, E.)

    Pargiter, G A

    Skeffington-Lodge, T C

    Warbey, W. N.

    Parker, J

    Skinnard, F. W.

    Watson, W. M.

    Parkin, B. T

    Smith, C (Colchester)

    Webb, M. (Bradford, C.)

    Paton, J (Norwich)

    Smith, H. N. (Nottingham. S)

    Wells, P. L. (Faversham)

    Pearson, A

    Snow, Capt. J. W

    Wells, W. T (Walsall)

    Peart, Capt. T. F.

    Solley, L. J

    West, D. G

    Platts-Mills, J. F. F.

    Sorensen, R. W

    Westwood, Rt. Hon J.

    Poole, Major Cecil (Lichfield)

    Soskice, Maj. Sir P

    White, H. (Derbyshire, N.E.)

    Popplewell, E.

    Stamford, W

    Whiteley, Rt. Hon. W

    Porter, E. (Warrington)

    Steele, T,

    Wilcock, Group-Capt. C A R

    Porter, G. (Leeds)

    Stephen, C.

    Willey, O. G (Cleveland)

    Price, M. Philips

    Stewart, Michael (Fulham, E.)

    Williams, D J. (Neath)

    Proctor, W. T

    Stokes, R. R.

    Williams, J. L. (Kelvingrove

    Pryde, D. J.

    Strauss, G. R. (Lambeth, N.)

    Williams, W R (Heston)

    Pursey, Cmdr. H

    Stress, Dr. B.

    Williamson, T

    Randall, H E

    Stubbs, A. E.

    Willis, E.

    Ranger, J

    Summerskill, Dr. Edith

    Wills, Mrs. E. A

    Rankin, J,

    Swingler, S.

    Woods, G. S

    Rees-Williams, D

    Sylvester, G O.

    Yates, V. F

    Reeves, J.

    Symonds, A. L.

    Young, Sir R. (Newton)

    Reid, T (Swindon)

    Taylor, H. B. (Mansfield)

    Richards, R

    Taylor, R. J. (Morpeth)

    TELLERS FOR THE NOES:

    Robens, A

    Taylor, Dr. S. (Barnet)

    Mr. Joseph Henderson and

    Mr. Hannan.

    Mr. Birch: I beg to move, in page 23, line 22, at the end, to insert:
    "(c) interest on any securities issued by His Majesty's Government which is provided directly or indirectly out of the Consolidated Fund of the United Kingdom or of Northern Ireland or out of moneys provided by the Parliament of the United Kingdom or the Parliament of Northern Ireland and interest on any securities issued by the Government of any part of His Majesty's Dominions outside the United Kingdom, of any British protectorate or British protected state or of any territory in respect of which a mandate on behalf of the League of Nations has been accepted by His Majesty, and interest on any securities issued by the Government of any foreign state where the securities are issued in consideration of or as compensation for the taking over by that Government of any assets of or the business of the corporate body; and."
    The object of this Amendment is to relieve any body corporate from paying Profits Tax on securities issued by the Government which they may receive as compensation for nationalisation, and as nationalisation, like smallpox, is highly catching, it is extended to bonds which might be received for compensation in Colonial or foreign countries. There are four main reasons for urging the Amendment. The first reason was dealt with by one of my hon. Friends on the last
    1132
    Amendment. It is that we are doing something to alter either the bargain struck between the Government and the owners or the terms imposed by an Act of Parliament. We are doing something which has not been done before. This has already been forcibly put by my hon. Friend the Member for Stockport (Sir A. Gridley).
    The second point is that this provision is accidental and capricious as it now stands in the Bill, because if compensation is given in the stock of a corporate body created by Parliament, that corporate body is subject to the Profits Tax, and, therefore, the income received from that corporate body ranks as franked income. In some cases it will be subject to Profits Tax upon the stock received, and in some cases it will not be so subject. The third point is that it seems a wholly unreasonable extension of a tax which is intended to be a tax on the profits of trade, because it is really a tax on a compulsory investment which nobody ever wanted to make. In the case of many colliery companies and road transport concerns, it will really be a tax on interest accruing in the course of the liquidation of those companies and not in any way a tax on the profits of trade.

    1133
    I would like to extend this argument of the unreasonable extension of the Profits Tax. It involves a certain amount of research in tax law. Here I shall bow to the superior knowledge of the Solicitor-General, though sometimes when I hear him talking on high finance I wish he would stick to agriculture. Under Section 19 of the Finance Act, 1937, which set up the National Defence Contribution, the N.D.C. was charged on:
    "… the profits arising … from any trade or business …"
    —and it was further provided under Section 20 that the profits should be computed on Income Tax principles. Those principles are defined in Section 20 (1) as meaning:
    "… the principles on which the profits arising from the trade or business are computed for the purpose of Income Tax under Case 1 of Schedule D."
    If we look at Case 1 of Schedule D in the Income Tax Act, 1918, it is defined as:
    "… tax in respect of any trade."
    Income from investments or other property cannot really be classed as a profit under Case r of Schedule D of the Income Tax Act, 1918 It may possibly be chargeable in other cases, but not in that one. I would like to adduce one further point, that the investment income of a trader does not rank as a profit of his trade. In Section 33 of the Finance Act, 1926, it is provided that a loss incurred in trade can be carried forward to set off against future profits, but a loss cannot be set off against an ordinary trader's investment income in any subsequent year. It shows that the investment income is not considered for the purpose of Income Tax law as being a profit. Returning to the N.D.C. again, paragraph 7 of the Fourth Schedule to the Finance Act, 1937, provided that for N.D.C. purposes income from investment should be included in the profits only in the case of the business of a building society, bank, assurance company or business consisting of dealing in investments, and not otherwise.
    I submit to the Solicitor-General that all these things go to show that there has been under this Clause a very large extension of the scope of the income which can be looked upon as subject to the Profits Tax. That is pernicious in general, and it is particularly pernicious in the special case which I am now urging of this in-
    1134
    come on stocks received in compensation for nationalisation which cannot be in any way considered as a profit from trade.
    The fourth and last argument which I adduce should appeal particularly to the Chancellor of the Exchequer. That is the effect this Clause is likely to have upon the gilt-edged market. The market at the moment is in none too healthy a state. The Committee well know that in order to maintain the market and to make it rise the Chancellor of the Exchequer has been willing to inflate bank deposits and has caused a larger general distortion of our whole economy than anybody has ever done before for a like purpose. That is the biggest single mistake—a most grossly foolish one—by this Government. The effect of this will be to increase the Chancellor's difficulty, because if he is determined, as he has said again and again, to hold the gilt-edged market at its present level or at a higher level, the last thing he wants to do is to have very large sales of gilt-edged stock which he will have to buy, because nobody else will, or force the banks to buy. The effect of charging people Profits Tax in addition to the other taxation they have to pay on gilt-edged stock bearing a low rate of interest will certainly encourage people to sell them and either put the money on deposit or buy other investments which rank as franked income. That is a consideration of some weight if the Chancellor really intends to pursue that policy. For those four reasons, I urge the Solicitor-General to accept this Amendment.
    The Solicitor-General: If I may deal with the arguments adduced by the hon. Member for Flint (Mr. Birch) in reverse order, in his last argument he said that the tax would encourage people to sell Government securities and buy franked investment income. I was not quite sure what he meant. Franked investment income is income which has already borne Profits Tax. It would not be much good for people to sell investments which bear that tax in order to exchange them for other investments which bear it equally. There is not very much in that argument.
    With regard to his other arguments, he said we were altering the bargain which was entered into between the Government and the owner who was dispossessed of his undertaking That is not in the least hit correct. In the first place, if part of the bargain is that one is given a sort of

    1135
    income—if one is given securities, whether in the nationalised undertakings or Government securities or any other securities which produce an income—if, in other words, the terms of the settlement are that one receives a sort of income, it is not in any way breaking the bargain to say that that which has come to one as a source of income shall be subject to the ordinary incidence of taxation which falls on sources of income.
    7.0 p.m.
    If this were a special tax imposed upon Government securities issued by way of compensation, there might be something in the argument, but it is not. This is a general tax imposed upon all trading and investment income of all companies. Therefore, it is incorrect to say that this is in any sense a breaking of a bargain. If part of the bargain is to give a person income, it is equally part of the bargain that that income should be subject to the ordinary incidence of taxation to which all other incomes of that type are subject, That is all that has been done. In no sense is it a breach of bargain. Not only that, but the Amendment is drafted not only to apply to securities which have already been issued by way of compensation, but to apply to all securities which may hereafter be issued. If securities are hereafter issued by way of compensation, and are subjected to the existing Profits Tax law, how can it be said that there is any breach of faith or bargain? Hereafter securities will be issued by way of compensation. It is known now that those securities will be subject to Profits Tax, so how can it be said that there is any breach of an undertaking?
    The hon. Gentleman said it was franked income. That again, in my submission, is completely wrong. Franked investment income means income which has already borne tax. This is, ex hypothesi a Government security—either a bond in a national undertaking or an ordinary Government security with a fixed rate of interest. How can what is being done with regard to the sources from which that interest comes affect the recipient of that interest? It is a fixed rate of interest. Whether it has, in a long and indirect sense, been subjected to any tax in any provision, its history does not at all affect the recipient of the interest, and he gets exactly the same amount.
    Mr. Birch: If I may interrupt the Solicitor-General, it does, because under the provisions of this Bill the question is whether this rates as a profit for the purposes of assessing profits for the Profits Tax, and franked income is not aggregated to profit for purposes of assessing liability to Profits Tax.
    The Solicitor-General: Certainly, it is excepted from the investment income which Clause 26 considers as part of one's income—
    Mr. Birch: Exactly.
    The Solicitor-General: —because it is said that the ultimate recipient is in the position that if tax is charged twice on what ultimately comes to him, he gets less in the result. Supposing he is a shareholder in a company, which company draws income from another company, if that income is to be taxed twice, he naturally gets less because it has suffered tax twice. In the case of a Government security with a fixed rate of interest, however, he is not affected in the least. Even if it could be said that in any indirect way the income from which the security interest is drawn has ever been subjected to tax—and it is doubtful whether one could say that—it could not possibly be said to come within the scope of franked investment income. It is nothing of the sort; it is a completely different genus.
    It is said that it is a tax on a compulsory investment, but that really does not seem to me to be a ground for exempting it. It is a form of investment income just like countless other forms of investment income, and if one starts choosing or selecting this particular sort of investment income on the ground that it is compulsory, one can find equally heaps of other reasons for excluding all sorts of other investment income. When we were discussing the previous Amendment, it was said that a strong case of hardship might be made equally in the case of any trader who had met with adverse trading conditions. One might make an equal case of hardship in his case, but if one started to select particular categories of income and said that every particular instance of that sort was not subject to Profits Tax, where would one stop? One would end by removing practically all kinds of investment income. The broad principle upon which this is based is

    1137
    that Clause 26 brings in investment income as part of the income which is within the purview of Profits Tax. It was not in before, but Clause 26 brings it in. That is the answer to the point about the Finance Act, 1937, which, for the purposes of National Defence Contribution, included only particular kinds of investment income. What the hon. Gentleman suggests is that this Clause is an innovation, that is, it extends the 1937 Act. If he had moved an Amendment to delete this Clause, perhaps his arguments would have been relevant, but once it is accepted that investment income must form the subject of Profits Tax, there is, in my submission, no ground for saying that this form of investment income should be excluded.
    Sir A. Gridley: What is the position of tax reserve certificates under this Clause?
    The Solicitor-General: Frankly, I am not certain precisely what is the incidence of those certificates, but I will find out and inform the hon. Gentleman.
    Sir A. Gridley: I believe they are not subject to tax now, but I want to be sure that they will not become subject to it.
    The Solicitor-General: Offhand, my answer which I give subject to verification is that they are not subject to tax now and would not be. I would like to verify that, though I think I am right.
    Captain Crookshank: They are specifically not covered by N.D.C., and therefore, if this is the real successor of N.D.C., they should not be covered now. The point is whether or not it ought to be said specifically in the Bill.
    Sir H. Lucas-Tooth: There is one special class of security in respect of the nationalised concerns which requires special treatment, and that is the inalienable right to compensation paid in respect of the nationalisation of the coal mines. The inalienable stock is in quite a different class from any other stock of which I know. The Government have applied a perfect pincer movement. They have said to the colliery companies, "This stock in your hands may not be alienated." The concerns will not be able to carry on their trade. They will not, therefore, be able to do anything but distribute income from stock, and they will have no opportunity, therefore, to do
    1138
    anything but pay the higher rate of the Profits Tax. I should have thought that, in the case of the inalienable stock which is provided for in the Coal Mines (Nationalisation) Act, there is a class of stock quite different in character from any other security in this country. It may be that there are other inalienable securities in a number of other nationalisation Measures—I do not know—but here we have a different class and one which, I should have thought, should have different treatment in this Clause.
    Amendment negatived.
    Motion made, and Question proposed, "That the Clause stand part of the Bill."
    Mr. Eccles: It is a new conception that all this investment income should now rank for tax. I am not quite sure that it is right to do it in so sweeping a way. It is quite possible for the Government to put in some exceptions if they wish to do so. I am absolutely confident that the Government will continue to allow the discount on tax reserve certificates, but perhaps the learned Solicitor-General will let us know that later? In so far as they allow that income to be an exception to the general run of investment income, they have already made a breach in the wall. It is certainly worth considering whether there are one or two other kinds of income which should be treated as the discount on tax reserve certificates is, surely, to be treated.
    We have had the instance of colliery interim income, and the income from Government securities which are handed over to companies which have been nationalised I would point out that if the Government stock that is given in exchange for a nationalisation bargain is distributed among the shareholders individually, they do not have to pay this tax. They have to pay it only if it passes through a company. If the company, whether it be a railway company or a colliery company, remains in being and keeps these Government securities in its portfo o, it is then treated as if it were an investment company, whereas it may be on the road towards liquidation and it may not want to carry out the liquidation until it has cleared up the whole question of how much it will get That may take many years Therefore, it seems extremely unfair that if the securities are distributed, the shareholders in the original undertaking pay no tax, but if the securi-

    1139
    ties are kept in the old company, they do pay tax. It is not in the interest of the Chancellor of the Exchequer that these securities should be distributed as quickly as possible, because a lot of money would then be changing hands. People would say, "We cannot continue drawing 2¾ per cent." or whatever it is—" we must try to find another security which yields a little more."
    This Clause will hit the co-operative societies very hard. I do not see why I should defend the "Co-op," but perhaps hon. Members opposite do not realise what will happen. As I understand it, the "Co-op" pay out money to their large body of shareholders, and very often that money is re-deposited with the "Co-op," who, acting as bankers, buy securities with this money and then pay out the interest again to the depositors. All that income will now rank as profits for Profits Tax. Let me pass from the "Co-op" to a similar sort of business in private enterprise. There are mining houses which take on deposit the cash balances of their subsidiaries, and give them a rate of interest which they are able to earn in the London money market. It is an "in-and-out" transaction. All that will be caught, which is not at all fair. They will have to reduce what they pay to the subsidiary companies, just as the "Co-op" will have to reduce what they pay out to their members, because of this tax. The purpose of the Profits Tax is to hit the genuine profits of trade, and not to hit these types of investment transactions which are not in the course of trade at all. I think there are certain exceptions which should be included in Clause 26, and, although we nave not put down an Amendment to bring in those items, we shall certainly be forced to do so next year.
    7.15 p.m.
    Sir H. Lucas-Tooth: I would like to know whether sub-paragraphs (a) and (b) referred to Subsection (1) of this Clause cover debenture interest or dividends on preference shares of companies which have to pay the Profits Tax. I think the answer is that debenture interest and the dividends on preference shares would both rank as franked income for this purpose, but it is not clear, and I would like to have an answer. If I am right in supposing that the income derived from both sources would count as franked income,
    1140
    it seems that it reduces the learned Solicitor-General's argument on the last Amendment to nonsense, because he said the whole basis of the Bill was that anyone who received the income would have to count in that income for the purposes of this tax. I understand the answer is that if a man holds Government stock and receives the interest on it, it will not be franked income; if he holds debentures in an ordinary trading company in this country, it will be franked income. If he holds debentures in a trading company which happens to be registered outside this country, that will not be franked income. And so we go merrily on. There is neither rhyme nor reason about the way in which this Bill carries out the new provisions with regard to the exemptions of investment income. This Clause, of course, alters the whole basis of the Profits Tax so far as concerns the assessment of what are to be profits for the purposes of the tax. Broadly speaking, it has hitherto been a tax on the trading profits of a concern which have been taxed. Hereafter, it becomes a tax on corporation incomes generally. There is that complete and fundamental change, but it does not seem to me that the way in which it is being done is at all logical, for the reason which I have given.
    It may well be that there is some good ground for saying that where a company is receiving a dividend from a subsidiary company overseas the dividend from such a subsidiary might be brought into account. I am not satisfied that that should be done, but I think it is arguable. It is going much too for to say that any company which happens to have investments in another company overseas or in any concern, whether it is the British Government or whatever it may be, which does not happen to have borne the Profits Tax already, should itself have to sustain tax on the income from those investments. On the whole, it is most desirable that we should encourage trading concerns in this country to hold substantial reserves, and the best way to hold those reserves is to invest some part of their capital in outside concerns or in Government securities. Obviously, it gives any trading concern much greater strength if the whole of its assets are not in the form of things which it is using for the purposes of its trade,

    1141
    but if it has some outside capital and sources of income to which it can turn.
    I do not think there is any disagreement on either side of the Committee that that is a most desirable state of affairs. If the members of the company own Government securities, they will not have to pay any Profits Tax upon the interest which they get from them, but if they own the securities through a company and they receive the interest through that company, they will be penalised to the extent of 12½ per cent. The result must be, for members and others who control companies, to put a fairly steady pressure on the management not to hold larger sums in reserve—sums invested in outside concerns—than are absolutely necessary. In other words, the pressure must be in the direction of forcing companies to reduce the amount of their reserves. I should have thought that that was wholly bad and contrary to the policy which anyone in this Committee desires to see pursued.
    Mr. Osbert Peake: As I have listened to this discussion, I have become more and more amazed at the moderation of my hon. Friends on these benches in the Amendments which have been put forward on this Clause. The general scheme of the new Profits Tax is that it is at the rate of 12½ per cent. subject to a rebate for profits not distributed. Individuals do not pay Profits Tax and henceforward partnerships are not to pay Profits Tax. One might well have expected that the position regarding investment incomes would have been maintained as it was under the old National Defence Contribution. We have not had from the Solicitor-General any explanation of the curious phrase in Subsection (1) "franked investment income." Some people, I believe, understand that that refers to the unearned increments of the hon. and learned Solicitor-General himself.
    Under the old set-up, any investment income derived from a company which had already paid National Defence Contribution was exempted from the computation of Profits Tax. The new scheme, apparently, is that all investment income ranks as part of the income of the company for the purpose of Profits Tax unless it falls within one of the two or three exceptions mentioned in Subsection (1). There are some absurd cases. One that
    1142
    has been mentioned is the interim income paid to the colliery concerns which have been expropriated, which have been prevented from carrying on their trade or business, and whose only duty, pending their ultimate liquidation, is to divide amongst their stockholders the interim income which they receive. It seems fantastic to charge them with a tax whose whole object is to encourage ploughing back the profits into the business. In that case, business is no longer being carried on. Their sole duty is to divide their income and ultimately their capital amongst their stockholders. They are penalised by the imposition of a Profits Tax upon their interim income.
    Equally strong is the case where Government stocks are issued in exchange for nationalised assets. Suppose that in the case of electricity or transport the stock issued by way of compensation was stock of the electricity or transport undertakings. Then that investment income derived by the expropriated company would not be subject to the Profits Tax because the payments on the interest would be derived from a concern carrying on a trade or business which is subject to Profits Tax. If, however, the stocks issued in exchange for expropriation are Government stocks—it is a mere accident which of these two courses is taken—then the interest on the Government stock ranks as profit of the company for the purpose of the new Profits Tax. I confirm everything, that has been said by my hon. Friends about this Clause. We put forward certain Amendments which we thought were moderate in character. It transpired in the course of our discussion that even the investment income of the co-operative societies will now attract Profits Tax. For that, and the reasons adduced by my hon. Friends, we feel.we must go into the Lobby to vote against this Clause.
    Lieut.-Commander Braithwaite: I wish to make a suggestion which might be of advantage in the conduct of our affairs. We have a long pilgrimage before us during the night watches. It is our duty to come here and to take part in these Debates. Had the right hon. Gentleman the Chancellor of the Exchequer been with us during the last half hour or so, I think he would have been the first to say that this discussion underlines the advantages of our Parliamentary procedure. Irksome as

    1143
    a Committee stage may be, very often it uncovers certain anomalies during our inspection of the Clauses. A short while ago the Solicitor-General replied, with his usual courtesy, to an Amendment, but I think that even he will agree that since that Amendment was disposed of, our subsequent discussion has given cause for further thought, to put it no higher than that.
    We are now inserting into this Finance Bill a piece of new machinery arising very largely out of the nationalisation Measures which the House of Commons has passed during the past two years. I think the Solicitor-General will agree that hon. Members on this side of the Committee have put forward certain points which are at least worthy of consideration and, indeed, re-examination. It is not for me to stress the hardships which may fall upon co-operative societies. The point has been made with great emphasis, especially by the hon. Member for Chippenham (Mr. Eccles). That, of course, was one example. I am bound to say that I thought, from the expressions of hon. Members opposite, that that was a new point to some of them. I thought I saw, not alarm, but interest, spreading over certain countenances which perhaps had given way a little to the lassitude engendered by a hot afternoon and a long Debate. It was a very excellent example of the sort of thing which this Clause will do.
    I suggest to the Chancellor, now that he is back in our midst, that this whole series of Clauses on Profits Tax is a carrying-on of the old National Defence Contribution. It is a tax essentially upon the profits of trade. When we bring within its ambit investment income of any kind—it is true that we are discussing a particular form
    of investment income at the moment—these anomalies arise. That has been made clear during our discussion. It is one of the advantages of our procedure that often things are uncovered as we go along what people sometimes call our tedious and slow path. To have rushed this Clause would have meant more haste and less speed. These things would have come up at a later stage. Enough has been said already to show that the Clause should be re-examined, and, I think, in some way redrafted, between now and the Report stage, rather than go through now without any Amendment.
    7.30 p.m.
    Mr. Dalton: I have already given an undertaking, which I repeat, that every point raised in the discussion in the Committee stage will be carefully examined by my advisers. They not only listen to the Debate, but they make a careful study of all the points raised, and, if it should turn out that new points are raised on any Clause, we always reserve the right, as the Committee would wish, to put down our proposals on the Report stage. I think, however, that we ought to reach a decision, and I understand that the right hon. Gentleman opposite thinks that this is a matter on which a Division should be taken, and if that is so, the vote had better be taken, though it will not prejudice in any way our looking at the arguments again. The pilgrimage will be long, but we must march forward. I suggest that it might be convenient to have a decision taken now, on the understanding that it will not mean that any of the arguments will thereby be brushed aside.
    Question put, "That the Clause stand part of the Bill."
    The Committee divided: Ayes, 276; Noes, 104.

    CLAUSE 27.—(Abatement of profits in certain cases.)
    Mr. Pitman: I beg to move, in page 24, line 1, at the beginning, to insert:
    "(1) Where any shares of a company are held by employees of that company under a co-partnership scheme, profits tax shall not be payable on that proportion of the company's profits which the co-partnership issued capital bears to the total issued capital."
    This subject of the treatment and distribution of co-partnership shares is one which I have raised consistently throughout, first on the Budget Resolutions, and then on the Second Reading of the Finance Bill. When the Chancellor was speaking on the question I did not think he was particularly clear in appreciating the point or in giving an answer. For the benefit of the Committee perhaps I ought to say that co-partnership schemes very often take the form of a distribution of shares to the staff. The staff are then in the position, particularly if the distribution is in equity shares, as it very often is, that they are paying the Profits Tax not only on their own shares but on all the shares, including the prior shares which stand ahead of them in the company's structure.
    There is the particular case of the John Lewis partnership. That company has taken into partnership the whole of its staff. All the equity shares of the company are owned by the staff under the co-partnership scheme. There is considerable finance in that company which is raised by prior charges. The interest
    1148
    on those preference shares ranks ahead of the co-partners' shares, but the Profits Tax on them will be a charge against the company, and so a charge against the co-partnership holders. The Chancellor of the Exchequer made the point just now that many companies had paid a large amount of E.P.T. and were grateful for the remission of that tax. He must not overlook the fact that there are many companies by whom E.P.T. was not paid, and for whom, therefore, the quid pro quo is non-existent. I do not know the precise situation in regard to the Lewis partnership, but I do know that a great part of their property was blitzed. I know that the retail trade of London had an extremely bad time during the "doodlebug" attacks in particular. It may well be that the Lewis staff, taking them as an illustration, have not had any of this quid pro quo of a remission of E.P.T.
    I would strongly urge upon the Chancellor that he should give a concession in this case. We feel that it is wrong to tax the equity shareholder, but we lost upon that Amendment. Here, we single out one particular type cf. equity shareholder whose case ought, we think, to win sympathy on both sides of the Committee. Members of a staff who have been taken into co-partnership with the entrepreneur to run the risk and take the cushions of losses and profits, should not be subjected, not only to a tax on their own shares, but to a tax upon the shares of others. We ask for this special treatment of this special type of shareholder.
    7.45 p.m.
    Lieut.-Commander Braithwaite: I desire to support the Amendment. It is unfortunate that it has to be considered during the dinner hour. I am sure hon. Members on both sides of the Committee would have been extremely interested in the proposal. Earlier in the day, when we were discussing the main machinery of the Profits Tax, an hon. Member opposite, it will be recalled, made a reference to what he was pleased to call the somnolent rentiers. The Amendment deals with those who are neither somnolent nor rentiers. It seeks to exempt from this form of taxation schemes in which the employees themselves, be they engaged in management or at the bench, be they blackcoated or not, form themselves into an organisation to be active participants in the prosperity or otherwise of their undertaking.
    Apart from the merits of the Amendment, I commend it because I believe that the Government intend to strike at this form of co-partnership between management and workers. I happen to be, and I have for 25 years been, an enthusiast in the realm of co-partnership, and I have always believed in the enlightened twentieth century approach along those lines, where possible. I would very much like to see this Amendment accepted because I believe it would be of great value. That is merely a personal opinion. I further desire to see the Amendment accepted on the grounds advanced by my hon. Friend the Member for Bath (Mr. Pitman). It goes outside the scope of what the Government have in mind in these matters when they talk of entrepreneurs and sleeping partners who derive profit without the sweat of their brows. These people are outside that definition. I hope that the Solicitor-General will now leap to his feet as the representative of the Government and express his acceptance of the Amendment.
    Mr. Osborne: I also support the Amendment. I believe that many people are beginning to lose faith in co-partnership schemes. There are hon. Members on both sides of the House who think that here is the cure for all our industrial troubles, but I do not think that it will work out as expected. In some industries and trades, however, co-partnership schemes still have a very important part to play. Anything which
    1150
    encourages the worker to put his savings into the business is good. The Amendment merely seeks to encourage that movement. I believe that the cure for our industrial troubles is not that which is generally put forward by hon. Members opposite, of putting all assets into the hands of the State. I would like to see every employee and every man in the country made into a small capitalist. The way to cure the ills of capitalism is to make everybody a capitalist, and the way to encourage that is to make them co-partners. Therefore, I wish to support this Amendment. The more workers own shares in the companies for whom they are working, the better will be the results.
    The Solicitor-General: I must confess that I feel there are great difficulties about this proposal. As I understood the arguments of the hon. Members who supported this Amendment, it would mean that the proportion of the company's profits attributable to the co-partnership issue capital, that is to say, the equivalent proportion of it, should be excluded from the scope of the Profits Tax. That, I suppose, is how it would work out. But, once one opens the door to one particular claim, it is very difficult to shut it to others. Suppose there is an employee in a business who, under a co-partnership scheme, owns shares in that business, and that next door to him there is an extremely industrious person who has put aside money with which he has bought shares in another business, or perhaps in the same business. It would be very difficult to select the employee, because he is in the partnership, and take the burden off his shoulders, while placing it upon the shoulders of the person who may be equally industrious and meritorious, and who happens to have shares in the same company which he has bought out of his savings. As I understand it, it is sought to justify the proposal on the basis that the co-partnership system is a useful institution.
    Mr. Pitman: If the hon. and learned Solicitor-General will allow me to justify that, I would say that the essential difference Between our proposal and the wider expansion which he is making is that, in essence, the co-partnership scheme is something which is administered from the centre, whereas the other—and there is a clear line of distinction—is a purely fortuitous piece of investment by

    1151
    the person concerned. But the ability to draw a line and the reasons for drawing it are absolutely clear.
    The Solicitor-General: I agree that there is that distinction, but the difficulty is that once one admits that distinction as a valid reason for excluding this type of investor from the tax, it is difficult to refuse to exclude many other categories of investors.
    Mr. Osborne: Such as?
    The Solicitor-General: Any other meritorious person who works hard and puts aside money which he invests in a business. It would be difficult to say that he had not as strong a claim. The one is under a scheme, and the other is an outside investor. Once one accepts as a principle that a block of people shall be excluded from the scope of the tax because they are part of a scheme, one cannot shut the door to another whole group of investors who have different claims—no doubt claims put forward on different hypotheses and for different reasons. Therefore, I see great difficulties in accepting this Amendment. However, as always, we will consider what has been said, but I cannot be taken as giving any sort of undertaking. I feel that it would not be reasonable to accept the Amendment because, if one did, it would be opening the door to many other claims which it would be impossible to resist. They may be different in principle and in type, but, nevertheless, they may have just as strong a case for being exempted from the tax. The tax is based on the assumption that the profits of a company, including its investments, are to come under the tax. There is to be an overall tax which will impinge upon the profits of the company as defined in the Bill. For those reasons, I fear that the answer which I must give at the moment is that I shall advise my hon. Friends to vote against this Amendment.
    Mr. Frank Byers: I think that the hon. and learned Solicitor-General has misunderstood the purpose of this Amendment. The hon. Member for Bath (Mr. Pitman) will correct me if I am wrong, but I understood that its purpose was to give some sort of stimulus to the promotion of co-partnership schemes. If that is so, none
    1152
    of the arguments which the hon. and learned Solicitor-General has put forward would apply. It is not a question of justice between one type of investor and another. That is a different argument. It is a question of using differential taxation when promoting a co-partnership scheme The essence of a co-partnership is that the workers participate in the business. That is really the only object of this Amendment. It seeks to do two things; first, not to penalise the workers by the Profits Tax, and, secondly, to make it worth while, from the point of view of the workers, as well as of the managers and directors, to institute co-partnership schemes. I do not think that a single word of what the hon. and learned Solicitor-General has said has been germane to the point at issue. It is all very well to say that this would open the door to other claims. But would it? This Amendment deals with co-partnerships, with the workers in industry. I do not see how it can possibly affect other people. There may be a man in industry who is a member of a co-partnership scheme, and who wants to invest in something else. That is all right. He then comes under an entirely different set of rules. That has nothing whatever to do with this case.
    I would seriously suggest to the hon. and learned Solicitor-General that he should look at this again. If he refuses to do so, I am entitled to say that his party do not believe in co-partnership at all. I am not asking the Government to accept this Amendment, but only to look at it again. I got the impression that the hon. and learned Solicitor-General did not think that co-partnership was important, and that he was merely looking at it from the point of view of one investor as against another. I would seriously advise him to give an assurance that he does not propose to close the door to the promotion of co-partnership schemes by differential taxation, and that he will look into the matter between now and the Report stage.
    Mr. Gallacher: Is the hon. Gentleman not aware that we are going to push the capitalists out altogether?
    Mr. Byers: I think, from the hon. Gentleman's point of view, that is quite a legitimate aim. But I shall fight to prevent him from achieving it, and I

    1153
    think we shall win, because we have an anti-totalitarian tradition in this country. I want to see capitalism working in the interests of the community; I do not want to see Socialism working against the best interests of the community, and creating a privileged class.
    Sir A. Gridley: I really think that wonders will never cease. If I may say so with respect, the hon. and learned Solicitor-General's arguments would seem to suggest that he is entirely a non-Socialist, because here is something which is to the interest of the workers in industry. Let me ask him to apply his mind to this. If I am correctly informed, should I and my co-directors decide at the end of the year, when we see what the profits of the business are, that we will distribute a percentage of those profits among the workers—which is, in fact, what we want to do in this particular company—we may distribute those profits among the workers, and those distributed profits will not be taxed under the existing law. If, instead of doing it that way, I say to the workers; "I will give you co-partnership shares, and you will get a dividend," the profits thus distributed will be taxed, unless the Solicitor-General accepts this Amendment. Do the Government or do they not want to see those responsible for distributing the profits of industry give their workers a share of those profits? I ask the Government to answer. If they do, and I am sure they do, wherever it is possible, they ought to treat the distribution of profits among the workers in precisely the same way, whatever the method of distribution. Therefore, to refuse to exclude co-partnership shares from liability to tax would really be absolutely indefensible on the part of the Government.
    8.0 p.m.
    Mr. John Paton: It is assumed on the other side of the Committee that the principle of co-partnership is something which we as Socialists are bound to accept. We have indeed been challenged by an hon. Member whether we did or did not accept it. There has been nothing in the history of co-partnership in this country, as we have seen it practised, that would induce any Socialist to give wholehearted acceptance to the principle. I say that plainly and bluntly. This party has never been committed to the conception of co-
    1154
    partnership, because, as was said by the hon. Member for West Fife (Mr. Gallacher), a minute or two ago, we believe in Socialism, and not in the division of profits even as between workers and capitalists. This proposal, which I hope the Solicitor-General will resist, should be refused on two grounds. First it is an extremely doubtful proposition whether we should, in fact, use the instrument of taxation for the furtherance of forms of industrial organisation which some of us may think are likely to be more beneficial than others. My own view is quite definite. It is that in all the history of co-partership, as we have seen it in this country, we have a sound case for refusing to support it and extend it.
    The second reason why I think the Amendment should be refused is that I cannot understand why it should be assumed that it is equitable to use the machinery of taxation to exempt one form of profit taking from a tax imposed upon others. After all, if the principle of co-partnership, as it has been expounded from the other side of the Committee—that workmen shall be associated in the shareholding of a particular firm, and, therefore, be entitled to the benefits of any profits earned by that firm—is to be accepted, there seem to be no grounds in equity why that group of workmen should be exempted from a tax which falls on others throughout the capitalist system. I hope that the Solicitor-General will refuse to accept this Amendment.
    Mr. Peake: The Solicitor-Generally and the speech of the hon. Member for Norwich (Mr. Paton) both illustrate the anomalies and absurdities of the form of Profits Tax which we are now discussing. The Profits Tax is assessed, not on individuals, but on companies. Partnerships are now to be exempt; individuals are also exempt. The tax is assessed on companies. It is not assessed on the debenture holder, the preference shareholder, the ordinary shareholder, or the employee. Surely, as it is the company which is assessed to tax, the only class of shareholders who make any contribution towards payment of the tax are the ordinary shareholder, on the one hand, and the employee shareholder, the shareholder who holds shares under a co-partnership scheme, on the other. It seems ridiculous to say that this Amendment is a claim for a special exemption The holders of the debentures and the

    1155
    preference stock make no contribution of any sort or kind.
    I congratulate my hon. Friend on this Amendment; it is a very good one. He suggests that where there is a scheme of co-partnership, and 5 per cent. or 10 per cent., or may be 20 per cent. of the equity stock of the concern is owned by the employees in the concern, to that extent the Profits Tax should be abated and relieved. It seems to me to be an admirable proposition. Debenture holders would be exempt on their interest; preference stockholders will be exempt on theirs, and employee shareholders would share in the exemption. We on this side firmly believe in co-partnership. We think it is a good thing, and we want to see it extended. Therefore, we support the Amendment.
    Mr. John Lewis: What is the difference between one class of equity shareholder and another? The employee shareholder might not be a debenture holder or a preference holder. He might be an equity shareholder. Is the right hon. Member for North Leeds (Mr. Peake) suggesting that there should be some difference between one class of equity shareholder and another?
    Mr. Peake: Yes, for the reason that they hold their shares under a definite co-partnership scheme, and the amount of dividend they get depends upon the prosperity of the company.
    Mr. Lewis: Surely, if I had a holding it would be liable to tax? Why should not the employee be under the same obligation?
    Sir H. Lucas-Tooth: Our purpose in moving this Amendment is not essentially sentimental. It is not for the purpose of giving the workers some additional slice as a matter of sentiment. As has been said, our purpose is to encourage co-partnership schemes. Not only do such schemes increase incentive, but they have the further effect, to which I think we should give attention, of carrying some right of control of the company. It is easy to avoid the payment of this tax by making a payment out of profits if that
    1156
    payment is in the nature of a bonus payment to the employees of the company. I think I am right in saying that if the directors find that there is a substantial profit at the end of any year, they can make a payment out of that profit to the employees of the company which will bear the same relation to the success of the company during the year as would dividends under a co-partnership scheme, and that payment will not be subject to tax. That really does not cover the point we want to make, which is that a co-partner-ship scheme gives the employees in the industry a particular interest in the industry in that it gives them some right of control. They are interested in the company from more than one angle. They have some say in how the business in which they are working is to be managed. It is for that reason that we welcome co-partnership schemes and press the Government to make the concession sought in this Amendment.
    Mr. Osborne: I wish to make one point on the question why we should distinguish between 'one class of equity holders and another. There is one preponderant problem facing the country, and especially the Government, and it is the problem of production. I do not apologise for referring to that. We have either to produce or starve. If more and more of the managements of works own shares in their concerns, they will take a greater interest in how those concerns are run. Thus we should tend to get—I do not say we should automatically get—higher production. Local bottlenecks will be overcome more quickly if men have their hearts and their pockets in the businesses. Therefore, on the grounds of production this Amendment ought to be accepted. It is a reply to those wonderful advertisements the Government have put up—because Socialism will not work—which say that we have to work or starve. For that reason, and because it will help the Ministry of Labour this Amendment ought to be accepted by the Solicitor-General.
    Question put, "That those words be there inserted."
    The Committee divided: Ayes, 105; Noes, 264.

    Division No. 245.]

    AYES.

    [7.32 p.m.

    Adams, Richard (Balham)

    Benson, G.

    Burke, W. A.

    Alexander, Rt. Hon. A V

    Berry, H.

    Butler, H. W. (Hackney, S.)

    Allen, A. C. (Bosworth)

    Beswick, F.

    Byers, Frank

    Allighan, Garry

    Bing, G. H. C

    Callaghan, James

    Alpass, J H.

    Binns, J.

    Carmichael, James

    Anderson, F. (Whitehaven)

    Blenkinsop, A.

    Castle, Mrs. B. A.

    Attewell, H. C.

    Blyton, W. R.

    Chamberlain, R. A

    Ayles, W. H.

    Bottomley, A. G.

    Champion, A. J.

    Ayrton Gould, Mrs B

    Bowles, F. G. (Nuneaton)

    Chafer, D.

    Bacon, Miss A.

    Braddock, Mrs. E. M. (L' )

    Chetwynd, G. R

    Baird J.

    Braddock, T. (Mitcham)

    Cocks, F. S

    Balfour, A.

    Brook, D. (Halifax)

    Coldrick, W.

    Barstow, P. G

    Brooks, T. J. (Rothwell)

    Collins, V. J.

    Barton, C.

    Brown, George (Belper)

    Colman, Miss G. M

    Battley, J. R

    Brown, T. J. (Ince)

    Cooper, Wing-Comdr G

    Beattie, J. (Belfast W.)

    Bruce, Maj. D. W. T.

    Corlett, Dr. J.

    Bechervaise, A. E.

    Buchanan, G.

    Corvedale, Viscount

    Cove, W. G.

    Kinley, J.

    Robertson, J. J. (Berwick)

    Daggar, G.

    Lang, G.

    Rogers, G. H R

    Dalton, Rt. Hon H

    Lee, F. (Hulme)

    Ross, William (Kilmarnock)

    Davies, Edward (Burslem)

    Lee, Miss J. (Cannock)

    Royle, C.

    Davies, Ernest (Enfield)

    Leslie, J R.

    Sargood, R.

    Davies, Harold (Leek)

    Lever, N. H

    Scott-Elliot, W

    Davies, Hadyn (St. Pancras, S. W.)

    Levy, B. W.

    Segal, Dr. S

    Davies, R. J. (Westhoughton)

    Lewis, A. W J. (Upton)

    Sharp, Granville

    Deer, G.

    Lewis, J. (Bolton)

    Shawcross, C. N (Widnes)

    Delargy, H J

    Lipton, Lt.-Col. M.

    Silverman, S. S. (Nelson)

    Diamond, J.

    Logan, D. G.

    Simmons, C. J.

    Driberg, T. E. N.

    Longden, F.

    Skeffington-Lodge, T. C

    Dugdale, J. (W. Bromwich)

    Lyne, A. W.

    Skinnard, F W.

    Dumpleton, C. W.

    McAdam, W.

    Smith, C (Colchester)

    Durbin, E. F. M.

    McEntee, V. La T

    Smith, H. N. (Nottingham, S.)

    Ede, Rt Hon. J. C.

    McGhee, H G

    Snow, Capt. J. W.

    Edwards, Rt. Hon. Sir C. (Bedwellty)

    Mack, J. D.

    Solley, L. J

    Edwards, N (Caerphilly)

    McKay, J. (Wallsend)

    Sorensen, R. W.

    Edwards, W. J. (Whitechapel)

    McKinlay, A. S.

    Soskice, Maj. Sir F.

    Evans, S. N. (Wednesbury)

    Maclean, N. (Govan)

    Stamford, W.

    Ewart, R.

    McLeavy, F.

    Steele, T.

    Fairhurst, F

    Manning, C. (Camberwell, N.)

    Stephen, C.

    Fernyhough, E

    Manning, Mrs. L (Epping)

    Stewart, Michael (Fulham, E.)

    Follick, M.

    Marshall, F. (Brightside)

    Stokes, R. R

    Foot, M. M.

    Mayhew, C. P.

    Strauss, G. R. (Lambeth, N.)

    Forman, J. C.

    Medland, H. M.

    Stross, Dr. B.

    Fraser, T. (Hamilton)

    Mellish, R. J.

    Stubbs, A. E.

    Freeman, Maj. J. (Watford)

    Middleton, Mrs. L.

    Summerskill, Dr. Edith

    Freeman, Peter (Newport)

    Mikardo, Ian

    Gaitskell, H. T. N.

    Millington, Wing-Comdr. E. R

    Swingler, S.

    Gallacher, W.

    Mitchison, G. R.

    Sylvester, G. O.

    Ganley, Mrs C. S.

    Monslow, W.

    Symonds, A. L.

    George, Lady M. Lloyd (Anglesey)

    Montague, F.

    Taylor, H. B. (Mansfield)

    Gibbins, J.

    Moody, A. S.

    Taylor, R. J. (Morpeth)

    Gibson, C. W.

    Morgan, Dr. H. B.

    Taylor, Dr. S. (Barnet)

    Gilzean, A.

    Morley, R.

    Thomas, D. E. (Aberdare)

    Glanville, J. E. (Consett)

    Morris, P. (Swansea, W.)

    Thomas, Ivor (Keighley)

    Gordon-Walker, P. C.

    Morris, Hopkin (Carmarthen)

    Thomas, I. O (Wrekin)

    Greenwood, Rt. Hon. A. (Wakefield)

    Morrison, Rt. Hon H. (Lewisham, E.)

    Thomas, George (Cardiff)

    Greenwood, A. W. J. (Heywood)

    Mort, D. L.

    Thomson, Rt. Hn. G R. (Ed'b'gh, E.)

    Grenfell, D. R

    Moyle, A.

    Thurtle, Ernest

    Grey, C. F.

    Murray, J. D

    Timmons, J

    Griffiths, D. (Rother Valley)

    Nally, W.

    Titterington, M. F

    Griffiths, Rt. Hon. J (Llanelly)

    Naylor, T. E.

    Tolley, L.

    Griffiths, W. D. (Moss Side)

    Neal, H. (Claycross)

    Tomlinson, Rt. Hon. G

    Guest, Dr. L. Haden

    Nichol, Mrs. M. E. (Bradford, N.)

    Ungoed-Thomas, L.

    Gunter, R. J.

    Nicholls, H R. (Stratford)

    Usborne, Henry

    Guy, W. H.

    Noel-Buxton, Lady

    Vernon, Maj. W. F.

    Hall, W. G.

    Oldfield, W. H.

    Viant, S. P.

    Hamilton, Lieut.-Col. R.

    Oliver, G. H.

    Wadsworth, G.

    Hannan, W. (Maryhill)

    Paget, R. T.

    Wallace, G. D. (Chislehurst)

    Hardy, E. A.

    Paling, Rt. Hon. Wilfred (Wentworth)

    Wallace, H. W. (Walthamstow, E.)

    Harrison, J

    Paling, Will T. (Dewsbury)

    Warbey, W. N.

    Hastings, Dr. Somerville

    Pargiter, G. A.

    Watson, W. M.

    Henderson, Joseph (Ardwick)

    Parkin, B. T.

    Webb, M. (Bradford, C.)

    Herbison, Miss M.

    Paton, J (Norwich)

    Weitzman, D.

    Hewitson, Capt. M

    Pearson, A.

    Wells, P. L. (Faversham)

    Hicks, G.

    Platts-Mills, J. F. F.

    Wells, W. T. (Walsall)

    Holman, P

    Poole, Major Cecil (Lichfield)

    West, D. G.

    Holmes, H. E. (Hemsworth)

    Popplewell, E.

    White, H. (Derbyshire, N. E.)

    House, G.

    Porter, E. (Warrington)

    Whiteley, Rt. Hon. W.

    Hoy, J

    Porter, G. (Leeds)

    Wigg, Col. G. E.

    Hudson, J H. (Ealing, W.)

    Price, M. Philips

    Willey, F. T. (Sunderland)

    H. D. (W'lverh'pton, W.)

    Proctor, W. T.

    Williams, D. J. (Neath)

    Irving, W. J.

    Pryde, D. J.

    Williams, J. L. (Keivingrove)

    Isaacs, Rt. Hon. G. A.

    Pursey, Cmdr. H.

    Williams, W. R. (Heston)

    Janner, B.

    Randall, H. E.

    Williamson, T.

    Jay, D. P. T.

    Ranger, J.

    Willis, E.

    Jeger, G. (Winchester)

    Rankin, J.

    Wills, Mrs. E. A

    Jeger, Dr. S. W. (St. Pancras, S. E.)

    Rees-Williams, D. R.

    Wilson, J. H.

    John, W.

    Reeves, J.

    Woods, G. S.

    Jones, D. T. (Hartlepools)

    Reid, T. (Swindon)

    Wyatt, W.

    Jones, Elwyn (Plaistow)

    Richards, R

    Yates, V. F.

    Jones, P. Asterley (Hitchin)

    Robens, A.

    Young, Sir R. (Newton)

    Keenan, W.

    Roberts, Emrys (Merioneth)

    Kinghorn, Sqn.-Ldr. E.

    Roberts, W (Cumberland, N.)

    TELLERS FOR THE AYES:

    Mr. Collindridge and Mr. Daines

    NOES.

    Amory, D Heathcoat

    Boothby, R

    Bullock, Capt. M.

    Assheton, Rt. Hon. R

    Bower, N.

    Challen, C.

    Baldwin, A. E.

    Boyd-Carpenter, J. A.

    Clarke, Col. R. S.

    Bennett, Sir P.

    Bracken, Rt. Hon. Brendan

    Clifton-Brown, Lt.-Col. G.

    Birch, Nigel

    Braithwaite, Lt.-Comdr. J. G

    Crookshank, Capt. Rt. Hon H. F. C

    Boles, Lt.-Col. D. C. (Wells)

    Buchan-Hepburn, P. G. T.

    Crosthwaite-Eyre, Col O. E

    1146

    1147

    Cuthbert, W. N

    Langford-Holt, J.

    Reid, Rt. Hon. J. S. C. (Hillhead)

    Digby, S. W.

    Linstead, H. N.

    Ropner, Col. L.

    Donner, Sqn.-Ldr W.

    Lucas-Tooth, Sir H.

    Sanderson, Sir F

    Drewe, C.

    Lyttelton, Rt. Hon. O

    Scott, Lord W.

    Dugdale, Maj. Sir T (Richmond)

    McCallum, Maj. D.

    Shephard, S. (Newark)

    Duthie, W. S.

    Mackeson, Brig. H. R.

    Shepherd, W. S. (Bucklow)

    Eccles, D. M.

    McKie, J. H. (Galloway)

    Smiles, Lt.-Col. Sir W.

    Eden, Rt. Hon. A.

    Maclay, Hon. J. S.

    Smith, E. P (Ashford)

    Fraser, H. C. P. (Stone)

    Macmillan, Rt. Hon. Harold (Bromley)

    Smithers, Sir W.

    Gage, C.

    Macpherson, Maj. N. (Dumfries)

    Snadden, W. M.

    Galbraith, Cmdr. T. D.

    Maitland, Comdr. J. W.

    Spearman, A. C. M.

    Gammans, L D.

    Manningham-Buller, R. E.

    Spence, H. R.

    Glyn, Sir R.

    Marples, A. E.

    Stanley, Rt. Hon. O.

    Gomme-Duncan, Col. A

    Marshall, D. (Bodmin)

    Stuart, Rt. Hon. J. (Moray)

    Grant, Lady

    Mellor, Sir J.

    Sutcliffe, H.

    Gridley, Sir A.

    Molson, A. H. E.

    Taylor, Vice-Adm. E. A. (P'dd't'n, S.)

    Hannon, Sir P. (Moseley)

    Morrison, Rt. Hon. W. S. (Cirencester)

    Thorp, Lt.-Col. R A. F.

    Hare, Hon. J. H. (Woodbridge)

    Neven-Spence, Sir B.

    Touche, G. C.

    Haughton, S. G.

    O'Neill, Rt. Hon. Sir H

    Vane, W. M. F.

    Headlam, Lieut.-Col. Rt. Hon. Sir C.

    Osborne, C.

    Walker-Smith, D.

    Henderson, John (Cathcart)

    Peake, Rt. Hon. O.

    Webbe, Sir H. (Abbey)

    Hinchingbrooke, Viscount

    Pitman, I. J.

    Wheatley, Colonel M. J.

    Hogg, Hon. Q.

    Ponsonby, Col. C. E.

    White, J. B. (Canterbury)

    Hope, Lord J.

    Poole, O. B. S. (Oswestry)

    Willoughby de Eresby, Lord

    Hudson, Rt. Hon. R. S. (Southport)

    Prescott, Stanley

    Winterton, Rt. Hon. Earl

    Hutchison, Lt.-Cm. Clark (E'b'rgh W.)

    Price-White, Lt.-Col. D

    York, C.

    Jarvis, Sir J.

    Prior-Palmer, Brig. O

    Joynson-Hicks, Hon. L. W.

    Raikes, H. V.

    TELLERS FOR THE NOES:

    Lambert, Hon. G.

    Ramsay, Maj. S.

    Mr. Studholme and

    Lancaster, Col. C G.

    Reed, Sir S. (Aylesbury)

    Major Conant.

    Division No. 246]

    AYES.

    [8.12 p.m.

    Amory, D. Heathcoat

    Harvey, Air-Comdre. A. V

    Prescott, Stanley

    Assheton, Rt. Hon. R

    Haughton, S. G.

    Price-White, Lt.-Col O

    Baldwin, A. E.

    Headlam, Lieut.-Col. Rt. Hon Sir C

    Raikes, H. V.

    Bennett, Sir P.

    Henderson, John (Cathcart)

    Ramsay, Maj. S.

    Boothby, R.

    Hinchingbrooke, Viscount

    Reed, Sir S. (Aylesbury)

    Bower, N.

    Hogg, Hon. Q.

    Reid, Rt. Hon. J. S. C. (Hillhead)

    Boyd-Carpenter, J. A.

    Hope, Lord J.

    Renton, D.

    Braithwaite, Lt.-Comdr. J. G

    Hutchison, Lt.-Cm. Clark (E'b'rgh W.)

    Roberts, Emrys (Merioneth)

    Buchan-Hepburn, P. G. T.

    Jarvis, Sir J.

    Roberts, W (Cumberland, N.)

    Bullock, Capt. M.

    Joynson-Hicks, Hon. L. W.

    Sanderson, Sir F.

    Byers, Frank

    Kingsmill, Lt.-Col. W. H.

    Shephard, S. (Newark)

    Challen, C.

    Lancaster, Col. C. G.

    Shepherd, W. S. (Bucklow)

    Clarke, Col. R. S.

    Langford-Holt, J.

    Smiles, Lt.-Col. Sir W.

    Clifton-Brown, Lt.-Col. G.

    Lindsay, M. (Solihull)

    Smith, E. P (Ashford)

    Conant, Maj. R. J. E.

    Linstead, H. N.

    Smithers, Sir W.

    Crookshank, Capt. Rt. Hon. H. F. C.

    Low, Brig. A. R. W.

    Snadden, W. M.

    Crosthwaite-Eyre, Col. O. E

    Lucas, Major Sir J.

    Spearman, A. C. M

    Cuthbert, W. N.

    Lucas-Tooth, Sir H.

    Spence, H. R.

    Digby, S. W.

    McCallum, Maj. D.

    Stanley, Rt. Hon. O.

    Donner, Sqn.-Ldr P W.

    Mackeson, Brig. H. R.

    Stuart, Rt. Hon. J. (Moray)

    Drewe, C.

    Maclay, Hon. J. S.

    Sutcliffe, H.

    Dugdale, Maj. Sir T. (Richmond)

    Maemitlan, Rt. Hon. Harold (Bromley)

    Taylor, Vioe-Adm. E. A. (P'dd't'n, S.)

    Eccles, D. M,

    Macpherson, N. (Dumfries)

    Thornton-Kemsley, C. N.

    Elliot, Rt. Hon. Walter

    Maitland, Comdr. J. W.

    Touche, G. C.

    Fraser, H. C. P. (Stone)

    Manningham-Buller, R. E.

    Vane, W. M. F.

    Gage, C.

    Marples, A. E.

    Wadsworth, G.

    Galbraith, Cmdr. T. D.

    Marshall, D. (Bodmin)

    Walker-Smith, D.

    Gammans, L. D.

    Mellor, Sir J.

    Webbe, Sir H. (Abbey)

    George, Lady M Lloyd (Anglesey)

    Morris, Hopkin (Carmarthen)

    Wheatley, Colonel M. J.

    Glyn, Sir R.

    Morrison, Maj, J. G. (Salisbury)

    White, Sir D. (Fareham)

    Gomme-Duncan, Col. A.

    Morrison, Rt. Hon. W. S- (Cirencester)

    White, J. B. (Canterbury)

    Grant, Lady

    Neven-Spence, Sir B.

    Willoughby de Eresby Lord

    Gridley, Sir A.

    Osborne, C.

    Winterton, Rt. Hon Earl

    Grimston, R. V.

    Peake, Rt. Hon. O.

    Hannon, Sir P. (Moseley)

    Pitman, I. J.

    TELLERS FOR THE AYES:

    Hare, Hon. J. H. (Woodbridge)

    Poole, O. B. S. (Oswestry)

    Mr. Studholme and

    Lieut.-Colonel Thorp.

    NOES.

    Adams, Richard (Balham)

    Cocks, F. S.

    Gordon-Walker, P. C.

    Alexander, Rt. Hon. A. V.

    Coldrick, W

    Greenwood, A. W. J (Heywood)

    Allen, A. C. (Bosworth)

    Collins, V. J.

    Grenfell, D. R.

    Alpass, J. H.

    Colman, Miss G. M

    Grey, C. F.

    Anderson, F. (Whitehaven)

    Corlett, Dr. J.

    Griffiths, D. (Rother Valley)

    Attewell, H. C.

    Corvedale, Viscount

    Griffiths, Rt. Hon. J. (Llanelly)

    Ayles, W. H.

    Cove, W. G.

    Griffiths, W. D. (Moss Side)

    Ayrton Gould, Mrs B

    Crawley, A

    Guest, Dr. L. Haden

    Bacon, Miss A.

    Daggar, G.

    Gunter, R. J.

    Baird J.

    Dalton, Rt. Hon. H.

    Guy, W. H.

    Balfour, A.

    Davies, Edward (Burslem)

    Hall, W. G.

    Barslow, P. G

    Davies, Ernest (Enfield)

    Hamilton, Lieut.-Col. R

    Barton, C.

    Davies, Harold (Leek)

    Hannan, W. (Maryhill)

    Battley, J. R.

    Davies, Hadyn (St. Pancras, S.W.)

    Harrison, J.

    Beattie, J. (Belfast, W.)

    Davies, R. J. (Westhoughton)

    Hastings, Dr. Somerville

    Bechervaise, A. E.

    Deer, G.

    Henderson, Joseph (Ardwick)

    Benson, G.

    Delargy, H. J.

    Herbison, Miss M.

    Berry, H.

    Diamond, J.

    Hewitson, Capt. M

    Beswiok, F.

    Donovan, T.

    Hicks, G.

    Bing, G. H. C.

    Driberg, T. E. N.

    Hobson, C. R.

    Binns, J.

    Dugdale, J. (W. Bromwich)

    Holman, P

    Blenkinsop, A.

    Dumpleton, C. W.

    Holmes, H. E. (Hemsworth)

    Blyton, W. R.

    Durbin, E. F. M.

    House, G.

    Boardman, H.

    Ede, Rt. Hon. J. C.

    Hoy, J.

    Bottomley, A. G.

    Edwards, Rt. Hon. Sir C. (Bedwelley)

    Hudson, J. H. (Ealing, W.)

    Bowden, Flg.-Offr. H. W.

    Edwards, N. (Caerphilly)

    Hughes, H. D. (W'lverh'pton, W.)

    Bowles, F. G. (Nuneaton)

    Edwards, W. J. (Whitechapel)

    Irving, W. J.

    Braddock, Mrs. E. M (L'pl, Exeh'ge)

    Evans, S. N. (Wednesbury)

    Isaacs, Rt. Hon. G. A.

    Braddock, T. (Mitcham)

    Ewart, R.

    Janner, B.

    Brook, D. (Halifax)

    Fairhurst, F.

    Jay, D. P. T.

    Brooks, T. J. (Rothwell)

    Fernyhough, E

    Jeger, G. (Winchester)

    Brown, George (Belper)

    Follick, M.

    John, W.

    Brown, T. J. (Ince)

    Foot, M. M.

    Jones, Rt. Hon. A. C. (Shipley)

    Bruce, Maj. D W T.

    Forman, J. C.

    Jones, D. T. (Hartlepools)

    Buchanan, G.

    Fraser, T. (Hamilton)

    Jones, Elwyn (Plaistow)

    Burke, W. A.

    Freeman, Maj. J. (Watford)

    Jones, P. Asterley (Hitchin)

    Butler, H. W. (Hackney, S.)

    Freeman, Peter (Newport)

    Keenan, W.

    Callaghan, James

    Gaitskell, H. T. N.

    Kinghorn, Sqn.-Ldr. E

    Carmichael, James

    Gallacher, W

    Kinley, J.

    Castle, Mrs. B. A.

    Ganley, Mrs C. S

    Kirkwood, D.

    Champion, A. J.

    Gibbins, J.

    Lang, G.

    Chater, D.

    Gibson, C. W.

    Lee, F. (Hulme)

    Chetwynd, G. R.

    Gilzean, A.

    Lee, Miss J. (Cannock)

    Cobb, F. A.

    Glanville, J E (Consett)

    Leslie, J. R.

    1158

    1159

    Levy, B. W.

    Paton, J. (Norwich)

    Symonds, A. L.

    Lewis, A. W. J. (Upton)

    Pearson, A.

    Taylor, H. B. (Mansfield)

    Lewis, J. (Bolton)

    Poole, Major Cecil (Lichfield)

    Taylor, R. J. (Morpeth)

    Lipton, Lt.-Col. M

    Popplewell, E.

    Taylor, Dr. S. (Barnet)

    Logan, D. G.

    Porter, E. (Warrington)

    Thomas, D. E. (Aberdare)

    Longden, F.

    Porter, G. (Leeds)

    Thomas, Ivor (Keighley)

    Lyne, A. W.

    Prise, M. Philips

    Thomas, I. O. (Wrekin)

    McAdam, W.

    Proctor, W. T.

    Thomas, George (Cardiff)

    McEntee, V La T.

    Pryde, D. J.

    Thurtle, Ernest

    MeGhee, H. G.

    Pursey, Cmdr. H.

    Timmons,

    Mack, J D.

    Randall, H. E.

    Titterington, M. F

    McKay, J. (Wallsend)

    Ranger, J.

    Tolley, L.

    McKinlay, A. S.

    Rankin, J.

    Tomlinson, Rt. Hon. G.

    Maclean, N. (Govan)

    Rees-Williams, D. R.

    Ungoed-Thomas, L.

    McLeavy, F.

    Reeves, J.

    Usborne, Henry

    Manning, C. (Camberwell, N.)

    Reid, T. (Swindon)

    Vernon, Maj. W. F

    Manning, Mrs. L. (Epping)

    Richards, R.

    Viant, S. P.

    Marshall, F. (Brightside)

    Robens, A.

    Walkden, E.

    Mayhew, C. P.

    Robertson, J. J. (Berwick)

    Wallace, G. D. (Chislehurst)

    Medland, H. M.

    Rogers, G. H. R.

    Wallace, H. W. (Walthamstow, E.)

    Hellish, R. J.

    Ross, William (Kilmarnock)

    Warbey, W. N.

    Middleton, Mrs. L,

    Royle, C

    Watson, W. M.

    Mikardo, Ian

    Sargood, R.

    Weitzman, D.

    Millington, Wing-Comdr. E. R

    Scott-Elliot, W.

    Wells, P. L. (Faversham)

    Mitchison, G. R.

    Segal, Dr. S.

    Wells, W. T. (Walsall)

    Monslow, W.

    Sharp, Granville

    West, D. G.

    Moody, A. S.

    Shawcross, C. N. (Widnes)

    Westwood, Rt. Hon. J.

    Morley, R.

    Shurmer, P

    White, H. (Derbyshire, N. E.)

    Morris, P. (Swansea, W.)

    Silverman, S S. (Nelson)

    Whiteley, Rt. Hon. W.

    Mort, D. L.

    Simmons, C. J.

    Wigg, Col. G. E.

    Moyle, A.

    Skeffington-Lodge, T. C.

    Willey, F. T. (Sunderland)

    Murray, J. D

    Skinnard, F. W.

    Williams, D. J. (Neath)

    Nally, W.

    Smith, C (Colchester)

    Williams, J. L. (Kelvingrove)

    Naylor, T. E.

    Smith, H. N. (Nottingham, S.)

    Williams, W. R. (Heston)

    Weal, H. (Claycross)

    Snow, Capt. J. W.

    Williamson, T.

    Nichol, Mrs. M. E. (Bradford, N.)

    Sorensen, R. W

    Willis, E.

    Nicholls, H. R. (Stratford)

    Soskice, Maj. Sir F

    Wills, Mrs. E. A.

    Noel-Buxton, Lady

    Stamford, W.

    Wilson, J. H.

    Oldfield, W. H.

    Steele, T.

    Woods, G. S.

    Oliver, G. H.

    Stewart, Michael (Fulham, E.)

    Wyatt, W.

    Paget, R. T.

    Stross, Dr. B.

    Yates, V. F.

    Paling, Rt. Hon. Wilfred (Wentworth)

    Stubbs, A. E.

    Young, Sir R. (Newton)

    Paling, Will T. (Dewsbury)

    Summerskill, Dr. Edith

    Pargiter, G. A.

    Swingler, S.

    TELLERS FOR THE NOES:

    Parkin, B T.

    Sylvester, G. O

    Mr. Collindridge and Mr. Daines.

    Motion made, and Question proposed, "That the Clause stand part of the Bill."
    Mr. Eccles: I should like to ask one question about this Clause. I am not clear how a company will know whether a dividend paid to it is franked investment income or not. There must be some means by which the recipient is able to tell whether the income is franked, and free from complication. I think it will be very difficult in certain cases. If the learned Solicitor-General will look at the case which will arise under Clause 26 (1, b), he will see that there might well be a British company which has shares in an American company; the American company, in turn, will derive some of its income from other British companies; the American company pays a dividend, which is paid to the British company; but since part of that dividend has been earned by British companies, whose income has already borne the tax, part of the dividend paid by the American company to the British company will be franked, and part will not be franked.
    1160
    How is the parent company in London to know whether, when it gets a dividend, it is to be franked or not? I suggest to the learned Solicitor-General that he had better have the word "franked," or something of that sort, put upon the share warrant. The share warrant is already overloaded with various bits of information about double taxation, and things of that sort, but we shall have to have something else. I wonder whether he has thought of that, and whether we ought to have some sort of recognised procedure in this matter?
    The Solicitor-General: Ordinarily, as a matter of practice, there should be no difficulty. In the case which falls within paragraph (a), we can know almost certainly that the income obtained from another company will ordinarily have been franked income; it will be income which will have borne Profits Tax. I quite agree, there may be cases under paragraph (b) where it may not be so easy to tell; that is to say, there may be cases of franked income coming directly to the company which it is sought to tax,

    1161
    whereas it will not be altogether easy to differentiate between the two. After all, when the Crown seeks to impose a tax it is for the Crown to show that the particular item of money upon which it seeks to levy the tax is within the scope of the charge. I agree with the hon. Member, that there may be cases in which it may not be altogether easy to tell, but it should be possible to deal with it administratively without very much difficulty by a certain amount of commonsense being applied to a particular case.
    Question put, and agreed to.
    Clause ordered to stand part of the Bill.
    Clause 28 ordered to stand part of the Bill.

    CLAUSE 29.—(Meaning of "gross relevant distributions to proprietors.")
    Mr. Assheton: I beg to move, in page 25, line 31, after "distributions," to insert:
    "other than fixed preference dividends."
    The argument has been made from this side of the Committee that one of the chief disadvantages in the working of this tax is that it falls exclusively on the ordinary shareholders and on those shareholders who hold an equity in the company. The object of the Amendment is to try to remedy that state of affairs to some extent by treating fixed preference incomes as debentures so far as the additional 7½. per cent. is concerned. Let me illustrate this to the Committee by giving an example which will show that the tax will work unfairly as between one company and another, both companies perhaps doing exactly the same business, but whose capitalisation happens to be somewhat different.
    Company "A" has a capital of, say, £500,000, of which £300,000 is in debenture stock and £200,000 in ordinary stock. Company "B" is of the same size, £500,000, with £300,000 in preference stock and £200,000 in ordinary stock. The Committee will observe that this tax, as it is designed to operate under this Bill, will fall much more heavily on the ordinary stockholders in the company whose prior stock happens to be preference stock than it will on those in the company whose prior stocks happen to be debenture stock. I do not see how that can be justified. The two companies may both have started life with £200,000 of ordinary capital; but one company is
    1162
    seeking to expand—perhaps to build a new factory—was obliged, owing to its financial position, to raise £300,000 by a debenture issue. The other company, being rather better placed, has been able to go to the market and get £300,000 in a preference issue, which is obviously the more prudent course to follow, if it is possible. Nobody who is responsible for the affairs of a company wants to issue a debenture, which is a mortgage upon the company, unless obliged to do so. Therefore, the prudent company directors will, if possible, go to the market and issue preference stock.
    As this tax works under the Bill, it will be found that the company which has been the most cautious in building up its financial position, and which is strongest, and therefore able to issue preference stock rather than debenture stock, will be penalised. I do not know what answer the Chancellor can give. The only one I can think of is that he may say, "This is already in the tax as it now works." That may be. If it is in the tax as it now works, I am sorry that it is, and I merely seek to prevent the mischief of this tax from going any further. It is a question of equity between one company and another, both companies being in the same position, except for the fortuitous circumstance that the prior charge capital is in debenture stock in one company and in preference stock in the other.
    The Solicitor-General: We are sorry we cannot accept this Amendment. In answering the case that has been made, it is rather difficult to know what to say, because during the course of the discussion on this tax, this topic has already been very fully discussed. It is, after all, one of the fundamental points of criticism made against it, and the arguments which have been advanced have already been very fully canvassed. The right hon. Gentleman gave but one more example. If one is talking in terms of equity as between company and company, supposing the distribution of preference share capital were exempted, it could be said equally, the other way round, that the company which had a large preference share capital was being greatly favoured as against the company which had a small preference share capital and a large ordinary share capital. Thus, although the right hon. Gentleman can cite a case on one side, it is not diffi-

    1163
    cult to cite cases on the other side in which the result of accepting this Amendment would be to work very unfavourably against companies with a large ordinary capital.
    8.30 p.m.
    As I said, the basic principles upon which this Amendment rests have already been fully discussed. A tax is sought to be levelled on profits at one rate, and on distributions at another. If distributions of preference shares were eliminated from the scope of the Tax, there would be a great temptation for any companies formed hereafter to form themselves with a greatly increased preference share capital, as against ordinary capital, to exclude a greater proportion of their distributed profits from the scope of the Tax. As time goes on, and as this practice is more widely adopted, a serious loss of revenue might result. The cost of the Amendment, even in a full year now, would be some £5 million, which is a not insignificant amount. As time goes on, and as the practice grows still more, the loss would be considerably more. For these reasons, I must advise my hon. Friends to oppose the Amendment.
    Mr. Eccles: I agree with the Solicitor-General that the effect of this Amendment, if accepted, would be an unhealthy stimulus to the issue of preference shares. The Committee know, I think, that I am against preference shares. I consider it would be much better if we could put something in the Bill to stimulate the issue of ordinary shares, instead of which the Bill is designed to penalise ordinary shares. This Amendment is a second best. It is not the sort of Amendment which anyone with a real solicitude for the best formation of capital structure would like to put down, but it is all that is open to us once the principle of Clause 24 has been accepted.
    I should like to point out how extraordinarily unfair this present arrangement can be. I have permission to quote the case of Lever Bros.—I happened to be talking to them the other day. The company has approximately £50 million as prior charges, and something in the neighbourhood of £10 million in ordinary shares. The result of the methods of imposing this tax of 12½ per cent. over the
    1164
    whole profits of that company, with the rebate of 7½ per cent. for profits retained, is this. It would be better for them to have a straight tax of 60 per cent. on their ordinary capital, rather than to have this 12½ per cent. spread over in this way. That shows how very unfairly these provisions hit one company as against another. I am not absolutely sure of my facts, but I think that Imperial Tobacco have ordinary capital only and no preference shares.
    Mr. Assheton: They have some.
    Mr. Eccles: It is a very small proportion, and for them it will not be nearly so bad. This kind of tax will fall in an entirely different way on one company as against another, according to the gearing of its financial structure. I agree that we have conceded the principle, but I ask the Chancellor to take this back and bring it forward again in a form which will impose an equal burden on all classes of investors—debenture, preference and ordinary capital. That is why I proposed in Clause 24 a withholding tax which is not calculated to push issues of capital into certain forms dictated not by the economic necessities of the business, but to avoid taxation. If the Government bring in a tax of this kind, it is bound to have the effect of forcing the financial structure of a company into a direction they would not otherwise take. That is not sound finance, but having agreed to the principle in Clause 24, I agree that it is exceedingly difficult to make this change.
    Mr. Gallacher: I listened with great interest to the right hon. Gentleman the Member for the City of London (Mr. Assheton), and I have been consulting my hon. Friend the Member for Dumbarton Burghs (Mr. Kirkwood) in regard to this Amendment. If I were to address a workers' meeting, as I often do, and I explained how one company got £300,000 in debentures and another had £300,000 in preference shares, and I were to ask what I should say to the Chancellor of the Exchequer, the answer would be, "Skin the lot."
    Mr. Assheton: Perhaps I may add one point in reply to the Solicitor-General. He pointed out that if this Amendment were accepted, there would be a tendency for companies to issue an undue amount of preference share capital. Is he aware that the temptation now will be to issue an undue amount of debenture capital, which

    1165
    is not at all in the public interest, or likely to be in the interests of the companies concerned—there will be pressure on companies to capitalise in that particular way? Many capitalisations have been designed for particular reasons.
    I well remember giving advice 10 years ago when a family business was converted into a public company to provide for certain members of the family who were no longer actively engaged in the business. It was decided that a certain proportion of the capital previously in ordinary stock should be in preference stock, which was a sensible decision, because it provided retiring members with a fixed income, and the burden of management of the business and the profits and loss went to the active members of the family. That was a fortuitous circumstance, but solely on that account a penalty is now imposed in that particular case. I suggest that this illustrates what an extraordinarily bad tax this is, and nothing the Chancellor of the Exchequer or the Solicitor-General has said can convince the Committee that the tax will work equitably.
    Amendment negatived.
    Mr. Eccles: I beg to move, in page 25, line 36, to leave out "six," and to insert:
    "nine months or in the case of a company carrying on business or having interests abroad twelve."
    The Bill provides that a dividend declared more than six months after the accounting period to which it refers is deemed to relate to the accounting period in which it is declared; that is to say, if a company's year ends on 31st December and it does not declare its dividend before 30th June, then that dividend declared after 30th June refers to the current year as far as this tax is concerned. It is deemed to be declared in reference to a year to which it does not relate. One of the bad things about modern laws is that we are always deeming things to be the case when they are not the case. This provision will inconvenience a large number of companies, because many find it difficult to get their accounts out within six months.
    Section 123 of the Companies Act says that companies may present their accounts up to nine months after the closing of their books, and up to 12 months for those who have an interest abroad. It is true that
    1166
    in this Clause there is a provision which allows a company, which cannot get its accounts out in six months, to go to the Commissioners and to get special permission not to do so. There is a little argument between the ordinary run of business in the City and the Commissioners as to whether, if the Clause is not amended in the sense which I propose, there will or will not be a large number of companies seeking permission from the Commissioners. If there is to be an enormous queue of companies saying that they cannot get their accounts out in six months it would be better to follow the language of the Companies Act, and make the period nine or 12 months. My information is that for companies which have branches abroad six months is not reasonable.
    The Solicitor-General: We feel that a case has been made out by the hon. Member, that the wording is satisfactory in the Amendment, but we would be grateful if he would withdraw it on the assurance that, on the Report stage, we will put down an Amendment, probably in exactly the same terms. We would, however, like an opportunity of looking at this point.
    Mr. Eccles: I thank the hon. and learned Gentleman, and in view of what he has said I beg to ask leave to withdraw the Amendment.
    Amendment, by leave, withdrawn.
    Mr. Eccles: I beg to move, in page 26, line 8, at the end, to insert:
    "and of any share premium reserves paid in by the members."
    Subsection (1) of this Clause defines what the distribution will be in the case of a company that is in liquidation. We want to make sure that not only will the nominal capital of the company be treated as capital, and not as a distribution, but also any premiums that have been paid into the company by shareholders. In other words, all subscribed money of the company's capital should be treated as capital, and not be subject to Profits tax if and when the company goes into liquidation.
    The Solicitor-General: We feel that this Amendment would not have very much effect if accepted, because of the limitation of what is called the non-distribution relief which is contained in Clause 24 (3). At the same time, we would be glad if the hon. Member would give us an oppor-

    1167
    tunity of considering this matter further between now and the Report stage. I do not want to give a specific undertaking, but we would like to look at this matter, with a view to making a concession on the lines the hon. Member has asked.
    8.45 p.m.
    Mr. Eccles: I am willing to do that if I may ask the Solicitor-General a question about Clause 24 (3), which says that no distribution will be subject to the Profits Tax unless it is part of the fund of rebates that has been built up previously. Is that unlimited in scope? I suggest that there is no possibility that minuses can be carried forward, that is to say, if a company has not got a sufficient fund of rebates with which to satisfy the Profits Tax on the whole of the distribution it made in one year it would not, in the next year, have any minus carried forward.
    The Solicitor-General: I do not think the second consideration would be the case, but on the first, the relief is unlimited in extent.
    Mr. Eccles: In view of that, I beg to ask leave to withdraw the Amendment.
    Amendment, by leave, withdrawn.
    Amendment made: In page 26, line 21, leave out "made," and insert "paid." —[The Solicitor-General.]
    Mr. Eccles: I beg to move, in page 26, line 41, to leave out "in general meeting."
    A peculiar position arises here, which I do not understand. A dividend declared by a company in general meeting is deemed to be declared when it is announced by the directors. On the other hand, an interim dividend is deemed to be declared when it is paid. It may be a couple of months or more between the announcement of the interim dividend and the actual day when it is paid. This seems to be an anomaly.
    The Solicitor-General: I have given several undertakings, and I want to give one more now. We feel that the hon. Member has made out a case here, and, again, we would like to look at the wording. Perhaps he will withdraw the Amendment if he will accept an assurance on those lines.
    Mr. Eccles: I beg to ask leave to withdraw the Amendment.
    Amendment, by leave, withdrawn.
    Motion made, and Question proposed, "That the Clause, as amended, stand part of the Bill."
    Mr. Eccles: There is an important point which arises on this Clause. In Subsection (3) the Chancellor is proposing to tax, by the Profits Tax, dividends which have been earned in 1946, although, in that year, the Excess Profits Tax was still in force. He is proposing to tax the excess of a dividend declared in regard to 1946 over the rate of dividend which a company paid in 1945. The Chancellor says that if a company paid 10 per cent. last year, and now puts its dividends up to 20 per cent., it may be doing that partly because it disregarded his warnings on various occasions, and partly in order deliberately to pay out more from profits which otherwise would not attract this tax. Therefore, the Chancellor does something which is unattractive, that is to say, he makes this taxation retrospective, in respect of the excess of a dividend paid this year, over what was paid last year. That is not fair in the sense that E.P.T. came off only at the end of last year, and if the Profits Tax, which on the Chancellor's own proposition is a substitution for E.P.T., is to be levied on profits which have already been charged with E.P.T. it is not fair.
    We put down an Amendment to this Clause, but on thinking it over my hon. Friends and I came to the conclusion that our Amendment was not very businesslike. What we endeavoured to do was to leave the Chancellor of the Exchequer in the position to take in the excess of the dividend this year over what was paid last year, but not the excess there may be between the dividend paid this year and the whole of the profits last year. We ought to be able to find some way to prevent this little piece of double taxation which the Chancellor has insinuated into this Clause. I would remind the Committee that it is quite natural that some businesses should be paying bigger dividends in 1947 than in 1946. It is very likely that all those companies, freviously E.P.T. payers, would have higher profits this year than last year. This tax is not designed wholly to take the place of E.P.T. The Chancellor has said that it is a modest substitute. That being the case, there is nothing wrong in a company which has been paying enormous

    1169
    sums in E.P.T. keeping its dividend down very low indeed, and paying something more in 1947 when E.P.T. goes.
    In the case of a second class of company which had its business abroad, and which was closed down by the war and probably made losses all through the war, if able to trade at all, and which is just getting on to its feet, it is not unreasonable that such companies coming back into trade and production should pay more in 1947 than in 1946. I think that Subsection (3) must have been put in simply to try to hit the companies who have not done what the Chancellor said they should do—that is to confine their dividends to what they were the year before. I submit that was never a reasonable request of the Government, because of the consideration which I have put forward.
    I would not quarrel if some way could be found to put into the Bill a qualification against flagrant abuse. Here again, we have the folly of "crook catching." We only catch them for a small amount, and in order to penalise to some extent a few companies which may have irresponsibly increased their dividends in 1947, every company which increases its dividends in 1947 is likely to be involved. I think that the Chancellor ought to be able to find some way between now and the Report stage to do this thing fairly and not in a bludgeoning manner. I ask the Chancellor to have another look at this.
    The Solicitor-General: We are sorry that the result of this Clause will affect particular companies unfairly. On the other hand, we do not see any alternative to putting in a Subsection in the form we have put in. The difficulty was, as I explained when we were discussing this matter in the Debate on the Report stage of the Resolution, that if we did not have a Clause of this sort it would be very easy to take advantage of the knowledge of the tax. It only applies with regard to declarations after 15th April, 1946. The Clause is really only designed to hit—as in fact it will hit—and to apply to those declarations of dividends made after the date of the Budget speech. If we did not have some such Clause it would be extremely easy by declaring higher dividends to avoid a great part of the incidence of tax liability in the year 1947. We are sorry that it works unfairly in the
    1170
    case of particular companies, and we will bear in mind what the hon. Gentleman has said with regard to particular instances, but we feel that there is no alternative but to introduce and maintain in the Bill the safeguards we have introduced or a safeguard in very similar terms.
    Question put, and agreed to.
    Clause, as amended, ordered to stand part of the Bill.

    CLAUSE 30.—(Meaning of "distribution" and provision with respect to repaid loans.)
    The Solicitor-General: I beg to move, in page 27, line 1, at the beginning, to insert:
    "Subject to the provisions of the next succeeding Subsection."
    This Amendment is designed to pave the way for an Amendment which appears later on the Order Paper—page 27, line 15, at the end, to insert:
    "(2) Where a distribution is one in respect of which the person making it is authorised or required to deduct income tax, the amount of the distribution shall be taken for the purposes of the last preceding Section to be the amount which represents or would be deemed to represent income for the purposes of the Income Tax Acts"—
    in which the object of the Amendment is, I think, made much more clear. It is in the nature of a drafting Amendment to clear up an obscurity which may appear in the Bill as worded. Therefore, I propose to move the Amendment formally and explain the reason when we come to the further Amendment.
    Mr. Stanley: I think that the other way round is more usual. If this particular Amendment is passed, it may commit us when we come to a decision on the other Amendment.
    The Solicitor-General: The object of the two Amendments is to make certain that where distributions are subject to a reduction in Income Tax and are declared free of tax, they will be taken for the purpose of charging Profits Tax at the I2½ per cent, rate on distributed profits when the amount distributed is income for the purposes of Income Tax. For example, if a company declares profits before making provision for Income Tax of, say, £200,000 and distributes £100,000 in dividends, less Income Tax at 9s. in the pound, and distributes £55,000 free of

    1171
    tax, the charge of Profits Tax at the higher rate ought to be on the full amount of £100,000. As the Clause is worded it could be construed that the actual distribution to members which the Clause was aimed at was not the full amount—that is to say, £100,000—but £100,000 less the 9s. tax, namely, £55,000. We want to make it clear by this Amendment that what we are talking about is not £55,000, which is the net sum after deduction of tax, but the distribution, in the case which I have instanced, of £100,000.
    Amendment agreed to.
    9.0 p.m.
    Mr. Eeeles: I beg to move, in page 27, line 1, at the end, to insert: "out of the chargeable profits."
    This is really quite a small point, We think the distinction between capital and income is becoming more and more blurred all the time, and that it is a good thing that we should try to make it as definite as possible. By "chargeable profits" we do not mean chargeable profits for one year, but any such chargeable profits as the company may have accumulated in the past as well as during that year. I think the Amendment would improve the Bill.
    The Solicitor-General: We feel that the object of the Amendment is already covered. If one looks at the Bill one finds that the distribution charge is limited by the amount of the non-distribution relief which has been mentioned before and is provided for by Clause 24 (3). That means that it is limited to the net relevant distribution of profits. If one adds the words proposed, one introduces a certain amount of obscurity, because if one works out the machinery of the tax, what is sought to be introduced by the Amendment is already provided for. In other words, under Clause 28, in the net relevant distribution, account has to be taken of the franked investment income and the abatement, and in so doing what the Amendment seeks to achieve is being brought about. As in all cases, if we are asked why we do not accept the words if they do not do anything, the answer is that if we accept words which have no apparent and obvious purpose we are introducing a certain amount of doubt in the minds of those who have to construe the Clause,
    1172
    because they always seek to attribute some meaning to whatever words are found in the Clause. Therefore, I ask the Committee not to accept the Amendment, because the point is already covered and it will introduce a certain amount of obscurity.
    Mr. Eccles: I beg to ask leave to withdraw the Amendment.
    Amendment, by leave, withdrawn.
    Mr. Eccles: I beg to move, in page 27, line 4, after "person," to insert:
    "(otherwise than in a liquidation for the purpose of an amalgamation or reconstruction)."
    This Clause sets out to define exactly what a distribution is—when is a distribution not a distribution? We think it is important that the tax should not be charged when no real distribution in the ordinary sense of the word has taken place, but merely an exchange of one piece of paper for another. That is to say, if a company reconstructs and its capital is exchanged for shares in a new company, there has not really been any distribution in the sense of a trading profit at all. It would make the reconstruction of, for instance, the cotton industry very much more expensive if, every time two cotton mills amalgamated, this tax had to fall upon the proportion of the assets distributed over and above the original nominal capital. I admit that the proviso to Clause 24 (3) is of some help, but we think it should be made quite clear, in the interests of rationalising business and making easier reconstructions, on which the Government are as keen as anybody, that when there is no money passing but it is simply a case of exchanging the share capital of the company for shares in another company, that is not a distribution within the meaning of this Bill.
    The Solicitor-General: On considering this Amendment, which has not been on the Order Paper for very long, we feel that there are certain cases which require to be dealt with. As it is drafted, however, the Amendment goes a good deal too far. It includes any form of amalgamation or reconstruction which, we feel, would be opening the door rather too wide. Accordingly, we would ask the hon. Gentleman to withdraw his Amendment on our undertaking to look care-

    1173
    fully into the point he has made with a view to providing if we can for some sort of exception in the case of an amalgamation which would not offend against the principle of the tax.
    Mr. Eccles: I am willing to withdraw, but I hope in this connection that the Government have noted the large number of assurances that have been given and that they will require a great deal of time on the Report stage.
    Amendment, by leave, withdrawn.
    Mr. Assheton: I beg to move in page 27, line 9, after "person," to insert:
    "excluding loans made in the ordinary course of business and the remuneration paid to employees."
    This Clause as at present worded seems to mean that if the director of any company were deemed to have a controlling interest in the company the remuneration which was paid to employees or, even in the case of banking companies, the loans made in the ordinary course of business would be subject to Profits Tax at the full rate. I do not think that that is intended, or it would be a serious matter where there is a large staff. Perhaps the Solicitor-General will be able to help us in this matter.
    The Solicitor-General: I am sorry, but I cannot follow the path I have hitherto been following and accept almost every argument advanced by the hon. Gentlemen opposite. We feel that this Amendment is dangerous and is going too far. After all, remuneration is already liable as a deduction from tax. That would be allowable against trading profits, so that it would be excluded. It would not come as a distribution because it was deduction from the profits of the company With regard to loans, we feel that if we accepted that part of the Amendment it would make a great deal of abuse possible. Clause 30 (2) provides for a case where loan is re-paid, and there there is a corresponding reduction. We feel that to exclude loans altogether and say that they are to be regarded as distributions would make it possible for unscrupulous people to embark upon a course which would lead to a considerable amount of tax evasion. Therefore, we say that this Amendment is rather dangerous and ought not to be accepted because it would open the door to a great deal of tax evasion.
    Sir. Assheton: I am not quite happy about this. I wonder whether the Solicitor-General would consider the insertion of the word "proprietor" instead of "any person." That might get over the difficulty.
    The Solicitor-General: Without any commitment, may we be given the opportunity to ponder the matter? We do not want to give any undertaking at all.
    Mr. Assheton: I beg to ask leave to withdraw the Amendment on that condition.
    Amendment, by leave, withdrawn.
    Mr. Assheton: I beg to move, in page 27, line 13, after "reducing," to insert: "or in redeeming."
    This is a matter of clarification. We want to make it quite possible for the Solicitor-General to give us an assurance that the redemption of preference shares is not the distribution of dividends and, therefore, subject to tax.
    The Solicitor-General: We feel that the question of redeeming capital is already sufficiently covered by the word "reducing," except in the case where there is a premium. In the case where it is redeemed by premium we feel the premium shoud be regarded as distribution. Ordinary redemption, therefore, is already covered by the wording of the Clause as it stands, and, therefore, we cannot accept the Amendment.
    Amendment negatived.
    The Solicitor-General: I beg to move, in page 27, line 15, at the end, to insert:
    "(2) Where a distribution is one in respect of which the person making it is authorised or required to deduct income tax, the amount of the distribution shall be taken for the purposes of the last preceding Section to be the amount which represents or would be deemed to represent income for the purposes of the Income Tax Acts."
    This is the Amendment which I endeavoured to explain on a previous occasion, and it relates to the meaning of gross distribution.
    Amendment agreed to.
    Motion made, and Question proposed, "That the Clause, as amended, stand part of the Bill."
    Mr. Eccles: It seems to me that there will be a lot of trouble under this Clause about the valuation of distributions other than those in cash. Subsection (1, b):
    "assets are distributed in kind to any person."
    In line 10 it says:
    "There shall be deemed for the purposes of the last preceding section to be a distribution to that person of that amount or, as the case may be, of an amount equal to the value of those assets."
    That is a very loose sort of phrase. How are companies to know what is the value of some of these assets which may be classed as distribution? There ought to be some way in which we can tell by what principles these assets are going to be followed. Suppose a man gets the tenancy of a house for five years, what then? There are many kinds of non-cash distributions which I should say would be covered by the Bill, and we ought to have some idea of how they are to be made. Perhaps the Solicitor-General would tell us something on that score.
    Sir H. Lucas-Tooth: There is one question arising out of the Clause which I should like to ask. It is whether cash distributions, which are made to some people other than members of a company would be caught by this Clause. If the cash distributions were made to employees of a company or possibly to workmen or directors, would they be caught by the terms of this Clause? It is not very clear. I think that an Amendment should have been put down to the phrase "any person."
    9.15 p.m.
    Major Haughton: I notice that the Amendment put down in the names of my hon. and right hon. Friends and myself was not called, and I should like at this stage to raise a point which concerns director-controlled companies. A director-controlled company can be described as one in which the directors have a controlling interest, and as was said in the Debate last night, it is of very great importance at the present time that there should be closer links than ever before between directors and shareholders of companies. At this point, in accordance with Parliamentary practice, I should declare my personal interest in this matter. I happen to be a director of one or more companies of this kind. To get a fail picture of the matter which I want to raise, we have to go back ten years to
    1176
    the Finance Act, 1937. In the eleventh paragraph of the Fourth Schedule to that Act is defined the limitation on the remuneration to be paid to directors of companies in which they have a controlling interest. The last thing I want to do is to weary the Committee with a citation of long-past Finance Acts, but I am driven to quote in order to make this case clear. In that Act the limitation was described as follows:
    "In the case of a trade or business carried on in any chargeable accounting period by a company the directors whereof have a controlling interest therein, the deduction to be allowed in respect of the remuneration of the directors other than whole-time service directors shall not exceed fifteen per cent, of the profits arising from the trade or business in that period (computed before making any deduction in respect of the remuneration of the directors other than whole-time service directors), or fifteen hundred pounds, whichever is the greater, so, however that the deduction shall in no case exceed fifteen hundred pounds."
    I am driven again to define what is meant by whole-time service directors because it must be made clear that the expression "whole-time service directors" means directors who are required to devote substantially the whole of their time to the service of the company in a managerial or technical capacity but who have not more than 5 per cent, of the shareholdings. Under that Schedule there is a limitation of the amount of remuneration which shall be paid to directors, and I do not think anybody in this Committee would find fault with a limitation of that kind provided it related to three factors: first, that it is fair; second, that it is adequate; and third, that it does not lead to double taxation.
    I seek tonight to apply that first test of whether or not that limitation of 1937 is clear. I think we have to admit that it effects no provision at all for the size of the company because, whereas in one company of this type two or three directors may be quite adequate, in others possibly six or seven directors are needed to cope successfully with its affairs. I know in advance that the Chancellor may say, "I am taking good care"—or '' Good care has been taken in the past of these limitations," because one of them allows 15 per cent, on the total profits of a concern which is reasonable and adequate; but if we take as recent an example as the first three months of this year, when companies—whether privately-owned and whether they had directors

    1177
    with a controlling interest in them or not, or whether they were general companies —were faced with exceptional difficulties, the directors of those concerns, if they were any good at all, were on their toes trying to overcome difficulties and frustrations of different kinds, but because of climatic and other difficulties they probably had a bad showing for that year. It is quite wrong, I submit, on the first test of fairness, that the remuneration of directors should be in inverse proportion to the efforts that they make.
    On the second test of double taxation, I know of cases—and I am thinking of exact figures—where, in certain companies, a large part of the directors' remuneration has been disallowed and added to the company's profit and assessed to Profits Tax while exactly the same remuneration was assessed to Income Tax and Surtax on the individuals. No one can deny—and I ask the Chancellor to consider this point—that this is an indisputable case of double taxation. It may be cited that in the case of sole traders and partnerships, which are exempted, the arguments which I am seeking to substantiate tonight are not right. I know that they are not subject to Surtax. I think I have said enough, however, to give a general background to this plea that I am putting forward on behalf of these types of companies which are to he found in Yorkshire and Lancashire and in different parts of the country, as they are in that part of the United Kingdom from which I come, and I hope that the Chancellor will consider these points, because I think they are quite fair.
    In the first case, the point I want to make is that those limitations were made in 1937, which was ten years ago, when the value of money was different. Had my Amendment been called, it would have suggested that those allowances should be doubled. I would go still further and suggest, on the plea of fairness, on the plea of the avoidance of double taxation, that the Section of the 1937 Act should be amended to read "per director," because the amount to be paid to a small company per director would be smaller than the amount to a bigger company which requires more directors.
    I apologise for the time I have taken in giving this background to a rather out-of-date Measure but, as the Chancellor said last night, to those of us who were
    1178
    listening to his remarks when we were dealing with that large section of the Finance Bill, Clauses 14 to 18 these Finance Bills came forward year by year, they try to translate into the practice of the day the things which will enable tax to be applied reasonably and in a simple way. Because he said that, I am the more encouraged to plead with him tonight to go back to that Finance Act of ten years ago and ask him whether the regulations laid down there, perfectly reasonable in their day, are applicable to the present time, and whether he can see his way to amend them.
    The Solicitor-General: With regard to the questions put by the hon. and gallant Member for Antrim (Major Haughton), I feel some hesitation in embarking upon a discussion of whether the amounts provided for as deductible directors' remuneration in the 1937 Act are appropriate or not. The question, as I see it, is rather remote from the subject with which the Clause deals. The hon. and gallant Gentleman was asking, in view of the difference in the value of money and the different circumstances which obtain today, whether the proportion which can be deducted by way of directors' remuneration still obtains. That is not a matter with which this Clause deals. The hon. Gentleman will see that there is a Clause which deals with directors' remuneration for the purpose both of Excess Profits Tax and of Profits Tax. I think it would be more germane on that discussion to look at this particular aspect of the 1937 Act. So far as I am concerned, I would not venture an opinion at the moment as to whether or not those figures should be altered, because I do not feel the matter comes within the purview of the present discussion.
    The hon. Member for South Hendon (Sir H. Lucas-Tooth) asked whether the term "any person" was limited to a member of a company under Clause 30 (1, a) The word is "person." When one looks to see what the gross relevant distribution is for the purpose of tax, and when one looks back to see how that is defined, in Clause 29 one finds that one has to consider, for the purpose of the tax
    "the gross relevant distributions to proprietors."
    Therefore, for practical purposes, when one talks about distributions to persons, one has to refer only to Clause 29—
    Sir H. Lucas-Tooth: What is the purpose of the use of the word "person"?
    The Solicitor-General: It is most convenient.
    Sir H. Lucas-Tooth: Would not it be better to use the word "proprietor"?
    The Solicitor-General: The Clause is drafted in this way for technical drafting reasons which it would take some time to explain.
    Mr. Kirkwood: In view of the sad story we have heard about directors, I would like to suggest an easy way by which directors who are paying double taxation may relieve themselves of that burden. All they have to do is to stop being directors, and I will get them jobs in the shipyards, or they can get work in the mines.
    Captain Crookshank: The Solicitor-General departed from what I regarded as the very good case presented by my hon. and gallant Friend the Member for Antrim (Major Haughton) by saying, in effect, that this was not the right place to discuss the matter. He did not assist by telling us what was the right place. He will appreciate that these Clauses are very complicated. Of course, the Opposition put down Amendments only in what they believe to be the right places, but, unfortunately, they sometimes choose the wrong place. Wherever the right place may be, obviously we will not want to discuss the matter again and, as it would appear to be in Order to discuss this matter on the Question, "That the Clause stand part of the Bill," I would like the Chancellor to do in this case what he has promised to do in the other cases which have arisen during the Debate, namely, to consider the point which my hon. and gallant Friend made. I have read the 1937 Act, and it is quite true that these restrictions were put in the Act for good and proper reasons, and in relation to the figures which were thought appropriate at that time. As far as I know, in the years which have elapsed, when the National Defence Contribution existed and before the introduction of the Excess Profits Tax, that policy was not questioned in any way and those figures were accepted.
    This may not be the right place, but, for all that, the Solicitor-General absolved himself from answering the question on its
    1180
    merits. I reinforce what has been said by my hon. and gallant Friend and I request the Chancellor to be good enough to take this into consideration.
    9.30 p.m.
    Mr. Dalton: I will. This is very technical. I am advised that it does not really fit here. None the less, the point is interesting. We will certainly look into it in the light of what has been said by the hon. and gallant Member for Antrim (Major Haughton).
    Question put, and agreed to.
    Clause, as amended, ordered to stand part of the Bill.
    Clause 31 ordered to stand part of the Bill.

    CLAUSE 32.—(Provisions as to subsidiary companies.)
    Mr. Eccles: I beg to move, in page 29. line 3, at the end, to insert:
    "If at any time a subsidiary as defined by Section twenty-two of the Finance Act, 1937, as amended, has not previously been the subject of a notice under that Section but is the subject of a notice given by the principal company within six months of the passing of this Act the like sums may be carried forward under paragraph z and sub-paragraph (2) of paragraph 3 of the Fourth Schedule to the said Act from previous chargeable accounting periods during which or during part of which the subsidiary was a- subsidiary of that principal company as might have been carried forward from those periods for the purpose of the profits tax in respect of the trade or business of the subsidiary if no such notice had been given and the said sums may be treated for the purpose of the profits tax in respect of the trade or business of the principal company as if they had been carried forward in respect of the trade or business carried on by it."
    I am afraid that this is a rather complicated Amendment. When E.P.T. and N.D.C. were introduced, companies were entitled to elect whether or not their subsidiaries should be aggregated with the parent company. There was' no particular point in certain circumstances, in making the election, and nobody bothered very much about it. But now that we are to have a permanent Profits Tax, it makes considerable difference to companies whether or not they elect to have their subsidiary accounts grouped with the parent companies. The point of this Amendment is that it would permit a company to elect to have its subsidiaries

    1181
    grouped with it and to carry forward any losses which the subsidiary had made in past years when there was no point in making this election. I think that is reasonable, and I hope that the Solicitor-General will be able to accept the Amendment. Even if the words are not quite right—I do not understand them myself—I think the idea of the Amendment is pretty fair.
    The Solicitor-General: This is a very technical matter. What the Amendment would seek to do, as I read it, would be to bring it about that a group could treat its subsidiaries' losses for the purpose of ascertaining the profits of the parent company as distinct from setting them off against the profits of the subsidiaries, notwithstanding that no notice had been given to treat the subsidiary as a member of the group. The matter can always be rectified by giving notice and by electing for group treatment. We feel that that cannot be said to be any justification, looking at it from the general ground of equity, for asking for the same treatment in respect of the losses of a subsidiary before it has become a member of the group, when the notice has not been given, as is allowed when the notice has been given. We feel that no case has been made out for that, and it really makes the giving of notice a rather unimportant matter. For these reasons I ask the Committee to say that there are not sufficient grounds for the adoption of the Amendment.
    Mr. Assheton: I do not know whether the hon. Member for Dumbarton Burghs (Mr. Kirkwood) would object to the Government giving way over this Amendment. It has nothing whatever to do with directors, and the hon. Member need not fear that anybody is going to get away with anything. I do not know whether the Solicitor-General has in mind Clause 36 (2), which gives a right to aggregate and carry forward losses in the case of different trades carried on by one person, which have been separately assessed in the past, but which from 1st January this year, are to be aggregated. It seems to me that there is a precedent here, if we may call it that, which the Solicitor-General might well bear in mind between now and the Report stage, and if he were able to help us over this, we should be very much obliged.
    Amendment negatived
    Motion made, and Question proposed, That the Clause stand part of the Bill."
    Mr. Eccles: There is just one other question on this difficult Clause. I understand that, under E.P.T., companies could charge up to the minority shareholders in subsidiaries, if they elected to have profits treated on an aggregate basis, the proportion of E.P.T. There is nothing in this Clause which would enable a parent company, which had elected to have its subsidiaries aggregated with itself, to charge up to the minority shareholders of a subsidiary their proportion of the Profits Tax. I was wondering whether the Chancellor, knowing that it is not a very big point and one which will not occur very often, though it will occur in certain cases, could perhaps give an assurance that such companies could go to the Commissioners and make an arrangement or a contract showing what was the percentage of the minority shareholders in that subsidiary, and, by agreement with the Commissioners, charge up to those minority shareholders their proportion of the tax. If that cannot he done, then it is obvious that the shareholders of the parent company would hear more than their proper share. I do not think it is at all an impossible arrangement to make, and I ask the learned Solicitor-General if he could give me some answer about it.
    The Solicitor-General: The position is not quite the same in the case of E.P.T. as it is with regard to Profits Tax. I will certainly consider what the hon. Gentleman has said, but I feel that it would be feasible to assimilate the two in that respect, and give precisely the same rights of recovery to the parent company against the subsidiaries. The position is not really similar, but we will consider the matter, although I feel that, at the moment, it will not be possible to make any such alteration as has been suggested.
    Question put, and agreed to.
    Clause ordered to stand part of the Bill.

    CLAUSE 33.—(Persons resident outside United Kingdom.)
    Mr. Eccles: I beg to move, in page 29, line 41, after "corporate," to insert:
    "and to any other proprietor who is not normally resident in the United Kingdom "
    This is quite a simple point, compared with the one with which we have been

    1183
    dealing. Clause 33 proposes that, in the case of companies resident outside the United Kingdom, the Profits Tax shall be charged only at the basic rate of 5 per cent. Where a foreign company has a subsidiary company operating in this country, the dividend provided by the subsidiary to the principal company shall bear Profits Tax only at the five per cent. rate. Subsection (2) is limited only in that it exempts distributions passing from the subsidiary to the principal company overseas and it does not take account of the possibility that the principal company overseas may have individual shareholders interested in the subsidiary as well as shares owned by the principal company itself.
    The Solicitor-General: We cannot very well accept the Amendment, and I will endeavour to tell the Committee why. When dividend is paid to the company overseas, it goes into the pool of that company's distributable resources and, together with other resources which that company can devote to paying dividends, goes out in the form of dividends to shareholders. There is a special case for exempting from the 7½ per cent. charge dividends paid to the foreign company. The Amendment seeks that any foreign shareholder shall be put in exactly the same position, but it cannot be said in regard to him that he is paying into the pool for redistribution. He is in exactly the same position as any other shareholder, any other foreign national, if you will, to whom money is paid. One cannot make a case for distinguishing between one foreign shareholder and any other shareholder who receives distributions from the British company. We cannot place the foreign shareholder in exactly the same position as the foreign company.
    Mr. Eccles: That is a very bad argument. I do not believe in giving privileges, but if we are giving privileges at all we ought to give them to everybody, or we ought to give no privilege at all. As the Clause stands, the foreign company may hold 51 per cent. of the shares, and then it gets dividends free of Profits Tax. Any company holding 48 or 49 per cent. has to pay the tax. That does not make sense. It only shows that this tax is bad. In order to try not to displease them we tell the foreigners who
    1184
    have a controlling interest of 51 per cent. or more of the shares, "You have a controlling interest in these companies in the United Kingdom; you shall not have to pay the Profits Tax." Another man with only 40 per cent. must pay the Profits Tax. It is really bad business. The Government ought to do one thing or the other. They must either say to foreigners or proprietors of companies who are in residence in the United Kingdom that all shall escape, or that none shall escape. I do not very much mind which, but I should be rather inclined to say, "None of them."
    9.45 p.m.
    Mr. Stanley: I should like to reinforce what has been said by my hon. Friend. I listened carefully to the explanation given by the hon. and learned Solicitor-General, and I confess that, in this instance—although on many previous occasions on these Clauses I have much admired his lucidity—I could not see any reason in Iris remarks. He failed to explain why this exception was made for the particular foreign company who owns the controlling interest. He never explained why it was necessary to give it a privilege, and why that privilege could not he given to the extended range of this Amendment. All he said was something which was already obvious to us, that the individual to whom the Amendment would extend this privilege was different from the company which enjoyed it now; but he did not explain what there was in that difference which entitled one corporation to get the benefit and the other individual not to get it. I can quite see that there might be a very good argument for not giving this exemption to anyone. Certainly no argument has been set before us for giving it to one particular form of company and refusing it to everyone else. As far as I am concerned, I hope that, unless we can get some better explanation of why this discrimination has been made, we shall take the matter to a Division.
    Mr. Hopkin Morris: I am a little puzzled by the speech of the hon. Member for Chippenham (Mr. Eccles). There seems to me to be some point in what he says—that the foreign company escapes the tax if it has a 51 per cent, controlling interest, but becomes subject to it if it has only a 40 per cent. interest. But the Amendment, as I understand it, has a very different purpose. It says:

    1185
    "after corporate' insert and to any other proprietor who is not normally resident in the United Kingdom'."
    I fail to understand how the Amendment could meet the point raised by the hon. Member for Chippenham. As I have said, he has raised a very substantial point, but
    the Amendment raises a very different one.
    Question put "That those words be there inserted."
    The Committee divided: Ayes, 105: Noes, 262.

    Division No. 247.

    AYES.

    [9.48 p.m

    Amory, D. Heathcoat

    Hare, Hon. J. H. (Woodbridge)

    Poole, O. B. S. (Oswestry)

    Assheton, Rt. Hon. R

    Harvey, Air-Comdre. A V

    Prescott, Stanley

    Astor, Hon. M

    Haughton, S. G.

    Price-White, Lt.-Col. D

    Baldwin, A E

    Head, Brig. A. H.

    Prior-Palmer, Brig. O

    Barlow, Sir J

    Headlam, Lieut.-Col. Rt. Hon. Sir C

    Raikes, H. V.

    Beamish, Maj H

    Henderson, John (Cathcart)

    Reid, Rt. Hon. J. S. C (Hillhead)

    Bennett, Sir P.

    Hinchingbrooke, Viscount

    Renton, D.

    Birch, Nigel

    Hudson, Rt. Hon R. S. (Southport)

    Ropner, ColL.

    Boles. Lt.-Col. D.C (Wells)

    Hutchison, Lt.-Cm. Clark (E'b'rgh W.)

    Sanderson, Sir F.

    Bower, N.

    Jarvis, Sir J

    Scott, Lord W.

    Boyd-Carpenter, J. A

    Joynson-Hicks, Hon L. W

    Shephard, S. (Newark)

    Braithwaite, Lt.-Comdr J G

    Keeling, E.H

    Shepherd, W. S. (Bucklow)

    Buchan-Hepburn, D G T

    Lambert, Hon. G.

    Smiles, Lt.-Col. Sir W

    Bullock, Capt. M

    Lancaster, Col. CG

    Smith, E. P (Ashford)

    Challen, C

    Langford-Holt, J.

    Smithers, Sir W.

    Clarke, Col. R. S.

    Lindsay, K. M. (Comb'd Eng Univ.)

    Spearman, A.C. M

    Clifton-Brown, Lt.-Col. G

    Low, Brig. A. R. W

    Spence, H.R.

    Conant, Maj. R. J. E.

    Lucas, Major Sir J.

    Stanley, Rt. Hon. O.

    Crookshank, Capt. Rt Hon. H F C

    Lucas-Tooth, Sir H.

    Stuart, Rt. Hon. J (Moray)

    Crosthwaite-Eyre, Col. O. E

    McCallum, MaJ. D.

    Sutcliffe, H.

    Cuthbert, W. N

    Mackeson, Brig. H. R

    Taylor, Vice-Adm. E. A (P'dd't'n, S.)

    Digby, S. W.

    Maclay, Hon. J. S.

    Teeling, William

    Donner, San.-Ldr. P W.

    Macmillan, Rt. Hon. Harold (Bromley)

    Thornton-Kemsley, C. N.

    Dower, Lt.-Col. A V G (Penrith)

    Macpherson, Maj. N. (Dumfries)

    Thorp, Lt.-Col. R A. F

    Drayson, G. B '

    Manningham-Bullor, R. E

    Touche, G. C.

    Eccles, D. M.

    Marples, A. E.

    Vane, W. M. F

    Elliot, Rt. Hon. Waiter

    Marshall, D. (Bodmin)

    Walker-Smith, D.

    Fraser, H. C. P. (Stone)

    Mellor, Sir J.

    Ward, Hon. G. R.

    Gage, C

    Molson, A. H. E.

    Webbe, Sir H. (Abbey)

    Galbraith, Cmdr. TD.

    Morrison, Maj. J. G. (Salisbury)

    Wheatley, Colonel M. J,

    Gammans, L. D.

    Mullan, Lt. C. H.

    White, Sir D. (Fareham)

    Gomme-Duncan, Col A

    Naven-Spence, Sir B

    White, J. B. (Canterbury)

    Grant, Lady

    Osborne, C.

    Winterton, Rt. Hon. Earl

    Gridley, Sir A.

    Peake, Rt Hon. O

    Grimstan, R. V.

    Pitman, I. J.

    TELLERS FOR THE AYES:

    Hannon, Sir P. (Moseley)

    Ponsonby, Col. C. E

    Mr. Drewe and Mr. Studholme.

    NOES

    Adams, Richard (Balham)

    Brook, D. (Halifax)

    Deer, G.

    Adams, W. T, (Hammersmith, South)

    Brooks, T. J. (Rothwoll)

    Delargy, H J

    Alexander, Rt. Hon A V

    Brown, George (Belper)

    Diamond, J

    Allen, A. C. (Bosworth)

    Brown, T. J (Ince)

    Donovan, T

    Alpass, J. H.

    Bruce, Maj. D. W T

    Driberg, T.E. N.

    Anderson, F. (Whitehaven)

    Buchanan, G.

    Dugdale, J. (W. Bromwich)

    Altewell, H. C

    Burke, W. A.

    Dumpleton, C. W.

    Ayles, W. H.

    Butler, H. W. (Hackney. S)

    Durbin, E. F. M.

    Ayrton Gould, Mrs B

    Byers, Frank

    Ede, Rt. Hon. J. C.

    Bacon, Miss A

    Callaghan, James

    Edwards, N. (Caerphilly)

    Baird J.

    Carmichael, James

    Evans, S.N. (Wednesbury)

    Balfour, A

    Champion, A. J

    Ewart, R

    Barstow, P G

    Chetwynd, G. R.

    Fairhurst, F.

    Barton, C.

    Cobb, F.A.

    Farthing, WJ.

    Battley, J R.

    Cocks, F. S

    Fernyhough, E.

    Beattie, J (Belfast, W)

    Coldrick, W

    Foot, M.M.

    Bechervaise, A. E.

    Collindridge, F,

    Forman, J. C.

    Bellenger, Rt Hon. F J

    Collins, V. J.

    Freeman, Peter (Newport)

    Benson, G.

    Colman, Miss G. M.

    Gaitskell, H T. N

    Berry, H.

    Comyns, Dr L.

    Gallacher, W

    Beswick, F

    Corbet, Mrs F K (Camberwell, N.W.)

    Ganley, Mrs. C. S

    Bing, G. H. C

    Corlett, Dr. J

    George, Lady M. Lloyd (Anglesey)

    Binns, J.

    Cove, W. G.

    Gibbins, J.

    Blenkinsop, A.

    Crawley, A

    Gibson, C W

    Blyton, W. R

    Daggar, G

    Gilzean, A.

    Boardman, H.

    Daines, P.

    Glanville, J. E. (Consett)

    Bottomley, A. G.

    Dalton, Rt. Hon. H.

    Goodrich, H E.

    Bowden, Flg.-Offr. H W.

    Davies, Edward (Burslem)

    Gordon-Walker, P. C

    Bowles, F. G. (Nuneaton)

    Davies, Ernest (Enfield)

    Greenwood, A. W.J. (Heywood)

    Braddock, Mrs. E. M L'pt Exch'ge)

    Davies, Harold(Leek)

    Grenfell, D. R.

    Braddock, T. (Mitcham)

    Davies, Hadyn(St Panoras, S.W)

    Grey, C. F.

    Bramall, E. A.

    Davies, RJ. (Westhoughlon)

    Griffiths, D (Rother Valley,

    Griffiths, Rt. Hon. J. (Llanelly)

    Manning, Mrs. L. (Epping)

    Shinwell, Rt. Hon. E

    Griffiths, W. D. (Moss Side)

    Marshall, F. (Brightside)

    Shurmer, P.

    Guest, Dr. L. Haden

    Medland, H. M.

    Silverman, S. S. (Nelson)

    Gunter, R. J

    Mellish, R. J.

    Simmons, C. J.

    Guy, W. H.

    Middleton, Mrs. L

    Skeffington-Lodge, T. C

    Hall, W. G.

    Mikardo, Ian

    Skinnard, F. W.

    Hamilton, Lieut.-Col. R

    Millington, Wing-Comdr E R

    Sorensen, R. W

    Hannan, W. (Maryhill)

    Milchison, G. R.

    Stamford, W.

    Harrison, J.

    Monslow, W.

    Steele, T.

    Hastings, Dr. Somerville

    Moody, A. S.

    Stewart, Michael (Futham, E.)

    Henderson, A. (Kingswinford)

    Morley, R.

    Stokes, R. R.

    Henderson, Joseph (Ardwick)

    Morris, P. (Swansea, W)

    Stross, Dr. B.

    Herbison, Miss M.

    Morris, Hopkin (Carmarthen)

    Stubbs, A. E.

    Hewitson, Capt. M

    Mort, D. L.

    Swingler, S.

    Hicks, G

    Murray, J. D.

    Sylvester, G. O

    Hobson, C. R

    Nally, W.

    Symonds, A. L.

    Holman, P

    Naylor, T. E.

    Taylor, H. B. (Mansfield)

    Holmes, H. E. (Hemsworth)

    Neal, H. (Claycross)

    Taylor, R. J. (Morpeth)

    House, G.

    Nichol, Mrs. M. E. (Bradford, N.)

    Taylor, Dr. S. (Barnet)

    Hoy, J.

    Nicholls, H. R. (Stratford)

    Thomas, D. E. (Aberdare)

    Hudson, J. H. (Ealing, W.)

    Noel-Buxton, Lady

    Thomas, Ivor (Keighley)

    Hughes, H. D. (W'lverh'pton, W.)

    Oldfield, W. H

    Thomas, I. O. (Wrekin)

    Hutchinson, H, L. (Rusholme)

    Oliver, G. H.

    Thomas, George (Cardiff)

    Irving, W. J.

    Paget, R. T.

    Thurtle, Ernest

    Isaacs, Rt, Hon. G. A.

    Paling, Rt. Hon. Wilfred (Wentworth)

    Titterington, M, F

    Janner, B.

    Paling, Will T. (Dewsbury)

    Tolley, L.

    Jay, D. P. T.

    Pargiter, G. A

    Tomlinson, Rt. Hon. G

    Jeger, G. (Winchester)

    Parkin, B. T.

    Ungoed-Thomas, L.

    John, W.

    Paton, J. (Norwich)

    Usborne, Henry

    Jones, Rt. Hon. A. C. (Shipley)

    Pearson, A.

    Vernon, Maj. W. F

    Jones, D. T. (Hartlepools)

    Peart, Capt. T. F.

    Viant, S. P.

    Jones, Elwyn (Plaistow)

    Plaits-Mills, J. F. F.

    Walkden, E.

    Jones, P. Asterley (Hitchin)

    Poole, Major Cecil (Lichfield)

    Wallace, G. D. (Chislehurst)

    Keenan, W.

    Porter, G. (Leeds)

    Warbey, W. N.

    Kinghorn, Sqn.-Ldr E

    Pritt, D. N,

    Watson, W. M

    Kinley, J.

    Pryde, D. J

    Weitzman, D.

    Kirkwood, D

    Pursey, Cmdr. H

    Wells, P. L. (Faversham)

    Lang, G.

    Randall, H. E.

    Wells, W. T. (Walsall)

    Lee, F. (Hulme)

    Ranger, J.

    West, O. G.

    Leslie, J R

    Rankin, J.

    White, H. (Derbyshire, N.E.)

    Levy, B. W.

    Rees-Williams, D R

    Whiteley, Rt. Hon. W.

    Lewis, A. W. J. (Upton)

    Reeves, J.

    Wigg, Col. G. E.

    Lewis, J. (Bolton)

    Reid, T. (Swindon)

    Willey, F. T. (Sunderland)

    Lipton, LI.-Col M

    Richards, R

    Williams, D. J. (Neath)

    Logan, D. G.

    Rabens, A.

    Williams, J L. (Kelvingrove)

    Longden, F.

    Roberts, Emrys (Merioneth)

    Williams, W. R. (Heston)

    Lyne, A. W.

    Roberts, Goronwy (Caernarvonshire)

    Williamson, T.

    McAdam, W

    Roberts, W. (Cumberland, N o

    Willis, E.

    McEntee, V La T

    Robertson, J. J. (Berwick)

    Wills, Mrs. E. A

    McGhee, H. G.

    Rogers, G. H. R.

    Wilson, J. H.

    Mack, J. D

    Ross, William (Kilmarnock)

    Woods, G. S.

    McKay, J. (Wallsend)

    Royle, C.

    Yates, V. F

    McKinlay, A. S.

    Sargood, R.

    Young, Sir R. (Newton)

    Maclean, N. (Govan)

    Scott-Elliot, W.

    McLeavy, F

    Sharp, Granville

    TELLERS FOR THE NOES:

    Manning, C. (Camberwell, N.)

    Shawcross, C. N. (Widnes)

    Mr. Snow and Mr. Popplewell.

    Question put, and agreed to.

    Clause ordered to stand part of the Bill.

    CLAUSE 34.—(Nationalised undertakings.)
    The Solicitor-General: I beg to move, in page 31, line 19, to leave out "for." and to insert:
    "to be made for or in connection with.'
    This Amendment is to the Clauses which deal with the deductions which are not to be made in computing profits of nationalised undertakings. It is not entirely of a drafting nature; but it is designed to make clear something which is intended but is not quite clear as the Clause is worded. We want to make it certain that, amongst the payments which cannot be deducted as provided by Subsection (2) of Clause 34, there is included
    1188
    compensation for severance. Compensation for severance is provided for by Clause 47 (4) of the Transport Bill. We thought that if the word "for" were in line 31 of that Subsection there might be some doubt whether that was apt to cover something like compensation for severance, with regard to which it could be said it was not strictly for the acquisition of the nationalised undertaking. Therefore we seek to widen the word "for" by adding the words "or in connection with." The result would be that by so widening the scope of those words we would include such a thing as compensation for severance.
    Captain Crookshank: What are we doing?
    10.0 p.m.
    The Solicitor-General: This is an Amendment to page 31, line 19, where it says:
    "raise the money for paying, compensation for the acquisition of any property.…"
    We want to substitute the words "for or in connection with" for the word "for," so that it will read:
    "compensation for or in connection with.…"
    The object of that is to make certain that we include such a thing as compensation for severance.
    Captain Crookshank: That is the whole point. I have been trying to make sense of this. At first, the learned Solicitor-General read out the Amendment as merely "or in connection with." That I understand. But you, Mr. Beaumont, read out the words to be inserted as:
    "to be made for or in connection with."
    The Solicitor-General: Yes, that is right.
    Captain Crookshank: I find it very hard to understand that, because it will then read:
    "being payments of interest on stock issued as, or to raise the money to be made for or in connection with.…."
    The Solicitor-General: The proposed words should be inserted in place of the second "for"; that is to say, after "compensation."
    Mr. Stanley: Could I just begin again, and ask a question? When we vote on this, how do we know which "for" we are leaving out in line 19? I thought we should be leaving out the first "for," but it appears, on the contrary, that we are leaving in the first "for" but leaving out the second "for." How do we know that our decision on this Amendment will be correctly recorded?
    The Deputy-Chairman (Mr. Hubert Beaumont): There may be a mistake on the Order Paper, but perhaps I should say that there has also been an omission on the part of the Chair. Therefore, let me put the Amendment again. In page 31, line 19, leave out the second "for," and insert
    "to be made for or in connection with."
    Mr. Stanley: Then we are to take it that there has been a manuscript Amendment to leave out the second "for." It would, of course, have been much more convenient had it appeared on the Order Paper in the proper form.
    The Deputy-Chairman: It may help the Committee if I read the Amendment again.
    Amendment agreed to.
    The Solicitor-General: I beg to move, in page 31, line 22, at the end, to insert:
    "or being payments of interest payable to recipients of such compensation, or to persons who held securities carrying the right to such compensation in respect of periods beginning with the acquisition."
    The object of this Amendment is very similar to that of the last Amendment. In order to make it perfectly clear where these words come in, let me say they come in at the end of line 22. These words are designed to ensure that the provisions of Clause 34 (3, a) which lays down that in computing the profits of the nationalised undertaking in question for Profits Tax no deduction is to be made in respect of interest on compensation stock, include—and it will apply to cases where interest is paid following nationalisation —interest paid before the issue of the stock, or in respect of compensation which is to be satisfied in cash. We are seeking to make sure that compensation is also included amongst the categories of payments which cannot be deducted. If hon. Members will look at the wording, they will see that it is appropriate and depends upon Clauses 32 (2) and 48 (4, a) of the Transport Bill.
    Mr. Stanley: What are the securities carrying the right to such compensation to which this Amendment refers? It is a curious phrase, and I am wondering what exactly was in mind.
    The Solicitor-General: They are the securities which are provided for in the Clauses of the Transport Bill to which I have referred—Clause 32 (2), Clause 48 (4, a) and paragraph 5 of Part II of the Fifth Schedule.
    Mr. Stanley: Can the Solicitor-General tell us briefly what they are?
    The Solicitor-General: As hon. Members know, the details of compensation under the Transport Bill are rather complicated. The particular Clause refers to the case where interest is paid prior to the issue of stock which is finally issued by way of compensation under the Transport Bill.
    Amendment agreed to.
    The Solicitor-General: I beg to move, in page 31, line 26, at the end, to insert:
    "and repayments by that Board to that Authority of any such payments of interest by that Authority as are mentioned in paragraph (a) of this Subsection."
    Clause 42 of the Electricity Bill provides for payment of interest by the North of Scotland Hydro-Electric Board to the Central Electricity Authority for periods before the issue of the compensation stock. The object of this Amendment is similar to the object of the previous Amendment, namely, to make sure that these particular payments are also included with the other categories of payments referred to in Clause 34.
    Amendment agreed to.
    Clause, as amended, ordered to stand part of the Bill.

    CLAUSE 35.—(Building societies.)
    Motion made, and Question proposed, "That the Clause stand part of the Bill."
    Captain Crookshank: I hope that one of the Ministers will have something to say in justification of this Clause. The Clause refers to the Finance Act, 1937. In passing, I would point out that if anyone has to refer to the provisions in that Act dealing with the National Defence Contribution, they will find them quite easy to understand. It is an extraordinary indication of the change of draftsmanship in a decade. New Clauses today are almost unintelligible, whereas Sections in previous Acts are perfectly simple to understand. By Clause 23 of that Act, the amount of National Defence Contribution chargeable upon the profits arising from the business of a building society shall not exceed 1½ per cent. of the amount of those profits. Under this Bill, the amount of the Profits Tax chargeable on profits arising on the business of a building society, including any distribution charged which is a new addition, shall not exceed 3 per cent. of the amount of the profits. That is a considerable difference, and requires some justification from the Government as to why the change has been made. I would like to have from the Government some explanation of that point, and also an explanation of Subsection (2), because I do not understand exactly what it is meant to cover. It does not operate now under the N.D.C. arrangement of the 1937 Act, and to that extent it is something new.
    Mr. Woods: I, too, should be grateful if the Chancellor would give consideration to this matter. It has been stated that this tax acts as a restraint on inflation by restraining the distribution of profits on capital. Some special law to deal with building societies is required. There is urgent need for savings for contributing towards the erection of houses. Building societies cannot look forward to big returns. There is no possibility of any big increase of revenue for them, because the rules of those societies tie them down to a specific sum. Building societies are not the only societies which need consideration. Societies registered under the Industrial and Provident Societies Act are in much the same position. There is no possibility of distribution of profits, because the interest rate is generally 3 per cent., or less.
    That is not the whole story. These societies act, as a trustee savings bank acts, for a considerable percentage of the population. About 9 million members have investments in co-operative societies, and it may interest the Committee to know that at the end of 1945 the shareholdings in industrial and provident societies amounted to £238,450,000. In addition, the shareholdings of loan capital, and sums held on behalf of superannuation funds for employees, and so forth, represented another £72 million, making a total of over £310 million. The Chancellor should take note of the fact that less than 14 per cent. of that total is actually used in business. If it were a joint stock company, in the aggregate the only sum that would be available for this taxation would be that which is involved in business, namely, 14 per cent. of the whole.
    The rest is invested, the bulk of it in Government securities. It is quite obviously a considerable advantage to the Government, especially as we are entreated to continue thrift and saving, and facilities are offered throughout the country to persevere with this great savings campaign and so help the Chancellor, but if no provision is made in the Bill for similar treatment for industrial and provident societies as for the building societies, the reverse of what the Chancellor desires will come about. There will be a distribution of capital and a refusal of societies to accept additional capital because of the increase in their taxation.
    10.15 p.m.
    Mr. Keeling: On a point of Order. As the hon. Member for the last five minutes has been discussing industrial and provident societies on this Clause which deals exclusively with building societies, may I ask whether we shall be in order in discussing co-operative societies for the next five minutes?
    The Chairman (Major Milner): I think that perhaps the hon. Member was getting a little out of Order in discussing industrial and provident societies, when this Clause relates to building societies.
    Mr. Woods: I apologise. I contemplated putting down an Amendment, but I thought that if the attention of the Chancellor was called to this matter it would be much easier for him to deal with it because I know that he will appreciate the arguments which I have put forward. I hope that the Chancellor will give me some assurance on this matter when he replies.
    Lieut.-Commander Braithwaite: I understood that the hon. Member for Mossley (Mr. Woods) was endeavouring to indicate that the machinery for dealing with building societies who advanced money in connection with the important matter of houses, if it were to operate successfully, would have to be somewhat widened. I think that the two speeches which have been made by the right hon. and gallant Member for Gainsborough (Captain Crookshank) and the hon. Gentleman opposite indicated quite clearly that there is rather more in this Clause than meets the eye in its complicated language. One hates to make further claims on the assiduity of the learned Solicitor-General, who has been on his feet so much lately, but are we right in our assumption that the real object of this Clause is to govern the Profits Tax which is to be extracted from the building societies, and which under N.D.C. of 1937 was 1½ per cent. and is now raised to a maximum of 3 per cent? If that is so, I think we would like a word of explanation as to why this rather arbitrary decision has been made. It seems rather like thinking of a number and then doubling it, whereas the whole afternoon has been spent in discussing how the tax would fall on profits made as such. On the face of it, it seems a pity that in our present troubles with regard to housing further taxation should be inflicted on organisations which have
    1194
    much to do in endeavouring to deal with this problem. If there is an explanation, I should be glad if the learned Solicitor-General would give it to us.
    The Solicitor-General: As the hon. and gallant Member for Holderness (Lieut.-Commander Braithwaite) surmises, what is really done in this Clause is to double the rate of tax paid under the 1937 Act by the building societies. The rate under the 1937 Act was fixed by National Defence Contribution in the case of building societies by Section 23 (I) at the rate of 1½ per cent., without allowing for deductions of interest paid to members on deposit. The reason for that overall rate was that there was considerable diversity in the method of building societies in financing themselves. A great many of them took deposits on which they paid interest, and that interest was allowable as a deduction against their profits. Some, however, financed themselves by share capital, and the dividends which they paid out on their share capital were quite naturally not allowable as a deduction against Income Tax. The reason for the 1937 Act was this diversity in their methods of doing business, and it was sought to apply an overall rate in order to even out the position as between the different methods of financing.
    We have endeavoured to introduce into this Bill an increase of the amount chargeable on building societies proportionate to the increase of Profits Tax over the National Defence Contribution. The hon. and gallant Member for Holderness says it is rather a toss-up. It is not entirely so; it is based upon the calculation that building societies have, over the last few years, distributed to their shareholders on an average of something like two-thirds of their profits. Of course the higher rate would be chargeable in respect of the distribution, and the lower rate in respect of profits not distributed. If hon. Members can follow me in this fairly simple arithmetical calculation, I think they will see how we get at our doubled rate of 3 per cent. as against 1½ per cent. If you take the two-thirds distributed, and apply to that fraction the 12½ per cent, rate—that is to say, the distributed profits rate of tax—and then take the undistributed one-third and apply to it the non-distributed profits rate of 5 per

    1195
    cent., the net result is a rate of 10 per cent.
    In other words, if you take the case of a company which distributes two-thirds of its profits and apply these rates of tax, you will be doubling it—you will be taxing it at the rate of 10 per cent. instead of 5 per cent. [Laughter.] I must start again. Take a company which distributes two-thirds of its profits. You apply the 12½ per cent. rate to two-thirds, and the 5 per cent. to one-third. You will find that you are taxing them overall at the rate of 10 per cent. [Interruption.] The right hon. Member for the City of London (Mr. Assheton) has evidently not followed my point. It means that you have, in effect, raised the tax on building societies by doubling it—if they were taxed at 12½ per cent., having regard to their proportionate distribution, the tax upon them would have been doubled. That being so, what we now seek to do is to take the 1½ per cent. at which they were previously taxed under the 1937 Act and double it correspondingly. If they were taxed on the basis of 12½ per cent. and 5 per cent. on a two-thirds distribution of their profits, they would be paying a mean of 10 per cent., and we therefore take the 1½ per cent. and, applying the same factor to it, we double it, and say they should be charged at. 3 per cent. That is how we arrived at it; it was not just a shot in the dark. We have doubled taxation in their case as it would have been doubled if they had not been subject to this special limitation.
    Lieut.-Commander Braithwaite: The explanation of the hon..and learned Gentleman shows the wisdom of the Committee in not parting with this Clause too hurriedly. It would be churlish indeed not to express our gratitude to him for the admirable and lucid explanation which he has given us. There was an occasion some years ago when, in this House, Miss Susan Lawrence expressed a desire for a blackboard to be placed at her disposal to explain a point. It was not necessary to have that done for the benefit of hon. Members tonight.
    Mr. Stanley: We are extremely grateful to the Solicitor-General for his explanation. I noticed the other day that a noble Lord, in order to follow the mathematical calculations of a Member of His Majesty's
    1196
    Government, produced a slide rule. We on this side of the Committee, perhaps not the first time but on the second attempt, understood fully the learned Solicitor-General's explanation without any such extraneous apparatus. The Solicitor-General has given us a very complete explanation of what I might call the mathematical part of the Clause, but what he has not done is to give any justification for the increase.
    Those of us who recollect the defence that the Chancellor of the Exchequer made of this tax earlier in the day will find great difficulty in marrying any part of that defence to the special circumstances of these building societies. They do not seem to fall within any of the categories on which he then justified his increase of this tax. A great many building societies have suffered almost as much as the widow and the orphan from the Chancellor's cheap money policy and, therefore, there was no necessity to hit them again in order to bring them to the same level of misery as he has been able to bring other sections. Nor can there be any question here of discouragement by this means of the payment out of extra sums and, therefore, aiding in the fight against inflation; nor can this be likely to bring in a very substantial sum.
    We were not told the actual figure it would bring in. Perhaps the Solicitor-General will tell us what that figure comes to, but I cannot imagine it is very substantial, and, therefore, not essential in filling that gap left in the Chancellor's Budget by the total withdrawal of E.P.T. I must confess that, if the Solicitor-General convinced me that it was desirable and right that the tax upon the building societies should be made at all, he has not yet replied—and I hope he will now do so—to my point about convincing the Committee that it is right to raise the taxation on these bodies. We should be extremely grateful if he could, with the same lucidity as he explained the mathematical part of this Clause, now explain the ethical basis upon which it is based.
    Mr. Dalton: I will say a word or two in reply to the right hon. Gentleman in a moment. I rise not merely to reply to him, but also to answer the query of my hon. Friend the Member for Mossley (Mr. Woods). I merely say to him that the question of industrial and provident

    1197
    societies is one which reasonably can be considered for equal treatment with the building societies between now and the Report stage. I say that without commitment one way or the other. We think the building societies in the past have been treated in a preferential fashion which was perfectly improper, and, therefore, we propose increasing the rate to 3 per cent., a margin which, I think, in all the circumstances, is reasonable. The shareholders in building societies—the persons concerned—are, on the whole, small people. That is one reason many of them fall below the Income Tax level, particularly since the recent increases in the allowances. Therefore, the maintenance of the preference is, in our view, fully justified, but, on the other hand, since we are moving up the rate, some forward movement of the rate on them is, I think, fair and broad justice. The case is met by substituting 3 per cent.—admittedly a low rate—for 1½ per cent. We have endeavoured to give effect to the general intention to increase the level of taxation, but to treat these societies preferentially for the reason which is familiar to the Committee and which is generally acceptable to hon. Members.
    Clause ordered to stand part of the Bill.
    Clauses 36 and 37 ordered to stand part of the Bill.

    CLAUSE 38.—(Co-ordination of treatment for profits tax purposes with treatment for income tax and excess profits tax purposes, etc.)
    10.33 p.m.
    Mr. Birch: I beg to move, in page 33, line 42, to leave out "and II."
    The purpose of Clause 38 is to coordinate, for Profits Tax purposes, Income Tax and Excess Profits Tax, and the purpose of this Amendment is to have the profit tax co-ordinated with Income Tax, but not to go back and have it co-ordinated also with the Excess Profits Tax. This is a very complicated piece of machinery, and I think it will tax the Solicitor-General's powers to explain it fully. It appears that what is being done now will cause a lot of work which is not really necessary either for justice or for the purpose of good sense. It is obviously desirable that the Profits Tax should be
    1198
    co-ordinated with Income Tax, which is a living tax going on all the time; but the advantages of also co-ordinating backwards with Excess Profits Tax are not so obvious. Therefore, I think we should have some explanation.
    Part II of the Seventh Schedule, which is what we are seeking to omit by this Amendment, directs that there shall be allowed for Profits Tax, both before and after 31st December, 1946, the same deductions for three special types of expense as would have been given for Excess Profits Tax if that tax had, in fact, been continued. The first of these special deductions was the cost of deferred repairs. This will now be allowed for Excess Profits Tax in the period before 31st January, 1947, obviously, and it means that where Excess Profits Tax was payable and not Profits Tax, no allowance will be made for the Profits Tax. The second was for lump sum expenses under E.P.T., and it was spread over more than one accounting period, and they were allowed, as I understand it, under the National Defence Contribution, in the year in which they were spent. At the present time the E.P.T. is substituted for the previous National Defence Contribution. It is proposed to go back as far as 1937. That means reopening transactions over the last 10 years. The third allowance was for lump' sums paid to pensions funds in respect of the services of employees. Those are lump sums spread forward ten years. This is something different from the previous deduction.
    The Seventh Schedule directs that Excess Profits Tax deduction, if any, should be substituted for Income Tax deduction, and, therefore, by taking in past deductions going back over the past year, one creates the necessity for a very large number of transactions to he reopened and recalculated. I would like to ask whether this is necessary in equity and whether it is desirable, for it creates masses of arithmetic, and it is very doubtful whether it can co-ordinate Income Tax with Excess Profits Tax. There were, in fact, a number of other variations besides the three I mentioned which are included in the Schedule, and I would like the Solicitor-General to say whether he considers it is really necessary to make those provisions for the sake of justice, and whether he thinks it right

    1199
    that this amount of complication and clerical work, both on industry and in the Treasury, is really necessary.
    The Solicitor-General: The hon. Member for Flint (Mr. Birch) argued whether it was necessary, in the case of Profits Tax, to have all this elaborate machinery for spreading back and forward, which would of necessity involve a great deal of reopening of accounts, and so on. When we come to look at Part II of the Seventh Schedule, we shall be able to see a little more in detail exactly how it works, but on this Amendment, I would say that really there is no alternative to including Part II of the Seventh Schedule in the provisions which are applicable to Profits Tax. What would be the result if Part II of the Seventh Schedule were left out? Let me take the case of deferred repairs. As the hon. Gentleman knows, under the 1946 Act they can be done in 1947, and in certain cases even in 1948, and then they can be spread back, for the purpose of Excess Profits Tax, to that period—including, of course, 100 per cent. of Excess Profits Tax—to which they can fairly be said to relate.
    If one accepted this Amendment, and cut out Part II of the Seventh Schedule from the provisions which are to apply to Profits Tax, the result would be that a person entitled to a deferred repairs allowance under the 1946 Act would be able, in the first place, to spread it back over the E.P.T. period, and even spread it right back to 1942, or to 1941. He would be able to spread it back over periods for Excess Profits Tax say, of too per cent., which would be perfectly right and proper. That is what was provided for by the 1946 Act. He would also be able to say, with regard to those deferred repairs which he could spread back and of which he had the advantage during those years for the purpose of Excess Profits Tax, "So far as Profits Tax is concerned, I carried out repairs in 1947 or 1948, as the case may be, but notwithstanding that, I go back into the 100 per cent. period for Excess Profits Tax; I want, in 1947 and 1948, again to be able to use the whole grossed-up amount for repairs which I carried out in those years for the purpose of obtaining relief from Profits Tax."
    That would be the result of accepting the Amendment. That is a result which we could not contemplate. It would mean
    1200
    that one could take any sum of money which had been set off for deferred repairs for 1947, and spread it right back to get the advantage of 100 per cent. Excess Profits Tax, and then again, when one came to 1947 and was liable to Profits Tax, one could seek to use the whole lot in one year and thereby get what would amount to a very substantial relief. A person would get the relief twice over. For that reason, we think that Part II if the Seventh Schedule cannot be dispensed with. When hon. Members look again At the Schedule, I think they will see it would work in that way.
    Colonel Crosthwaite-Eyre: The learned Solicitor-General has answered one part of the case which has been put to him, but he has not covered the two major questions raised. As I understand the Clause, the situation is that one could make a "spread-forward" of ten years in the case of a company subject to N.D.C. Now one will have to alter that for the year we are discussing, and also for a great many years in retrospect. There is no logical justification for such an increase in the incidence of taxation. As my hon. Friend the Member for Flint (Mr. Birch) has said, there is very reason for thinking it is right to try to force the Profits Tax into line with Income Tax, but I cannot see what point there is in trying to force the Profits Tax into line with the Excess Profits Tax. During the whole of the time that that tax was in existence, there was no attempt to correlate it with the N.D.C. We are now trying to correlate two things, both of which have been judged separately. People will find themselves subjected to an added burden, and. I think, quite a heavy burden.
    I should like to hear a little more from the learned Solicitor-General. If one looks at the Clause governing E.P.T. in respect of pensions, one finds that no allowance is possible subsequent to 1943. In the case of a great many companies, allowances were made under N.D.C.—that is, in the case of those companies not subject to E.P.T. What happened to a company which was paying only N.D.C.? It would have to pay as if it had been subject to E.P.T. There seem to be a great many complications, with hardship and injustice, to those who try to use their resources for those working for them, and I hope the Government will look at this again and not put it through in its present form.
    10.45 p.m.
    Sir Arnold Gridley: On the Second Reading of the Bill, I confined myself to three points, and this subject was one of the points about which I spoke. I referred to the almost complete impossibility of trying to understand this Clause. The party opposite is sometimes accused to putting theory before practice. That may or may, not be true, but I put it to the learned Solicitor-General that he has used an argument tonight which is based purely on theory, and has ignored the practice which will follow unless we amend these complicated provisions. I wonder whether the. Committee realise what this Clause involves in the way of complicated arithmetic. Thousands, it may be millions, of transactions will have to be gone into again and recalculations made for a period of years. As the hon. and gallant Member for New Forest and Christchurch (Colonel Crosthwaite-Eyre) pointed out, we shall be humbugged with regard to all these insurance schemes the provisions for which we thought we had settled once and for all. All this is to be reopened. What will the Treasury get out of this in the end? To make all these calculations will cost hundreds of thousands of pounds, and the time and energy of people who ought to be devoting themselves to productive industry will be devoted to what is really a non-productive piece of work. The Treasury will lose heavily by it in the end.
    I do not know what the experience of other hon. Members may be, but I have not yet received answers, or even acknowledgments, of letters written to the Inland Revenue Department as far back as December. I sympathise with the Department. Heaven knows, it is struggling under a terrific mass of arrears of work at present, and only a certain amount of work can be accomplished by a man working eight, ten, or twelve hours a day. We all have great sympathy with them in the tremendous pressure at which they are working in the Inland Revenue Office. Now, when they are snowed under all these arrears, there is to be piled on to them this gigantic problem. We are reducing legislation to an absurdity if Parliament consents to measures of this kind. In the name of common sense, I ask the learned Solicitor-General, and the Chancellor of the Exchequer—I wish he were here now—to look at the matter again, and to ask themselves whether they
    1202
    will be gainers or losers if they are stiff-necked and stick to this Clause. It is a matter of common sense that this should be examined impartially and practically rather than from a theoretical point of view.
    Lieut.-Commander Braithwaite: There is no doubt we have reached another extremely complicated Clause, and it will not be wasting the time of the Committee to endeavour to get some elucidation. My hon. Friend the Member for Flint (Mr. Birch), in moving this Amendment, pressed particularly the case of deferred repairs. The Solicitor-General replied to him with his usual facility, but since then the hon. and gallant Member for New Forest and Christchurch (Colonel Crosthwaite-Eyre) has raised an aspect of the matter which interests me particularly. That is the pensions fund. The special rules which appeared in the Finance Act, 1943, in this connection laid it down that before 2nd February of that year the allowance should be spread over 20 years, or collectively spread back, for the insurance of employees. From that date no allowances at all have been given. The Schedule which accords with this Clause provides that E.P.T. deductions should be substituted for Income Tax deductions in the past period and calculated for the purpose of this tax.
    I am bound to express my agreement with those who have put forward the position that the chief difficulty in this matter is the Government's attempt to relate N.D.C. and E.P.T. I think it is responsible for many of these complications. We are confronted with a situation in which no allowance is laid down under the Profits Tax for sums which have been paid since 2nd February, 1943, in connection with these pensions funds. Surely, this is an oversight. If it is an oversight, it is most extraordinary, and an indefensible situation. I hope that the Chancellor or the Financial Secretary will deal with this point, because I think it was overlooked when the Bill was drafted.
    If there is to be no answer, I will say again that the situation is indefensible. Or are we to have some argument which will divert us from that view? Certainly, the matter seems to us, as it stands, extremely obscure and unsatisfactory. The hon. Member for Stockport (Sir A. Gridley) said there could be no more important part of the Bill that that which

    1203
    relates to these pensions funds built up so patiently over long periods of years. Do the Government really intend the situation to remain as it appears to be at present?
    Mr. Oliver Poole: I would like to reinforce the plea of my hon. Friend the Member for Stockport (Sir A. Gridley) in regard to this extremely complicated Clause. Last night when we were discussing Clauses 14 to 18 and the impact of their content on the insurance industry was considered, I made a plea to the Chancellor not only to review the matter again before the Report stage, but to leave it open, so that it could be considered over a period by experts, in view of its complexity.
    I am bound to say that I do not fully understand the implications of this Clause or, in fact, Part II of the Seventh Schedule; but if it is true—and I am sure it is—that the effect will be as has been pointed out by the hon. Member for Stockport, the effect on companies which have schemes will be frightful, the chaos incredible, and the amount of wasted time very great indeed. I ask the Chancellor to say what effect this Clause will have on benefit schemes and what the results will be; and, if he is unable to do that, will he say that these matters can he looked into, and that he is prepared to discuss them with the industry?
    Mr. Assheton: It would seem that some hon. Members below the Gangway opposite have not studied the Seventh Schedule as carefully as they might. If they will turn to the Bill, they will see that the Seventh Schedule starts on page 69 and goes to page 77. It is related to this Clause; it is a very important part of the Bill; and we have been urging that the Chancellor should reconsider the Clause. Why are we doing that? Because we are convinced that, unless our Amendment, or something' of the kind, is accepted, the Inland Revenue authorities will have an immense burden imposed upon them. Every hon. Member has had some experience of dealing with the Board of Inland Revenue. One of the most disastrous things that could happen in this country would be a break-down at the Board of Inland Revenue. They are a splendid body of men and they do magnificent work, but burdens are being placed
    1204
    upon them now which are quite beyond them. Every hon. Member who has anything to do with limited companies knows that business with the Inland Revenue is months and months—and in many cases years—in arrear. The thing is going from bad to worse. One cannot complain, because the officials are doing their level best, but year after year we make these laws more complicated and make it impossible for people to understand what they are about. It is extremely difficult now to get advice on these matters: it takes months even to get an opinion.
    The proposal has been made by my hon. Friend the Member for Flint (Mr. Birch) to omit the words "and II," and to simplify the problem which the Inland Revenue have to face. I do not think the Chancellor will deny that this Clause will add to the work and complications of carrying on the Profits Tax. I see that he shakes his head, but I shall be glad to hear what he has to say. The Clause is bound to mean a tremendous lot of calculations and not only will the Inland Revenue officials be worried, but those in business will be worried, too. Let the Chancellor take the Clause back and look at it again, and see whether or not he has made a mistake. Let him take it back, and return with a more sensible suggestion.
    The Solicitor-General: Hon. Gentlemen opposite have been extremely apprehensive about this part of the Schedule, and feel that it will involve a great deal of reopening of transactions and a great deal of work. Unless I have misunderstood the position, it should not do that at all. Take the question of deferred repairs payments which were appropriate to be allowed for Excess Profits Tax purposes. Take the case where a person who carried out these repairs wanted to have them allowed as against past periods, and attributed them to the year 1942—a year of 100 per cent. Excess Profits Tax. The repairs were dissected and appropriated to the particular year to which they were related. The Excess Profits Tax is an alternative tax to the National Defence Contribution. It has not got to be done again—it has been done once and for all. Therefore, there is no extra work involved. It has been allowed for, in one of the alternative taxes, according to whether it was N.D.C. or Excess Profits Tax, in the particular year to which the

    1205
    repairs were written back, and that is the end of it. Part II also provides provisions as to writing forward.
    Major Haughton: Surely these deferred repairs are still being calculated at the present time. These considerations as to whether materials are available are all being calculated now, or will be calculated in the future. The work has not yet been done.
    11.0 p.m.
    The Solicitor-General: Unless my recollection plays me false, when we were discussing the Finance Bill last year, hon. Gentlemen opposite were most anxious that it should be possible to write back deferred repairs into earlier years so that those who carried them out could get the advantage of the 100 per cent. Excess Profits Tax period. That is all that has to be done in this case. The same writing back will serve for both periods. The same applies also to writing forward. There really is no duplication of work. They would have had to be written back to enable those who carried them out to have the advantage given them by the Finance Act last year of relating them to years when the Excess Profits Tax was 100 per cent. I have no doubt that it needs a certain amount of dissecting of repairs, and a person will have to ask himself to which year in the past six years he can fairly attribute the particular item. But there was no difficulty about it last year, because hon. Members opposite were anxious that people should be able to do it. That is all we are saying should be done so far as the Profits Tax is concerned. We are saying that that having been done, one should not now again, in 1947 or 1948, be able to enjoy the benefit of writing it off against Profits Tax when it has already been written off against N.D.C. or Excess Profits Tax in a past period.
    Sir A. Gridley: We have listened to the most beautiful theoretical explanation by the Solicitor-General, who has not to carry out this transaction, but I challenge him to produce anyone who has to do it who will support him in his arguments. I make the challenge, but I know it is impossible because our civil servants have to do their work and not talk, as we talk so much here. I want to appeal to the Chancellor of the Exchequer, who has not so far spoken on this Clause. Can he tell us what the Treasury expect
    1206
    to get out of this Clause if it remains in the Bill? On the other side of the balance sheet, will he make the calculation, if he can, of what it will cost the industrialists of this country in time and staff to arrive at the revaluations which have to be made under this Clause? It will amount to a very considerable adverse balance, and if the Chancellor of the Exchequer would be good enough to look at this again, I think he would agree that there is considerable substance in the arguments that have been used. I can only say, in reply to the Solicitor-General, that this Clause has been most carefully considered by industrialists from the point of view of the effect it will have in their accountancy departments, and I am not exaggerating when I say that they are most disturbed at the vast amount of work this will involve, with so little result. It is because of the immense amount of arithmetic and the loss of time including that of hundreds and thousands of individuals which will be involved, that we take very strong exception to this Clause. I ask the Chancellor to tell us whether he is prepared to look at this again to see whether it is really worth while.
    Mr. Diamond: Modestly I say it may be that I have misunderstood what is in the Clause, but on the other hand, it may be that the hon. Member for Stockport (Sir A. Gridley) has misunderstood what is in it. It seems to me that his argument is that, having disallowed a portion of expenditure on the basis that it is to be allowed at a future date, it is wrong, when that future date comes and when a new tax has been introduced instead of the old, that that expenditure should then be charged against taxation. What the hon. Member is inviting me to do is to go to my office in the City tomorrow and say to my clients in the City, "I am sorry, but in future, with regard to expenditure, we cannot take the balance of expenditure allowed because the Opposition do not think that it is right and proper; they thought it was their duty, when intervening in the Debate, to defeat the fair rights of the taxpayer." Surely that is an unusual position for the hon. Member for Stockport to take up.
    As I said, perhaps I have misunderstood what is in the Clause, but it would be easy for anyone to misunderstand these complicated Clauses. It is certainly

    1207
    impossible to devise a simple Clause to deal with complicated matters. It seems to me that this Clause merely says that it is a right and fair way to work when there is one tax succeeding another, and when the whole of the expenditure in the first tax was not allowed, that the balance of it should be in the second. In those circumstances, I hope the Chancellor will retain the Clause in the Bill.
    Mr. Henry Strauss: I should like to follow the modesty of the hon. Member for Blackley (Mr. Diamond) and to say at once that I may have misunderstood this Clause. The point I should like to put to the right hon. Gentleman and to the Solicitor-General is, I think, a slightly different point from that which has just been put by other hon. Members. I am extremely dubious whether this Clause means anything at all. Let me try to put quite simply the point that strikes me. It seems to me that this Clause would have precisely the same effect in law if every word in it were omitted after the word "effect" in line 2. It starts:
    "The provisions of Parts I. and II of the Seventh Schedule to this Act shall have effect …
    and then the rest of the Subsection sets out the motive. I cannot help thinking that five lines of words are meant to mean something. The Solicitor-General will see that the words that I am suggesting have no effect at all are the words beginning "with a view to securing". These words are all descriptive of the motive for which these parts of the Schedule are to have effect. The motive contains various limitations, namely, the words,
    "as respects the matters and to the extent.
    and so on. All these words are limitations of the motive for which this Schedule is to have effect. There is no need to put words explaining the motive in the Bill at all. That we do not want to make this Statute unnecessarily complicated I am sure the right hon. Gentleman the Chancellor of the Exchequer and the hon. and learned Gentleman the Solicitor-General will agree. If these words are wholly without any legal effect whatsoever, the best thing to do is to leave them out. I think they are intended to have a legal effect, but owing to the inadequate draftsmanship they have none, because the
    1208
    words of limitation affect the motive and not the effect of the Clause.
    The Chairman: The hon. and learned Gentleman seems to be out of Order. He is not talking on the Amendment that is before the Committee, which is to leave out the words "and II," but seems to be discussing the whole Clause.
    Mr. Strauss: If what I have to say is more appropriate on the Motion, "That the Clause stand part of the Bill," I will defer my remarks.
    Colonel Crosthwaite-Eyre: May I ask the hon. and learned Solicitor-General to say something on the question I raised about pensions? It seems to me that there is bound to be a vast amount of calculation to fulfil what he wants, particularly in the spread-over involving the recasting for two instead of 10 years, and so on. It is bound to cause absolute havoc in any company that has a pensions scheme in existence.
    Mr. Stanley: I beg the Chancellor of the Exchequer to intervene in this Debate. I cannot pretend that I myself speak as an expert on these matters, or that I could give a lucid explanation of the Schedule to which this Clause refers; but it is clear that here there is a complete and, I am sure, a sincere difference of opinion as to the effect of this Clause. The hon. and learned Gentleman the Solicitor-General, who, as has been pointed out, will not have to bear the brunt of this Clause when it has become law, assures us, on the authority of his brief, that it will give nobody any work. The hon. Gentleman the Member for Blackley (Mr. Diamond), who says he speaks as a practical man, and describes himself as a practical man, rose from behind the Solicitor-General to speak from the Parliamentary Private Secretaries' Bench, which was, indeed, a surprise; and he said that, if he understood the Clause, it will not give any work. But I wonder if he really did understand the Clause, because he went on to explain that, if we were to carry this Amendment, it would be a big blow to the taxpayer, whereas the hon. and learned Solicitor-General pointed out that if we were to carry this Amendment, it would be extremely unfair to the Revenue.
    On the other hand, my hon. Friend the Member for Stockport (Sir A.

    1209
    Gridley), who is not only actively engaged in business, but, as the Committee knows, occupies a responsible position in a great trade association, which does have the advantage on a matter of this kind of a pool of knowledge and experience from producers throughout the country and the best expert advice there is, said, with a sincerity which no one who heard him could doubt, that, in fact, the obligations of this Clause will place upon industry a great burden of administrative and technical accountancy.
    In this situation in which we find ourselves, I ask the Chancellor of the Exchequer whether it would be possible for him, between now and Report, in conjunction with those in business who will have to operate this Clause, to look at it again, and to see whether it is worth while. If the hon. and learned Solicitor-General is right, and the only effect is to give a great benefit to the taxpayers, and if the representatives of those particular taxpayers come to the right hon. Gentleman and say they are quite willing to forgo that very theoretical advantage in order not to have imposed upon them a burden which appears to them to be oppressive, he should be impressed by that, and remove from them this advantage which they appear to be so unwilling to receive.
    11.15 p.m.
    Mr. Dalton: I do not pretend to be expert any more than most of us are in the precise technicalities of drafting. I must pay attention to my officers of the Inland Revenue, who are skilled in these matters, and to my legal advisers. I am advised, with regard to this Clause, that the words mean something and that the effect of them, if I may put the thing briefly, is that where deductions have been related back for E.P.T. purposes—and we had a Debate on this last year, when the E.P.T. was removed, in which great value and importance was attached by many hon. Members to this provision being put into the Finance Bill and we put it in with general acceptance—where deductions have been related back for E.P.T. purposes in the E.P.T. period with regard to relief on terminal expenses, there should be similar treatment of relating back in respect to Profits Tax as would have been done in respect of E.P.T. As we have had in other taxes to emphasise tonight, so far as the ad-
    1210
    ministrative arrangements are concerned, we are using the Profits Tax, in part, as a substitute for the E.P.T. arrangement which is now passing out of existence. I am advised that if this Amendment were accepted it would cost the Revenue a very substantial sum of money, and, indeed, if that were not so, I do not think we should have that argument employed with such strength and persuasiveness from various industrialists.
    Mr. Stanley: Are we to understand that the hon. Member opposite was wrong, and that it is not to benefit the taxpayers?
    Mr. Dalton: I am advised that on the deferred repairs alone, which are the principal elements in this matter and in respect to which the provisions apply, the cost of the Amendment would be very substantial. There may be deferred repairs up to £1 million relating back for E.P.T. and under the Amendment these expenses having been allowed for under E.P.T., would be allowed for again for Profits Tax. In other words, there would be a payment twice for certain industrialists and the Revenue would correspondingly lose. There would be a payment twice over if these deferred repairs were to be allowed again with respect to Profits Tax. I am not prepared to sacrifice revenue. I have sacrificed a lot of revenue in connection with Excess Profits Tax, but here, as in all other cases where technical difficulties emerge and learned arguments are put forth, I am prepared to have the matter looked at again, and to ask my advisers, on whom in the last resort, on such matters, I must rely, about the meaning of the words. In the light of the arguments that have been put forward, I will ask my advisers to look once again at the matter, though, as on previous occasions tonight, without any commitment that we will insert an Amendment on Report.
    Mr. Byers: I have been trying to follow the Chancellor's argument. I think the figure of £1 million must be misleading. A question was specifically asked about what would be the loss of revenue. I understand that it cannot be more than £20 million. What does the right hon. Gentleman mean by a substantial sum? Does he mean £6 million or £10 million? It must be under £20 million. The right hon. Gentleman gave a figure of £100 million, which I think is misleading the Committee.
    Mr. Dalton: If it was misleading the Committee—I do not think the Committee has been misled—I will endeavour to unmislead the Committee. The figure of £100 million was, I said, the total figure of deferred repairs. There may be deferred repairs up to £100 million in respect of which reliefs were claimable. Obviously, the sum to be issued in respect of deferred repairs is a loss of revenue, which is a large loss. I have not got with me tonight the exact figure of what the loss would be, but it would be substantial and, risking my arm, I would say it would be a loss of £1 million or £2 million and possibly more. I am not prepared to go further, but I am prepared to have it looked into again.
    Amendment negatived.
    Motion made, and Question proposed, "That the Clause stand part of the Bill."
    Mr. H. Strauss: I entirely agree with what the Chancellor of the Exchequer said about the skill of the gentlemen who draft these Clauses, but the point I want him to have particularly in mind is this. If he looks at the words of this first Subsection from the word "effect" in line 2 he will see these are words describing the motive with which Parts I and II shall have effect and include words of limitation on the motive and not words of limitation on the effect of the Subsection. In those circumstances, I believe the Subsection does not have the effect which he imagines it has, and I beg him to look into it again.
    Clause ordered to stand part of the Bill.

    CLAUSE 39.—(Commencement of Part IV and transitional provisions.)
    The Solicitor-General: I beg to move, in page 35, line 8, to leave out from "period," to "and," in line 9.
    This is a drafting Amendment. The words which the Amendment seeks to leave out am unnecessary. As it is, line 6 provides for deduction. The tax in question has to be met and only in the manner specified in the Subsection. Therefore, the words are superfluous.
    Amendment agreed to.
    Motion made, and Question proposed, "That the Clause, as amended, stand part of the Bill."
    Mr. Stanley: It would be for the convenience of hon. Members on this side of the Committee if the learned Solicitor-General could give some explanation of the purposes of this Clause. I have found it very difficult to understand and I think a short explanation from him would be of great benefit to us.
    The Solicitor-General: Clause 39 deals with the change-over period. The tax starts with the beginning of the year and transition provisions are necessary to deal with the position where one gets a chargeable accounting period a part of which falls in 1947 and a part in 1946. Roughly speaking, what is said is that one divides the two, one assesses the tax upon the old basis and upon the new basis equally, and one then makes an apportionment so as to attribute the 1947 period to the new basis of assessment and the 1946 period to the old basis of assessment. One then adds the two together, and the result gives one the amount on which the individual is charged in the chargeable accounting period—that is, partly 1947 and partly 1946. The other provisions are purely consequential upon that.
    Clause, as amended, ordered to stand part of the Bill.

    CLAUSE 40.—(Interpretation of Part IV.)
    Motion made, and Question proposed, "That the Clause stand part of the Bill."
    Mr. Stanley: I really cannot allow this Clause to pass without calling the attention of the Government to its drafting and saying that I wonder whether it is really necessary for legislation that it should be couched in terms such as these. Subsection (I) is quite a short one, and, for the benefit of those hon. Members opposite who are following the discussion without a copy of the Bill in front of them, and have for the moment forgotten the exact terms of the Clause, I would like to read this Subsection to them. It reads:
    "References in this Part of this Act to the computation of profits include references to the computation of any such losses as, under any enactment relating to the profits tax, fall to be computed in the same manner as profits are to be computed for the purposes of the profits tax."
    I defy any ordinary person to get any meaning out of that sentence except that —this is what I think—profit is to include loss and the word "loss" is to include

    1213
    profit. I know that is in the lexicon of the party opposite, but it has never been translated into the technicalities of this Committee, and I should like to have an explanation from the learned Solicitor-General and a promise that there will be a re-shaping of the Clause so that it can be expressed a little more clearly.
    The Solicitor-General: If I say that this Clause is put in by way of precaution, I do not think that will commend it to the right hon. Gentleman the Member for West Bristol (Mr. Stanley); but I can say that that is its object. The expression used throughout this Clause has been "computation of profits." For the purpose of computation of profits, one has to compute profits and the key word is "include." Notwithstanding the fact that we have been talking about computation of profits, and one might perhaps think we are not concerned with losses, we have to think also of losses. It means no more than this. Although we have been talking of computation of profits, all the time, for some purposes, we have to know what the losses of the business are, and, notwithstanding that we have been considering computation of profits, one has to apply the same principle in talking of losses. That is what this means—or that is what it is meant to mean. If the right hon. Gentleman thinks that it can be expressed more clearly, I promise that we will see whether there can be a different form of wording.
    Clause ordered to stand part of the Bill.

    CLAUSE 41.—(Charge of additional duty.)
    11.30 p.m.
    The Solicitor-General: I beg to move, in page 36, line 16, to leave out from the first "and," to "Sin," in line 18, and to insert:
    "to the extent to which duty under the existing law—
    (a) is payable thereon.'
    This Amendment and the two subsequent Amendments are to correct what is really an error in drafting. The Clause as it stands specifies certain cases where, according to the wording, the Legacy or Succession Duty is charged after a certain date, that is to say, it is charged after a death occurring at the time of the passing of the Act. It has been held that in the case of Legacy or Succession Duty that may become payable as a result of a subsequent event, it becomes charged
    1214
    when the death takes place. If the testator dies in 1944, and by his will gives someone an interest in a particular property to continue for a certain time, and with the happening of a certain event, we say that where that certain event happens after the passing of the Act, the Legacy or Succession Duty shall be charged upon the happening of that event. It has been held in the courts that this is not a correct view of what happens. In a case like that, the Legacy or Succession Duty is charged when the testator dies, and it may become payable on the happening of a subsequent event. Therefore, what we do in the passages to which these three Amendments relate is to substitute the words "payable" or "paid" for the words "chargeable" or "charged", in order to bring the wording of the Clause into consonance with the judicial decision to which I have referred, which says that the charge becomes chargeable when the death takes place which makes it possible for the subsequent event to bring about the payment of a particular benefit. That is why we substitute the word "payable" for the word "charge". The two succeeding Amendments are consequential on the first. They all have the same purpose.
    Captain Crookshank: I want to ask a question on a point that is not clear. When is it actually paid?
    The Solicitor-General: Suppose a testator dies in 1944 and grants a particular property to a particular beneficiary and gives that beneficiary the power of appointment in respect of that property, and the beneficiary in due course exercises that power of appointment in favour of another person. It becomes payable when the power of appointment is exorcised, but it becomes chargeable when the death takes place which sets up the trust.
    Amendment agreed to.
    Further Amendments made: In page 36, line 21, leave out "chargeable with, duty," and insert "payable."
    Leave out lines 26 to 29, and insert:
    "or
    (c) would be payable as aforesaid but for any payment made in advance and not made under the enactments relating to commutations or compositions;
    and references in this subsection to duty being payable in connection with an event shall, in relation to legacy duty, include its being payable when the legacy is paid, delivered, retained, satisfied or discharged in connection with that event."—[The Solicitor-General.]
    The Solicitor-General: I beg to move, in page 37, line 12, to leave out from the first "of," to "be," in line 13, and to insert:
    "this section shall, where the duty under the existing law was before the said sixteenth day of April paid on the capital value of property given for successive interests to persons all chargeable with the same rate of duty."
    The object of this Amendment is to correct a drafting slip. In line 12, hon. Members will see a reference to "paragraph (b) of Subsection (2) of this section." The Amendment seeks to widen the scope of the tax, because it will not always be under paragraph (b) of Subsection (2) that the particular effect which is brought about will take place. It is purely a drafting Amendment.
    Mr. J. S. C. Reid: I think this really is rather a difficult Amendment. Will the Solicitor-General explain in a little more detail what it does? Will he give a concrete example of how it works?
    The Solicitor-General: The Clause affected by this Amendment deals with Succession Duties. I will cite an actual case. Suppose we take a settlement made by "D." The existing duty may have been paid on capital value. When one gets a series of persons—a series of sisters, perhaps—taking over, when the first tenant for life dies before 16th April, 1947, if the further duty is chargeable on the second tenant for life on or after that date, it is charged not by Subsection (2, b), but by Subsection (1) of the Clause. What we seek to do is to widen the existing phraseology of the Clause so as to include a case where it would fall within Subsection (1) instead of Subsection (2, b).
    Mr. Assheton: Does that mean it will be payable at the new rate—double—or at the old rate, in that particular case?
    Mr. Reid: Do I understand that a case was left out under which there would have been no increased duty payable, and that this Amendment is intended to catch up with that? Is that the point? If it is not, I am bound to say I am completely "fogged."
    Mr. Assheton: We must have some more satisfaction on this matter. We have not received an answer to the question. The Solicitor-General gave us a case of succession among sisters and postulated that one died after 16th April. In the case of
    1216
    the second death, I am only asking whether the rate is 1 per cent., 5 per cent., or 10 per cent., as in the old scheme, or whether it is to be 2 per cent., 10 per cent., and 20 per cent. It is quite a simple question.
    The Solicitor-General: There is no increase. The Amendment simply applies to the method of charging.
    Amendment agreed to.
    Motion made, and Question proposed, "That the Clause, as amended, stand part of the Bill."
    Colonel Clarke: I rise only to call attention to what I think is a somewhat onerous provision in this Clause. It concerns the Legacy Duties on bequests to servants—that term being used in the widest sense of clerks, foremen, and men and women of that sort. Quite often a legacy is really intended only to carry on a pension that has been paid during the lifetime of a testator, and it seems to me that to increase the duty to 20 per cent. will impose a considerable hardship—particularly when, in the case of charitable bequests, the duty remains at 10 per cent. I am wondering whether this might be considered before the Report stage. I have not put down an Amendment, but I should be glad if the Chancellor would consider the matter.
    Mr. Eccles: I would like to pursue the point raised by my hon. and gallant Friend the Member for East Grinstead (Colonel Clarke). I really object to this Clause because if somebody leaves money to a cats' home, the duty is not to be doubled, but if they leave money to one of their relatives, the duty is to be doubled. There is a good old phrase "Charity begins at.home"—and by "home," I mean family. I cannot understand why the duty should be doubled if one leaves some money to, say, a distant cousin or other member of one's family, while if you leave it to some charitable institution, the rate remains the same. I ask the Chancellor on what grounds he has doubled the duty when one leaves money to one's family, and left the rate the same when one leaves the money to a charitable institution? I think we ought to have a definition of that principle.
    Lieut.-Commander Braithwaite: I think the Committee might well spend a few minutes on the general issues raised in

    1217
    Clause 41 and its successor, dealing with the somewhat lugubrious subject of what happens when people are translated to what we hope is a better world. These two Clauses, of course, implement the proposals contained in the Budget Speech. As in the case of Death Duties last year, the blow is softened to a certain extent by exemptions. What I think we have to focus attention on is that the changes do, in fact, add £9 million in a full year to the sum extracted from the community by the method of Legacy Duty. I have no doubt that the Chancellor will use the same argument as that which he used when I expressed my regret that Income Tax was running at 9s. in the £ He said, If it had not been for me, it would be 10s." I think that is a somewhat grandiose comment in the circumstances. The right hon. Gentleman inherited peace at the collapse of our enemies, and I am sorry to see him take the credit to himself. We take the view that taxation is running far too high. It is curious that there should be a tax on the most natural and noble of human emotions—the desire to leave such of the world's goods as one has to a relative or someone of that kind —whereas, as my hon. Friend the Member for Chippenham (Mr. Eccles) quite truthfully said, if one leaves it to some charitable institution, however worthy—one dealing perhaps with the betterment of conditions for animals—it will not carry this increase. I do not know what my right hon. Friends in front of me have in mina. I think this is a vicious increase, and I hope the Opposition will register their opinion by dividing on the Clause. It would be a great pity if Clause 41 were to be allowed to go without some protest being made against this unnecessary increase.
    11.45 p.m.
    Mr. Assheton: My hon. and gallant Friend has put the case very clearly, as he always does. We on this side strongly object to increases of this sort at a time when taxation ought to be reduced. The Death Duties have been raised' time after time, and have now reached levels which have become in some cases almost ridiculous. I do not know whether hon. Members are aware that on the highest levels, the Death Duties—and naturally hon. Members opposite do not express any sympathy—are 75 per cent.; and here there is the possibility
    1218
    of a Legacy Duty or Succession Duty of 20 per cent. on top of them. Really, the thing is becoming ridiculous. I do not believe hon. Members opposite, except perhaps the hon. Member for West Fife (Mr. Gallacher), can justify taxation on that level. I, for one, shall vote against this increase.
    Mr. Gallacher: Hon. Members opposite think there is a case when they talk about human emotions and sentiment. It is very strange how they can work up human emotions and sentiment when accumulated profits are concerned, but can never do so when it is the unemployed workers who are concerned. Suppose we take the cases of two lads, with the same physical and mental abilities. One of them is a lad whose father is an ordinary worker. The other is the son of an accumulator of profits. The robber dies, and leaves his property to his son. But what is he leaving him? He is leaving him the power to extract from the other lad the fruits of the other lad's labour. He is not leaving him goods, but the power to get the goods that the other lad makes. The other lad making goods will support the Chancellor in saying that if these goods go to a charitable institution, they are going to a better object than someone who is giving no service of any kind to the community. Therefore, I stand by the Chancellor, and the producers of goods—the miners who produce the coal, the engineers, and the railwaymen—and the other workers will stand by him.
    Sir Ian Fraser: I cannot help feeling that that argument is very false. Might not the lad who inherited this money by his ingenuity, hard work, and ability provide a job for the lad who has not got one? That has often happened. I did not rise to discuss that point, however, but another point. I am glad to think that we on this side of the Committee propose to vote against this increase in succession taxation on general principles—
    Mr. Gallacher: On rotten principles.
    Sir I. Fraser: —not, I hope, because the duty on charity bequests was not made as high as that which goes on bequests to other persons. That was implied by some hon. Members who spoke earlier. I am glad that most of these duties have

    1219
    not been raised on charities, of which there are very many admirable ones. It is against the general rise in the level of this taxation that we propose to vote.
    Mr. Jay: I should like to associate myself with the remarks of the hon. Member for West Fife (Mr. Gallacher). In my opinion, the Death Duties are not level enough all along the line. The attitude of the party opposite is extremely interesting. I gather now that they propose, as they did last year, to vote against the rise in the level of this taxation. Not many months ago, the right hon. Gentleman the Member for Warwick and Leamington (Mr. Eden) told us that one of the essential parts of the Tory Party's policy was a property-owning democracy. There are only two ways in practice of establishing the equal distribution of property. One is by higher wages to enable the wage earners to buy property of their own, a policy which it is not generally understood the Party opposite has encouraged. The other, and probably in existing circumstances the more important policy, is by the raising of the Death Duties on high estates and the reduction of Death Duties on low estates. I think it is correct to say that the latter is precisely what the Chancellor has followed in the two alterations in Death Duties—in the Estate Duty last year and the Succession Duty this year. The Party opposite now say that they are going to vote against this levelling, and the whole country will notice that by so doing they are totally insincere in advocating a property-owning democracy.
    Mr. Dalton: I think it is right that I should make some reply to the points which have been raised. The hon. Member for Chippenham (Mr. Eccles) found it difficult to justify the exemption in favour of legacies by succession to charities. He said that charity began at home, and the legacy of a member of one's own family was now subject to tax. We are now on Clause 41. Of course, Clause 42 contains three or four alleviations which it would not be in order to discuss on this Clause, but which I should like to mention in passing. They are designed to clear from Legacy and Succession Duties bequests below a certain amount. Reference has been made in this discussion to a legacy left to a domestic servant, or
    1220
    some other person not even a member of the family who was associated with the deceased person. For the first time, I am proposing an alleviation in part of the law on this subject. It was proposed last year for the first time in the long history of Death Duties, that all estates of under £2,000 were to be cleared from liability tax. It is quite true I put it on a bit further up, but that is another matter. It must be recalled, in fairness to what has been done in this Bill, that on the initiative of this Government, for the first time since Death Duties in their present form were introduced—which was by Sir William Harcourt in 1893—there is to be a clearance of duty on all estates up to £2,000. Before, they had been clear only up to £100. That should be borne in mind in any balanced discussion on this subject.
    Having said that, I welcome very much the speeches that have been made by my hon. Friends on this side in justification of the general policy here embodied of getting some part of the revenue, which we so greatly need for so many beneficent purposes, from increased taxation of inherited wealth, particularly when that wealth runs into large figures and great amounts. I am prepared to justify this not only in this Committee, but in any other place in the country. I am sure that on this issue an average audience would be entirely on my side if the issue could be extracted from all others, and they could be got to understand that it had no connection with their ordinary political affiliations. I am sure an audience of ordinary men and women chosen at random from the community, whatever their wealth might be, would agree that great wealth that passes on death to a person who, by definition, has done nothing whatever to earn it, is a suitable subject for taxation at the present time. I am prepared to stand up to that with anybody at any time. If the Opposition vote against this Clause, we shall be able to explain and comment on the matter in the right places.
    This is a matter on which I have a very profound conviction, and I am sure other hon. Members have an equally profound conviction. But I am convinced of nothing so firmly in the whole field of economic propositions as that great inherited wealth is a great evil both to those who inherit it and to those whom it

    1221
    deprives. I am sure we shall gain by this provision. In statistical information which has been published—and which may be read by any hon. Member—by the Inland Revenue Commissioners in their latest report, there is a new table introduced for the first time—I think Table 43, but that can be checked by anybody who studies it—in which there is an analysis of the Surtax income for recent years. This is not out of Order, as you will see in a moment, Mr. Beaumont, because I am relating it to inherited wealth. What I am submitting to you, and inviting hon. Members to study, because they will find it very interesting, is an analysis which shows that, if we divide the Surtax payers according to the magnitude of their income, the greater the income the greater the proportion of it which is admittedly derived, not from exertion of any kind, but from investment income of various sorts; and it is clear that the great bulk of that investment income is derived from inheritances, and not from anything done by the persons themselves. The bulk of it is inherited. This is the greatest root cause of inequality in our social and economic
    system, and I am glad it falls to my lot, as a Socialist Chancellor of the Exchequer supported by a Socialist Government, to do something to aid the advance towards closer equality in this matter.
    Colonel Clarke: Will the Chancellor, now or on Clause 42, answer my question concerning legacies to servants, and whether they might not be considered as charities? I should like to point out in that respect that I do not see any better way in which we could carry out the policy of increasing the numbers of property owners in a property-owning democracy than by leaving money by legacies to servants.
    Mr. Dalton: I am in your hands, Mr. Beaumont, but I shall be very happy to make a reply to the question now or later.
    The Deputy-Chairman: I think it would be better to answer that question when we reach the next Clause.
    Question put, "That the Clause, as amended, stand part of the Bill."
    The Committee divided: Ayes, 179; Noes, 68.

    Division No. 248.]

    AYES.

    [12.0 m

    Adams, W. T. (Hammersmith, South)

    Foot, M. M,

    Lewis, A. W. J. (Upton)

    Alexander, Rt. Hon. A. V.

    Forman, J. C.

    Lipton, Lt.-Col. M.

    Anderson, A. (Motherwell)

    Freeman, Maj. J. (Watford)

    Logan, D. G.

    Attewell, H. C.

    Freeman, Peter (Newport)

    Longden, F.

    Austin, H. Lewis

    Gallacher, W.

    Lyne, A. W.

    Baird J.

    Gibbins, J.

    McAllister, G.

    Barton, C

    Gilzean, A.

    McGhee, H. G.

    Berry, H.

    Glanville, J. E. (Consett)

    Mack, J. D.

    Beswick, F.

    Greenwood, A. W. J. (Heywood)

    McKay, J. (Wallsend)

    Blackburn, A. R

    Griffiths, D. (Rother Valley)

    McKinlay, A. S.

    Blyton, W. R

    Griffiths, W. D. (Moss Side)

    McLeavy, F.

    Braddock, T. (Mcham)

    Gunter, R. J.

    Manning, C. (Camberwell, N.)

    Bramall, E. A.

    Guy, W. H.

    Medland, H. M.

    Brook, O. (Halifax)

    Hall, W. G.

    Mellish, R. J.

    Brown, George (Belper)

    Hannan, W. (Maryhill)

    Middleton, Mrs. L.

    Burke, W. A.

    Hardy, E. A.

    Millington, Wing-Comdr E R

    Byers, Frank

    Harrison, J.

    Mitchison, G. R.

    Callaghan, James

    Henderson, A. (Kingswinford)

    Monslow, W.

    Champion, A. J.

    Henderson, Joseph (Ardwick)

    Morris, Lt.-Col. H. (Sheffield, C)

    Collindridge, F.

    Hewitson, Capt. M

    Morris, P. (Swansea, W.)

    Collins, V. J.

    Hobson, C. R.

    Moyle, A.

    Corbet, Mrs. F. K. (Camberwell, N. W.)

    Holman, P.

    Nally, W.

    Corlett, Dr. J.

    Holmes, H. E. (Hemsworth)

    Neal, H. (Claycross)

    Corvedale, Viscount

    House, G.

    Nichol, Mrs. M. E. (Bradford, N)

    Crawley, A.

    Hoy, J

    Noel-Buxton, Lady

    Dames, P.

    Hudson, J. H. (Ealing, W.)

    Oliver, G. H.

    Dalton, Rt. Hon. H.

    Hughes, H. D. (W'lverh'plon, W.)

    Paget, R. T.

    Davies, Ernest (Enfield)

    Irving, W. J.

    Paling, Will T. (Dewsbury)

    Davies, Harold (Leek)

    Janner, B.

    Pargiter, G. A.

    Deer, G.

    Jay, D. P. T.

    Paton, J. (Norwich)

    Delargy, H. J

    Jeger, Dr. S. W. (St. Pancras, S.E.)

    Pearson, A.

    Diamond, J.

    Jones, D. T. (Hartlepools)

    Peart, Thomas F.

    Dodds, N. N.

    Jones, Elwyn (Plaistow)

    Platts-Mills, J. F. F.

    Driberg, T. E. N.

    Jones, J. H. (Bolton)

    Poole, Major Cecil (Lichfield)

    Dugdale, J. (W. Bromwich)

    Jones, P. Asterley (Hitchin)

    Porter, G. (Leeds)

    Dumpleton, C. W.

    Keenan, W

    Pritt, D. N.

    Durbin, E. F. M.

    Kinley, J.

    Proctor, W. T

    Ede, Rt. Hon. J. C.

    Lang, G.

    Pryde, D. J.

    Evans, S. N. (Wednesbury)

    Lee, F. (Hulme)

    Ranger, J.

    Farthing, W. J.

    Lee, Miss J. (Cannock)

    Rankin, J.

    Fernyhough, E.

    Levy, B. W.

    Reid, T. (Swindon)

    Rhodes, H

    Symonds, A. L.

    West, D. G.

    Roberts, Emrys (Merioneth)

    Taylor, H. B. (Mansfield)

    White, H. (Derbyshire, N.E.)

    Roberts, Goronwy (Caernarvonshire)

    Taylor, R. J. (Morpeth)

    Whiteley, Rt. Hon. W.

    Roberts, W. (Cumberland, N.)

    Taylor, Dr. S. (Barnet)

    Wigg, Col. G. E.

    Robertson, J. J. (Berwick)

    Thomas, D. E. (Aberdare)

    Willey, F. T. (Sunderland)

    Rogers, G. H. R.

    Thomas, Ivor (Keighley)

    Willey, O. G. (Cleveland)

    Ross, William (Kilmarnock)

    Thomas, I. O. (Wrekin)

    Williams, D. J. (Neath)

    Royle, C.

    Thomas, George (Cardiff)

    Williams, J. L. (Kelvingrove)

    Sargood, R.

    Timmons, J

    Williams, W. R. (Heston)

    Segal, Dr. S.

    Tolley, L.

    Williamson, T.

    Sharp, Granville

    Ungoed-Thomas, L

    Willis, E.

    Shawcross, C. N. (Widnes)

    Usborne, Henry

    Wills, Mrs. E. A

    Skinnard, F. W.

    Wadsworth, G.

    Wilson, J. H.

    Snow, Capt. J. W

    Walkden, E

    Woods, G. S.

    Sorensen, R. W.

    Wallace, G. D. (Chislehurst)

    Wyatt, W.

    Soskice, Maj. Sir F.

    Wallace, H. W. (Walthamstow, E.)

    Yates, V. F.

    Stewart, Michael (Fulham, E.)

    Watson, W. M.

    Stokes, R. R.

    Weitzman, D.

    TELLERS FOR THE AYES;

    Stubbs, A. E

    Wells, P. L. (Faversham)

    Mr. Simmons and

    Swingler, S

    Wells, W. T. (Walsall)

    Mr. Popplewell.

    NOES

    Assheton, Rt. Hon. R

    Head, Brig. A. H.

    Ropner, Col. L.

    Barlow, Sir J.

    Headlam, Lieut.-Col. Rt. Hon. Sir C

    Shepherd, S. (Newark)

    Bossom, A. C

    Henderson, John (Cathcart)

    Shepherd, W. S. (Bucklow)

    Bower, N.

    Hope, Lord J.

    Smith, E. P (Ashford)

    Braithwaite, Lt.-Comdr. J. G.

    Hutchison, Col. J. R. (Glasgow, C.)

    Spearman, A. C. M.

    Bromley-Davenport, Lt.-Col W

    Jarvis, Sir J.

    Spence, H. R.

    Buchan-Hepburn, P. G. T.

    Joynson-Hicks, Hon. L. W.

    Stanley, Rt. Hon. O.

    Challen, C.

    Keeling, E. H

    Strauss, H, G. (English Universities)

    Clarke, Col. R. S

    Lambert, Hon. G.

    Stuart, Rt. Hon. J. (Moray)

    Crookshank, Capt. Rt. Hon H F. C.

    Lindsay, M. (Solihull)

    Studholme, H. G..

    Crosthwaite-Eyre, Col. O. E

    Low, Brig. A. R. W.

    Teeling, William

    Digby, S. W.

    Lucas-Tooth, Sir H.

    Thomas, J. P. L. (Hereford)

    Duthie, W. S.

    Mackeson, Brig. H. R

    Thornton-Kemsley, C. N.

    Eccles, D. M.

    Mellor, Sir J.

    Touche, G. C.

    Eden, Rt. Hon. A.

    Molson, A. H. E.

    Walker-Smith, D

    Fletcher, W. (Bury)

    Morrison, Maj. J. G. (Salisbury)

    Ward, Hon. G. R.

    Fraser, H. C. P. (Stone)

    Neven-Spence, Sir B.

    Wheatley, Colonel M. J

    Fraser, Sir I. (Lonsdale)

    Nield, B. (Chester)

    White, J. B. (Canterbury)

    Galbraith, Cmdr. T D.

    Noble, Comdr. A. H. P

    Willoughby de Eresby Lord

    Gates, Maj. E. E.

    Prescott, Stanley

    York, C.

    Gomme-Duncan, Col. A

    Price-White, Lt.-Col. D

    Grimston, R. V.

    Prior-Palmer, Brig. O.

    TELLERS FOR THE NOES:

    Hare, Hon. J. H. (Woodbridge)

    Ramsay, Maj. S.

    Major Conant and

    Haughton, S. G.

    Reid, Rt Hon J. S. C. (Hillhead)

    Lieut.-Colonel Thorp.

    Question put, and agreed to.

    CLAUSE 42.—(Limits of value.)
    Motion made, and Question proposed, "That the Clause stand part of the Bill."
    Mr. Dalton: I undertook to answer the hon. and gallant Member for East Grinstead (Colonel Clarke), who asked me a question on this Clause. This Clause proposes certain reductions. The last Clause proposed certain increases, and this Clause proposes certain reductions in the Legacy and Succession Duties. There are four such reductions, and two of them are relevant to the point raised by the hon. and gallant Member. First, the level of total exemptions from Legacy or Succession Duties is raised from £1,000 to £2,000, and, therefore, anything out of an estate of £2,000, to whomever it is left, is now clear of duty. Secondly, all bequests of £100 or less, no matter how many they may be or how large the estate, are similarly exempt. This touches the particular point the hon. and gallant
    1224
    Member made. A wealthy person can make a number of bequests to servants or others, and provided that none of them exceeds £100, they are all exempt. This does, I think, permit of the kind of operation which the hon. and gallant Member has in mind. These remarks are merely explanatory, but I hope I have answered the point which has been raised.
    Clause ordered to stand part of the Bill.

    CLAUSE 43.—(Increase of existing duties and provisions consequential thereon.)
    Motion made, and Question proposed, That the Clause stand part of the Bill.
    Lieut.-Commander Braithwaite: Prior to the Chancellor's Budget statement, certain suggestions were being made as to what the right hon. Gentleman might be likely to do, and one proposal much talked about, and given prominence in some sections of the Press, was that there

    1225
    would be a capital gains tax. It was even rumoured that the Chancellor was in the United States studying a similar measure operating there. I have always held the view that the Chancellor was unlikely to adopt the suggestion because there had been a four or five years' rise in share values, so that he had missed his market as far as any capital gains tax was concerned. Furthermore, a far more potent reason—and I say this knowing his mentality—was that he was much more likely to obtain money on both the swings and the roundabouts by operating on the Stamp Duties, which has the same effect so far as the Stock Exchange is concerned.
    I want to put one question to the Chancellor about the operation of these duties. First, let me say that, as in the case of the last matter we were discussing—the Legacy Duty—I think this is another increase in taxation which can only be a deterrent to a number of quite proper undertakings. I want to put to the Chancellor one question regarding the ad valorem stamps. The right hon. Gentleman will be familiar with the fact that registered stock changes hands on a nominal ten shillings stamp between dealers in the market to facilitate the passage of operations between jobbers. I gather that arrangement is unaltered. But is it the right hon. Gentleman's intention that this shall pass not only between jobbers in the market, but also between local authorities, public boards, and the like on a ten shillings ad valorem stamp? That practice is growing and, I think, defeating the main object of the duty as such. Is it the intention of the Government to allow public boards and local authorities to have the privilege?
    Mr. Dalton: I think the answer is, "No."
    Lieut.-Commander Braithwaite: I thank the Chancellor, but I would point out that pressure is being put on the market by local authorities and public boards to allow stocks to pass on the ad valorem stamp.
    Mr. Dalton: There would be no legal validity in this. It is not provided that there should be any extension.
    Lieut.-Commander Braithwaite: I hope the right hon. Gentleman's remarks will get publicity.
    12.15 a.m.
    Mr. Assheton: My hon. and gallant Friend the Member for Holderness (Lieut.-Commander Braithwaite) has already expressed our view about this increase of taxation. These Stamp Duties are being doubled, and taxation is being increased at a time when taxation ought to be reduced. We have gone through a period of very heavy taxation during the war years, and the community now expects to have some reduction of taxation. It certainly does not expect taxes to be doubled. I do not know whether hon. Members have looked at the Clause. If they look at it, they will see that these Stamp Duties affect a number of transactions which are necessary transactions if the business of the country is to be carried on. The headings which are relevant are these: bond, covenant or instrument; conveyance or transfer, on sale or lease; letter of allotment and letter of renunciation; mortgage, bond, debenture and warrant of attorney, and stock certificate to bearer.
    These are instruments which are part of the ordinary mechanics of commerce, and every increase of taxation upon them is a deterrent to the trade and commerce of this country. I want to ask the Chancellor one specific point; it is a matter of mechanics which he may be able to answer now, or he may have to look into it and give an answer at some future date. The date on which these new stamps come into operation is 1st August; but difficulties may arise in the case of stocks which are bought, for example, from Johannesburg by dealers in London, and take a considerable time in transit—possibly two or three months. If the Chancellor or the Financial Secretary would be good enough to let the committee know how the difficulties are to be overcome, I should be obliged. On the main principle, I must say that we on this side of the Committee intend to vote against the increase.
    Mr. Glenvil Hall: Perhaps I can provide the answer straight away. As the right hon. Member correctly said, the operative date is 1st August this year, when the higher Stamp Duty will be payable on documents brought in for stamping. Documents executed before then, but brought in after 1st August, will be stamped at the old rate; that is, the

    1227
    guiding principle will be the date on the document. So far as foreign documents are concerned, they will be liable to Stamp Duty, but the operative date in their case will be the date of assignment or negotiation. That will be the criterion which will determine whether Stamp Duty shall be at the old rate or the new
    rate. That will cover the particular case which the right hon. Member gave of documents from Johannesburg, in the Union of South Africa.
    Question put, "That the Clause stand part of the Bill."
    The Committee divided: Ayes, 167; Noes, 68.

    Division No. 249.]

    AYES.

    [12.20 a.m

    Adams, W. T. (Hammersmith, South)

    Hobson, C. R.

    Roberts, Emrys (Merioneth)

    Alexander, Rt. Hon. A. V.

    Holman, P.

    Roberts, Goronwy (Caernarvonshire)

    Anderson, A. (Motherwell)

    Holmes, H. E. (Hemsworth)

    Roberts, W. (Cumberland, N.)

    Attewell, H. C.

    House, G.

    Robertson, J. J. (Berwick)

    Austin, H. Lewis

    Hoy, J.

    Rogers, G. H. R.

    Baird, J.

    Hudson, J. H. (Ealing, W.)

    Ross, William (Kilmarnock)

    Barton, C.

    Hughes, H. D. (Wolverhampton, W.)

    Royle, C,

    Berry, H.

    Hutchinson, H L. (Rusholme)

    Sargood, R.

    Beswick, F.

    Irving, W. J

    Segal, Dr. S.

    Blackburn, A. R.

    Janner, B.

    Sharp, Granville

    Blyton, W. R.

    Jay, D. P. T.

    Shawcross, C. N. (Widnes)

    Braddock, T. (Mitcham)

    Jeger, Dr. S. W. (St. Pancras, S.E.)

    Simmons, C. J.

    Bramall, E. A.

    Jones, D. T (Hartlepools)

    Skirnnard, F. W

    Brook, D (Halifax)

    Jones, Elwyn (Plaistow)

    Snow, Capt. J W

    Brown, George (Belper)

    Jones, J. H. (Bolton)

    Sorensen, R. W.

    Burke, W. A.

    Jones, P. Asterley (Hitchin)

    Soskice, Maj. Sir F.

    Byers, Frank

    Keenan, W.

    Stewart, Michael (Fulham E)

    Callaghan, James

    Kinley, J.

    Stokes, R. R

    Champion, A. J.

    Lang, G.

    Stubbs, A. E.

    Collindridge, F.

    Lee, F. (Hulme)

    Swingler, S.

    Collins, V. J.

    Lee, Miss J. (Cannock)

    Symonds, A. L.

    Corbet, Mrs. F. K. (Camb'well, N.W.)

    Lipton, Lt.-Col M

    Taylor, H. B. (Mansfield)

    Corlett, Dr. J.

    Logan, D. G.

    Taylor, R. J. (Morpeth)

    Crawley, A.

    Longden, F

    Taylor, Dr. S. (Barnet)

    Dalton, Rt. Hon. H.

    McAllister, G.

    Thomas, D. E. (Aberdare)

    Davies, Ernest (Enfield)

    McGhee, H. G

    Thomas, Ivor (Keighley)

    Davies, Harold (Leek)

    Mack, J. D.

    Thomas, I. O. (Wrekin)

    Deer, G

    McKay, J. (Wallsend)

    Thomas, George (Cardiff)

    de Freitas, Geoffrey

    McKinlay, A. S.

    Timmons, J.

    Delargy, H. J

    McLeavy, F.

    Tolley, L.

    Diamond, J.

    Manning, C (Camberwell, N.)

    Ungoed-Thomas, L.

    Dodds, N. N.

    Medtand, H. M.

    Usborne, Henry

    Driberg, T. E. N.

    Mellish, R. J.

    Wadsworth, G.

    Dugdale, J. (W. Bromwich)

    Middleton, Mrs. L.

    Wallace, G. D. (Chislehurst)

    Dumpleton, C. W.

    Millington, Wing-Comdr. E. R

    Wallace, H. W. (Walthamstow, E.)

    Durbin, E. F. M.

    Mitchison, G. R.

    Watson, W. M.

    Ede, Rt. Hon. J. C

    Monslow, W.

    Weitzman, D.

    Fernyhough, E.

    Morris, P. (Swansea, W.)

    Wells, P. L. (Faversham)

    Foot, M. M.

    Moyle, A.

    Wells, W. T. (Walsall)

    For man, J. C.

    Neal, H. (Claycross)

    West, D. G.

    Freeman, Maj. J. (Watford)

    Nichol, Mrs. M. E. (Bradford, N.)

    White, H. (Derbyshire, N.E.)

    Freeman, Peter (Newport)

    Noel-Buxton, Lady

    Whiteley, Rt. Hon. W.

    Gallacher, W.

    Oliver, G. H

    Willey, F. T. (Sunderland)

    Gibbins, J.

    Paget, R. T.

    Willey, O. G. (Cleveland)

    Gilzean, A.

    Paling, Will T. (Dewsbury)

    Williams, D. J. (Neath)

    Glanville, J. E. (Consett)

    Pargiter, G. A.

    Williams, J. (Kelvingrove)

    Greenwood, A. W. J. (Heywood)

    Paton, J. (Norwich)

    Williams, W. R. (Heston)

    Griffiths, D. (Rother Valley)

    Peart, Thomas F.

    Willis, E.

    Gunter, R. J

    Platts-Mills, J. F. F.

    Wills, Mrs. E. A.

    Guy, W. H

    Popplewell, E.

    Wilson, J. H.

    Hall, W. G.

    Porter, G. (Leeds)

    Woods, G. S.

    Hannan, W. (Maryhill)

    Pritt, D. N.

    Wyatt, W.

    Hardy, E. A.

    Proctor, W. T

    Yates, V. F.

    Harrison, J.

    Pryde, D. J

    Henderson, A. (Kingswinford)

    Ranger, J.

    TELLERS FOR THE AYES

    Henderson, Joseph (Ardwick)

    Rankin, J.

    Mr. Pearson and Mr. Daines

    Hewitson, Capt. M.

    Rhodes, H

    NOES.

    Assheton, Rt. Hon. R.

    Buchan-Hepburn, P. G. T.

    Drewe, C.

    Baldwin, A. E.

    Challen, C.

    Duthie, W. S.

    Barlow, Sir J.

    Clarke, Col. R. S.

    Eccles, D. M.

    Beamish, Maj. T. V. H

    Crookshank, Capt. Rt. Hon. H. F C.

    Eden, Rt. Hon. A.

    Bossom, A. C.

    Crosthwaite-Eyre, Col O. E

    Fletcher, W. (Bury)

    Bower, N.

    Cuthbert, W. N.

    Fox, Sir G.

    Braithwaite, Lt.-Comdr. J. G.

    Digby, S. W

    Fraser, Sir I. (Lonsdale)

    Bromley-Davenport, Lt.-Col. W.

    Drayson, G. B

    Gage, C.

    Galbraith, Cmdr. T. D.

    Mellor, Sir J.

    Spence, H. R.

    Gales, Maj. E. E.

    Molson, A. H. E.

    Stanley, Rt. Hon. O.

    Gomme-Duncan, Col. A

    Morrison, Maj. J. G. (Salisbury)

    Strauss, H. G. (English Universities)

    Grimston, R. V.

    Neven-Spenoe, Sir B.

    Stuart, Rt. Hon. J. (Moray)

    Hare, Hon. J. H. (Woodbridge)

    Nield, B. (Chester)

    Studholme, H. G.

    Haughton, S. G.

    Noble, Comdr. A. H. P.

    Teeling, William

    Henderson, John (Cathcart)

    Nutting, Anthony

    Thomas, J. P. L. (Hereford)

    Hope, Lord J.

    Pitman, I. J.

    Touche, G. C.

    Jarvis, Sir J.

    Prescott, Stanley

    Walker-Smith, D.

    Joynson-Hicks, Hon. L. W

    Price-White, Lt.-Col. D

    Ward, Hon. G. R.

    Keeling, E. H.

    Prior-Palmer, Brig. O.

    Wheatley, Colonel M. J

    Lambert, Hon. G.

    Ramsay, Maj. S.

    York, C.

    Low, Brig. A. R. W.

    Reid, Rt. Hon. J. S. C (Hillhead)

    Lucas-Tooth, Sir H.

    Ropner, Col. L.

    TELLERS FOR THE NOES:

    Mackeson, Brig. H. R.

    Shephard, S. (Newark)

    Major Conant and

    Marshall, D (Bodmin)

    Shepherd, W. S. (Bucklow)

    Lieut.-Colonel Thorp

    Question put, and agreed to.

    Clause 44 ordered to stand part of the Bill.

    CLAUSE 45.—(Savings for certain conveyances and leases.)
    Mr. Keeling: I beg to move, in page 41, line 14, after "where," to insert:
    "a lease of land is granted to any governing body constituted for charitable purposes if the land which is the subject of the lease is to be occupied and used by such body for the purposes of that body or where.'
    The object of my Amendment is to exempt charities from the doubling of the Stamp Duty on leases granted to them. Charities have been badly hit during the past few years. They have had many premises requisitioned, and others have been acquired compulsory. They will have to acquire new ones and will be caught by the doubling of the Stamp Duty. Their expenses generally have risen steeply and the yield from their investments has dropped. Many investments have been seized by the State and they have been given in exchange cut-throat compensation terms. Finally, benefactors have been discouraged by last year's Finance Act from giving covenants, because under last year's Act covenants no longer attract exemption. I understand there has been a big fall from Surtax in the number of fresh covenants, and renewals. Now they are being struck this further blow by the doubling of the Stamp Duty.
    The Government have on several occasions denied that they are unfriendly to charities. The Chancellor has said he is friendly to them. All I can say is that he has been very skilful in dissembling his love. My Amendment is specially in the interests of those charities which look after children deprived of home life. The Curtis Report urged that this particular kind of charity should seek smaller and up-to-date new premises. I am told that
    1230
    one of the largest of these charities, Dr. Barnardo's Homes, has in the last twelve months acquired 14 new buildings, and will have to acquire many more if it carries out the policy of the Curtis Report. These new buildings, although smaller, are not small enough to get the preferential rates for small buildings provided for in the Bill, and will, therefore, be heavily hit by the doubling of the Stamp Duty. What I have said about children's homes applies to many other charities.
    We have, in Clause 41, exempted charities from increased Legacy and Succession Duties. It is possible I may he reminded by hon. Members opposite that one or two of my hon. Friends opposed that. I am not embarrassed by that, because the case for exempting charities from these increased Stamp Duties is, I think, much stronger than that for exempting them from increased Death Duties. The reason is that when a charity gets a legacy it is, so to speak, "money for jam"; but it has to acquire leases, and there is no doubt that this increased Stamp Duty on leases will deter charities from acquiring up-to-date premises. In conclusion, may I say that I am not sure whether my Amendment is perfectly drafted, because I see that the Clause refers to "lease or tack," whereas my Amendment does not refer to "tack." Perhaps the Chancellor of the Exchequer will deal with that point when he replies, and explain to us the difference.
    12.30 a.m.
    Mr. J. S. C. Reid: I should like to reinforce from a slightly different stand-point what my hon. Friend has said. When I first saw these provisions, and the point was put to me about charities and religious bodies, I did not think at first sight that there was much in it. I asked for some information. My informants were the Church of Scotland, and I was very surprised to be told that the Amend-

    1231
    ment which preceded this, and which was not called, would have meant a difference of about £7,000 a year to the Church of Scotland in Stamp Duties of this character. One would not have thought that the amount was so much, and I cannot help thinking that the reason the Government have allowed the concession in the case of legacies, but not in the case of Stamp Duty, is that they were under a misapprehension also, and thought that the amount at stake was comparatively small and that it was hardly worth while to make the exception in favour of religious, charitable and public bodies. I cannot imagine there was any other reason for drawing this distinction. There does not seem to be any logical reason.
    I can see that there might be a practical distinction, that one amounted to a substantial burden on these bodies and the other did not. But now that it has been made plain to the right hon. Gentleman that in the case of charities commonly so called, and in the case of churches and other public bodies, the burden is really substantial, I hope he will import into this Clause the same concession as he has already given in the Clause dealing with the Legacy Duty. I would only say, in conclusion, that the Chancellor of the Exchequer is well aware, particularly in regard to the Church of Scotland, of the very large loss it is suffering in connection with the nationalisation of the railways, and to put another £7,000 on top of that would be a crippling blow which I cannot believe the right hon. Gentleman really intends to impose on our national Church.
    Mr. Dalton: It is the case, as has been stated, that in the matter of the Legacy and Succession Duties we have deliberately left unincreased the duties upon bequests to charities, including, of course, the churches. It is our wish to do nothing to diminish that net flow after taxation of bequests to charitable purposes. It is also true that the argument cannot be resisted that in so far as that was a right thing to do in the case of the Legacy and Succession Duties, it would not be a wrong thing to do it from the same point of view with regard to the Stamp Duty, and make a similar differentiation there. The argument of the hon. Member for Twickenham (Mr. Keeling) is that we should leave untouched the Stamp Duty
    1232
    falling on this class of legacy. While the words need not be accepted, I am quite prepared to accept the Amendment, and to put down on the Report stage suitable words to give effect to that point.
    With regard to "tack," I am advised very recently—and I am sure competently advised—that "tack" is Scottish for lease and that is confirmed, I believe, in the Stamp Act. I have not had the opportunity of verifying that, but I am sure the right hon. and learned Gentleman the Member for Hillhead (Mr. J. S. C. Reid) will support my statement. There are two Amendments and we are quite prepared to make that wording cover both. I should merely add that it would be out of Order to go into a discussion on the compensation Clauses of the Transport Bill or any other Bill of that kind. However, I have defended, and would be prepared to defend again, those Clauses in a right setting. It is not our intention to penalise the churches, either the Church of England or the Church of Scotland, or indeed any religious body who is left property, and as far as these churches are concerned, I am glad to accept the suggestion contained in the Amendments.
    Mr. Joynson-Hicks: I should like to express my personal appreciation of what the Chancellor has said, particularly having regard to the correspondence which we have had in the past with regard to the difficulties in which religious bodies find themselves in connection with these bequests. I should like to ask him whether that assurance which he has given to the Committee covers the second Amendment in the name of the hon. Member for Twickenham (Mr. Keeling) and myself, namely, in page 41, line 38, at the end, to insert:
    "(c) to any conveyance or transfer of land either on sale or operating as a voluntary disposition, inter vivos, in any case where the conveyance or transfer is to a governing body constituted for charitable purposes and the land conveyed or transferred is to be occupied and used by such body for the purposes of that body."
    Mr. Dalton: What I hope is that the Amendments dealing with this matter will be withdrawn, and I will undertake to put down on Report stage an Amendment which, I hope, will give satisfaction to those who have been associated with these Amendments on the Order Paper. I do not want to pledge myself to the exact words, but our purpose is the same.
    Mr. Keeling: I beg to ask leave to withdraw the Amendment.
    Amendment, by leave, withdrawn.
    Clause ordered to stand part of the Bill.
    Clause 46 ordered to stand part of the Bill.

    CLAUSE 47.—(Extension and explanation of charge on customs bonds.)
    Motion made, and Question proposed, "That the Clause stand part of the Bill."
    Mr. Assheton: Will the right hon. Gentleman tell us something about this Clause?
    Mr. Glenvil Hall: The object of this Clause is to remove a small anomaly which has arisen, due entirely to the fact that Purchase Tax is now levied as a Customs and Excise duty. The Committee will know that there are arrangements under which goods are taken into bond, and the immediate payment of the full duty is frequently postponed. The duty is swelled by the fact that Purchase Tax is added to it, and this Clause undoes discrimination against certain individuals who have paid an extra sum in purchase tax against others who have not. It is purely a machinery Clause. There is nothing in it in the sense that it adds to or detracts from the revenue. It simply covers the new fact that we have Purchase Tax that swells sums when things are put into or taken out of bond.
    Clause ordered to stand part of the Bill.

    CLAUSE 48.—(Time for payment of companies capital duty by statutory companies.)
    Motion made, and Question proposed, "That the Clause stand part of the Bill."
    Colonel Crosthwaite-Eyre: I am slightly worried about this Clause, because it will lead to a reopening of a great number of cases. As I read it, under this Clause a company which has additional nominal capital will have to consider right back to 1939 whether or not it comes under Section 113 of the Stamp Act. So far as I can see, that relates only to public utility companies, for practical purposes. I should like to know just what companies are, in fact, affected, and to know in how many cases, in the estimate of the Chancellor of the Exchequer, will these
    1234
    recalculations have to be made. I should like to find out exactly what is the purpose behind the introduction of the Clause, because it seems to me to have very little practical value, but will cause a lot of trouble to a good many companies.
    Mr. Glenvil Hall: Originally, as I am sure the hon. and gallant Gentleman will remember, when a capital issue was made by a company it had to pay Stamp Duty on the full nominal value, whether the full amount was actually issued at that particular time or not. During the war, as the Committee knows, fairly rigorous restrictions were placed on capital issues, and it was agreed—and, I think, rightly, as I hope the Committee agree—that it would be grossly unfair when a company was making an issue, or wanting to make an issue, that it should be charged Stamp Duty on the full nominal sum, and not on the actual amount that was issued. Therefore, it was agreed between the Inland Revenue and those concerned with the Stamp Duty that the sum actually issued should be paid, and not Stamp Duty on the full nominal amount. This Clause gives that arrangement statutory effect, and it will now be continued until Parliament desires and resolves otherwise.
    Colonel Crosthwaite-Eyre: I should be glad if the Financial Secretary would follow this a little further, because, unless I am mistaken, he has referred to Section 112 of the Stamp Act and not to Section 113, which is mentioned here. Section 113 merely deals with companies whose nominal shareholding is governed by letters patent or Acts of Parliament. I think that the case he has made is related to Section 112, where he is perfectly right, but I cannot see that his case has any relation to Section 113, particularly as the specific limitation is to Section 113.
    Mr. Glenvil Hall: My advice is that it applies to both cases, both Section 112 and Section 113. Therefore, it is essential, when dealing with this matter, to cover ordinary companies and companies under letters patent.
    12.45 a.m.
    Mr. Stanley: I think we really must ask that this be looked into a little more closely, because the explanation which the right hon. Gentleman gave clearly refers, not to the Section of the Stamp Act mentioned in this Clause, but to another

    1235
    one. The explanation he gave was that it was necessary, from the point of view of the taxpayers, that what hitherto had been the rule or custom should now be put on a statutory basis under the Defence Regulations. He gave us the impression that a benefit was going to be conferred on the taxpayer on the whole range covered by Section 112, but if we look at Clause 48, we see it will be limited to the very narrow confines of that particular Section. Which does the right hon. Gentleman means? If he means that these are to be widespread, we must amend Clause 48 in order to read it with Sections 112 and 113.
    Mr. Glenvil Hall: I think I now have the point. It is really a separate one from the one which the hon. and gallant Gentleman was putting to me. Normally, in private companies, as the term implies, the authority of the House has to be sought, and that being so, the Statute itself as a Private Act itself makes provision, and, therefore, it is not necessary in this particular Clause to make provision in addition. We simply make provision for the examples which I gave. Where provision is desired in a private Act by a corporation, it will make provision of its own in the Act which it promotes.
    Mr. Stanley: I cannot help saying that the right hon. Gentleman's intervention has not left me any clearer than I was before, because I thought it was the private company which might be covered by a Private Act which was the subject of Section 112. What happens to companies under Section 112, which he described in glowing terms as conferring a benefit?
    Mr. Glenvil Hall: I may be very obtuse, but surely the right hon. Gentleman refers to Section 113. He is answered by the very first line of the Clause we are now discussing. The Clause refers to Section 113. The two Sections have to be taken together, but the operative Section is Section 113, and that is why it is referred to in this Clause.
    Colonel Crosthwaite-Eyre: With great respect to the right hon. Gentleman, I think he ought to have a look at Sections 112 and 113 before he makes that statement, because Section 113 deals with
    1236
    public companies where nominal and actual capital may be different. Section 113 takes the matter further; it talks of companies only which are guaranteed in addition to the law of registration in some respect by Private Acts of the House or by letters patent. The Clause we are now discussing is conferring on private companies or companies affected by letters patent only. The Financial Secretary, in his first statement, made it apparent that the case he was putting to the Committee was based on Section 112. What I want to know is why this benefit is being given to private companies or those limited by letters patent. The reference ought to be in respect of Sections 112 and 113. If that were so, we would have no comment. We cannot see any justification for this, or why the Financial Secretary has given any answer on Section 112 and ignored Section 113 altogether.
    Mr. Stanley: We must have an answer on this matter. I think it is quite clear that the right hon. Gentleman has not had the advantage of reading the relevant Section. The right hon. Gentleman, in the intervention he made in my speech, said that he had now got the point. I do not know whether it would be advisable that the charge of the Old Guard should be stayed until Blucher arrives. The right hon. Gentleman made it quite clear that there had been a misunderstanding because he said that these companies which were regulated by Private Acts did not need the protection of Clause 48, because the matter would be dealt with under the Private Acts themselves. But Section 113 refers only to companies which, in fact, have got, and are set up by, these Private Acts, and I really think he must have made a mistake in the figure. Number 112 is very close to 113. Anyone might have made a slip of that magnitude. Considering some of the arithmetical mistakes we have come across in the course of our financial discussions in the last few years, it is a very minor one; but even though it is a minor one, it should be put right.
    Mr. Glenvil Hall: I apologise to the Committee for misleading them. It was due to the fact that, for the moment, I failed to find a copy of the Stamp Act. The right hon. Gentleman has the advantage over me. It is quite obvious, from what he said, that he had turned this Section up, as I should have done, and

    1237
    had seen that this does not, in fact, refer to registered companies. I understand that registered companies are, in fact, not included, and the reason is that they are now very rigidly controlled by the Treasury, and would have to come to the Treasury for consent before they made a public issue. All we have done in this Clause has been to make this limiting concession to these companies covered by Section 113.
    Clause ordered to stand part of the Bill.
    Mr. Stanley: I beg to move, "That the Chairman do report Progress and ask leave to sit again."
    I move this Motion in order to have an opportunity of asking the Chancellor of the Exchequer his intentions. I think it is a convenient moment to do so, for we are now at the beginning of a number of Clauses which deal with one of the most important points in the Bill—that new duty on the issue of bonus shares. This is an innovation which has been criticised in many quarters. It raises very difficult practical points, and it is certainly one that will require full consideration and should receive that consideration at a reasonable hour of the day. It is very unfortunate that we should arrive at this matter at a late hour. In our desire to facilitate the progress of Business—although we registered our protests against it—we curtailed discussion on the matter on the Budget Resolutions. It would be too bad if we were to be asked on this occasion, which will probably be the final opportunity to discuss the subject in detail, to do so at an unsuitable time. We cannot expect to be lucky on the Report stage. We cannot then expect to he able to make a renewal of the arguments which we have to make. If this subject is taken at this hour, it will also have the effect of denying adequate publicity for what many people consider to be a most important Debate.
    I am sure the Chancellor would be the last to deny adequate public reporting of this controversial Clause, but if we are to spend two, or even three or four, hours discussing an important Amendment, I can only say that whatever explanation the Chancellor is prepared to give, and whatever emollients he may offer, the matter will go largely unreported because of the hour of the night. I think it is
    1238
    wrong that a matter of such importance should be taken at this hour. May I remind the Committee that we have two full days after this for the discussion in Committee of the Finance Bill, and I can speak for most of my right hon. and hon. Friends when I say that, with this particular part of the Bill, we shall have come to the end of those matters arising from the Budget which we believe require the most careful and the longest investigation. I think that the reasonable thing to do would be to report Progress now.
    Mr. Gallacher: Not at all.
    Mr. Stanley: The hon. Member really must not treat the Front Bench opposite as if it were a puppet Government. That may, in fact, be true. We do not know what is going on behind the scenes. The right hon. Gentleman may be going up and others may be going down, but decency demands that in public the hon. Member should exercise a certain amount of restraint and not make such remarks. Therefore, I would say that the right hon. Gentleman, who is still a nominal head of the party opposite, ought to agree to adjourn now and let us start early on Monday on this important Clause, and trust to the co-operation which I can offer him from this side of the Committee. By that co-operation we would make every endeavour to see that we would finish the Finance Bill without having to sit unduly late either on Monday or Tuesday.
    Mr. Dalton: We have been watching the clock as well as our own progress during today's Debates. I have noted what the right hon. Gentleman has said, and my mind was by no means clear as to how far it would be wise to go. I make no complaint that there has been undue delay on any part of the Bill caused by any part of the Committee; but none the less, it has taken us two days, and until one o'clock this morning, to get 48 Clauses. Many of them have been gone throughout without debate. I do not complain—I merely take note of the fact that we have taken two days to get thus far. In terms of Clauses, I must point out that there are 63 Clauses, and after that, there are 10 Schedules, and a formidable body of New Clauses, on quite a number of which I should think there will be a good deal of discussion.

    1239
    1.0 a.m.
    I think that in our proceedings here, the majority, or at any rate a substantial number of hon. Members, find that when we have gone past, say, a quarter to twelve, then their communications are interrupted and it is impossible to get home. That being so if there is to he one late sitting on this Bill, it would be better to have it now, as communications have been interrupted for this evening, and we will be sure of getting through at a relatively early hour on the two days next week which are proposed for the completion of the Committee stage. It is not my fault, and the right hon. Gentleman did not suggest it was, that this particular matter of bonus issues happened to be reached at this particular hour, being Clause 49. It would have been possible—I make no complaint that it was not done—to have stepped up the discussion of some of the earlier Clauses so as to arrive rather earlier at Clause 49.
    Mr. Stanley: It would have been possible not to have discussed them at all. Then we could have started at Clause 49.
    Mr. Dalton: Well, most of the discussion has come from the other side of the Committee. My own suggestion to the Committee would be that, having reached one o'clock, when it is impossible for hon. Members to get home unless they have private conveyances it would be better to go straight ahead. I should think there would be no great loss of publicity on this matter of bonus issues, which is admittedly contentious. We shall have our say, of course, and there will be plenty of scope for speeches and reports of speeches from time to time.
    Sir J. Mellor: The right hon. Gentleman said that conveyances are not available now. They were available, and were made specially available, as we know; but they were not used. Therefore, I think the right hon. Gentleman's point has really no application, because the transport which was specially provided for hon. Members when we were sitting late was virtually not used. Therefore I do not think he can say that that is one reason we should continue tonight.
    Mr. Dalton: I was citing the fact, which cannot be denied, that there is no transport available for hon. Members who have not private conveyances of their own. That is a fact. It is a fact which we are
    1240
    entitled to take into consideration. [An HON. MEMBER: "Who caused that fact?"] Therefore, I suggest that, this being the case, a substantial number of hon. Members would perfer to continue consideration of the rest of the provisions of this Bill with a view to getting, shall we say, to the end of Clause 63. That would leave the Schedules and the new Clauses for next week. I think that those could be fairly adequately discussed in the two days which remain, without any need for further late Sittings. Therefore, I suggest to the Committee that we should not at this stage report Progress, but should continue with our work; and I am quite sure we would be prepared that the ordinary formal stages of the Bill should run their course. We would not deny discussion of these Clauses, however it is decided to deal with the Business. Hon. Members often make speeches in the country, and there are many organs of opinion which are only too ready to give expressions to their views on these and other matters. Therefore the point of view and arguments of any side can be put forward. I suggest that we carry on with our work.
    Mr. Stanley: As the right hon. Gentleman is not prepared to do anything to meet the wishes of hon. Members on this side of the Committee, any offer which I made for co-operation during the remaining stages of the Bill is, of course, withdrawn.
    Lieut.-Commander Braithwaite: The right hon. Gentleman is, of course, in control of the situation, backed by his large Parliamentary majority. His argument strikes me as slightly curious. He says if we sit beyond the departure of the last two trains, we should sit until the services recommence somewhere about six a.m. He says that after the Sitting goes beyond a certain hour, it is a good thing to carry on until the trains start again. It strikes me as slightly curious to suggest that the discussion of important matters in this Committee should not be carried on in relation to a proper time considered likely to be most effective by those whom we represent, but for the convenience of ourselves as Members. We are not here for our personal gratification. Every hon. Gentleman who sits here is sent here by a majority of electors. I am as much a democratic representative as the right hon. Gentleman is, and we

    1241
    must regard it as a duty to our constituents that matters of importance should be discussed at an hour when there will be adequate space in the newspapers for a report.
    I insist that Business done at this hour is invariably badly done. None of us is quite as mentally alert as we were yesterday afternoon, and when one gets to an important subject like this, I suggest it is difficult to give it proper consideration. Already there is creeping into our proceedings that hilarity that always marks the first stage of an all-night Sitting, followed by somnolence, followed by irritability, which is then followed by a fresh outbreak of hilarity when the dawn comes. I suggest that the Chancellor will still get the Bill through Committee on Tuesday if we adjourn now. We might sit late on Tuesday, and then we should all "buck in" and do our part. If our hope is not fulfilled, we will continue the battle with a far less co-operative spirit than has prevailed so far.
    Mr. Gallacher: I would like to remind the hon. and gallant Member that in school we were always told never to put off till Tuesday what we can do on Thursday morning.
    Lieut.-Commander Braithwaite: What about the 40-hour week?
    Mr. Gallacher: At the same time, I would like to apologise to the Front Bench if I have been indiscreet and to say to the right hon. Gentleman the Member for West Bristol (Mr. Stanley) that many times this afternoon I have taken a vow of silence, but have always been forced to break it by the arguments made from the other side. I feel that hon. Members
    on this side, even though some of us were sitting on the Scottish Committee this morning and will have to be on it when we finish up here, are quite capable of carrying on the work of this Committee and doing the job at any hour.
    Mr. Walker Fletcher: The right hon. Gentleman the Chancellor used with frequency the words, "I do not complain," but that is not what he meant in the least. What he meant was, "I do complain bitterly that the Opposition have not done exactly what I want them to do; I complain that the Opposition have the temerity and bad taste to discuss at considerable length questions which affect the country; I complain that they do not toe the line and listen, and even kiss the rod which I wield; I do complain, and I will show them I am complaining." If one were really to paraphrase what the Chancellor has said, it would be, "I will keep you here tonight and teach you that lesson not to oppose Clauses which I want to push through with my machine-made majority." If that form of mechanized warfare is to be introduced by the Chancellor at this time of night, gloating on the idea of private cars—[Interruption.] He has a private car.
    Hon. Members: It is a public car.
    Mr. Fletcher: All I can say is that he is setting an exceedingly bad example to the Committee and to the country, and lowering his office in the eyes of others.
    Question put, "That the Chairman do report Progress, and ask leave to sit again."
    The Committee divided: Ayes, 68; Noes, 160.

    Division No. 250.]

    AYES.

    [1.12 a.m.

    Assheton, Rt. Hon. R.

    Fraser, H. C. P. (Stone)

    Nutting, Anthony

    Baldwin, A. E.

    Fraser, Sir I. (Lonsdale)

    Pitman, I. J.

    Beamish, Maj. T. V. H.

    Gage, C.

    Price-While, Lt.-Col. D.

    Birch, Nigel

    Galbraith, Cmdr. T. D

    Prior-Palmer, Brig. O.

    Bossom, A. C.

    Gomme-Duncan, Col. A.

    Ramsay, Maj. S.

    Bower, N.

    Grimston, R. V.

    Reid, Rt. Hon. J. S. C. (Hillhead)

    Bracken, Rt. Hon. Brendan

    Hare, Hon. J. H. (Woodbridge)

    Roberts, W. (Cumberland, N.)

    Braithwaite, Lt.-Comdr. J. G.

    Haughton, S. G.

    Ropner, Col. L.

    Bromley-Davenport, Lt.-Col. W.

    Henderson, John (Cathcart)

    Shephard, S. (Newark)

    Buchan-Hepburn, P. G. T.

    Hope, Lord J.

    Spence, H. R.

    Byers, Frank

    Jarvis, Sir J.

    Stanley, Rt. Hon. O.

    Clarke, Col. R. S.

    Joynson-Hicks, Hon. L. W.

    Strauss, H. G. (English Universities)

    Conant, Maj. R. J. E.

    Keeling, E. H.

    Stuart, Rt. Hon. J. (Moray)

    Crookshank, Capt. Rt. Hon. H. F. C.

    Lambert, Hon. G.

    Teeling, William

    Crosthwaite-Eyre, Col. O. E

    Low, Brig. A. R. W.

    Thomas, J. P. L. (Hereford)

    Cuthbert, W. N.

    Lucas-Tooth, Sir H.

    Touche, G. C.

    Digby, S. W.

    Mackeson, Brig. H. R.

    Wadsworth, G.

    Drayson, G. B

    Marshall, D. (Bodmin)

    Ward, Hon G. R.

    Drewe, C.

    Mellor, Sir J.

    Wheatley, Colonel M. J

    Duthie, W. S.

    Molson, A. H. E.

    York, C.

    Eccles, D. M.

    Morrison, Maj. J. G. (Salisbury)

    Eden, Rt. Hon. A.

    Neven-Spence, Sir B.

    TELLERS FOR THE AYES:

    Fletcher, W. (Bury)

    Nield, B. (Chester)

    Mr. Studholme and

    Fox, Sir G.

    Noble, Comdr. A. H. P.

    Lieut.-Colonel Thorp.

    NOES

    Adams, W. T. (Hammersmith, South)

    Hewitson, Captain M.

    Rhodes, H.

    Alexander, Rt. Hon. A. V.

    Hobson, C R.

    Roberts, Goronwy (Caernarvonshire)

    Anderson, A (Motherwell)

    Holman, P.

    Robertson, J J. (Berwick)

    Attewell, H. C.

    Holmes, H E (Hemsworth)

    Rogers, G. H. R.

    Austin, H. Lewis

    Hoy, J.

    Ross, William (Kilmarnock)

    Baird, J.

    Hudson, J. H. (Ealing, W.)

    Royle, C.

    Barton, C.

    Hughes, H. D. (Wolverhampton, W.)

    Sargood, R.

    Berry, H.

    Hutchinson, H. L. (Rusholme)

    Segal, Dr. S.

    Beswick, F.

    Janner, B.

    Shackleton, E. A. A

    Blackburn, A. R

    Jay, D P T

    Sharp, Granville

    Blyton, W. R.

    Jeger, Dr. S. W. (St. Pancras, S E.)

    Shawcross, C. N. (Widnes)

    Braddock, T. (Mitcham)

    Jones, D T (Hartlepools)

    Simmons, C. J.

    Bramall, E. A.

    Jones, Elwyn (Plaistow)

    Skinnard, F. W

    Brook, D (Halifax)

    Jones, J. H (Bolton)

    Snow, Capt. J. W

    Brown, George (Belper)

    Jones, P. Asterley (Hitchin)

    Sorensen, R. W.

    Burke, W. A.

    Keenan, W.

    Stewart, Michael (Fulham, E)

    Callaghan, James

    Kinley, J.

    Stokes, R. R.

    Champion, A. J.

    Lang, G.

    Stubbs, A. E.

    Collindridge, F.

    Lee, F. (Hulme)

    Swingler, S.

    Collins, V. J.

    Lee, Miss J. (Cannock)

    Symonds, A. L

    Corbet, Mrs. F. K. (Camb'well, N.W)

    Levy, B. W.

    Taylor, H. B. (Mansfield)

    Corlett, Dr. J.

    Lewis, A. W. J. (Upton)

    Taylor, R. J. (Morpeth)

    Crawley, A.

    Lipton, Lt -Col M

    Taylor, Dr. S. (Barnet)

    Daines, P.

    Logan, D. G.

    Thomas, D. E. (Aberdare)

    Dalton, Rt. Hon. H.

    Longden, F

    Thomas, Ivor (Keighley)

    Thomas, I. O. (Wrekin)

    Davies, Ernest (Enfield)

    McAllister, G

    Thomas, George (Cardiff)

    Davies, Harold (Leek)

    Mack, J. D.

    Timmons, J.

    Deer, G.

    McKay, J. (Wallsend)

    Tolley, L.

    de Freitas, Geoffrey

    McKinlay, A. S.

    Ungoed-Thomas, L.

    Delargy, H. J

    McLeavy, F.

    Usborne, Henry

    Diamond, J.

    Manning, C (Camberwell, N.)

    Wallace, G. D. (Chislehurst)

    Dodds, N. N

    Mellish, R. J.

    Wallace, H. W. (Walthamstow, E.)

    Driberg, T. E. N.

    Middleton, Mrs. L.

    Watson, W. M.

    Dugdale, J. (W. Bomwich)

    Millington, Wing-Comdr. E. R

    Weitzman, D.

    Dumpleton, C. W.

    Mitchison, G. R

    Wells, P. L. (Faversham)

    Ede, Rt. Hon. J. C

    Monslow, W.

    Wells, W. T. (Walsall)

    Farthing, W. J.

    Morris, P. (Swansea, W.)

    West, D. G.

    Fernyhough, E.

    Moyle, A.

    White, H. (Derbyshire, N E.)

    Foot, M. M.

    Neal, H. (Claycross)

    Whiteley, Rt. Hon W

    Forman, J. C.

    Nichol, Mrs. M. E. (Bradford, N.)

    Wilcock, Group-Capt. C. A. B

    Freeman, Maj. J. (Watford)

    Noel-Buxton, Lady

    Willey, F. T. (Sunderland)

    Freeman, Peter (Newport)

    Oliver, G. H

    Willey, O. G. (Cleveland)

    Gallacher, W.

    Paget, R. T.

    Williams, D. J. (Neath)

    Gibbins, J.

    Paling, Will T. (Dewsbury)

    Williams, J. (Kelvingrove)

    Gilzean, A.

    Pargiter, G. A.

    Williams, W. R. (Heston)

    Glanville, J. E. (Consett)

    Paton, J. (Norwich)

    Willis, E.

    Greenwood, A. W. J. (Heywood)

    Peart, Thomas F.

    Wills, Mrs. E. A

    Gunter, R. J.

    Platts-Mills, J. F. F.

    Wilson, J. H.

    Guy, W. H.

    Popplewell, E.

    Woods, G. S.

    Hall, W. G.

    Pritt, D. N.

    Wyatt, W.

    Hardy, E. A

    Proctor, W. T

    Yates, V F

    Harrison, J.

    Pryde, D. J

    Henderson, A. (Kingswinford)

    Ranger, J

    TELLERS FOR THE NOES:

    Henderson, Joseph (Ardwick)

    Rankin, J.

    Mr. Pearson and

    Mr Hannar.

    CLAUSE 49.—(Charge of duty on bonus issues of securities, etc.)
    Mr. Dalton: I beg to move, in page 43, line 43, to leave out "previously issued."
    This is a drafting Amendment, designed to remove a possible ambiguity in the Clause as printed. The intention is, as I said in my Budget Speech, to make clear that there should be a liability charged under this Clause in regard to any issues made after Budget day and I am advised that it might not be quite clear from the present wording that that is the intention. It might be that unless the words "previously issued" are left out it would carry back to the period before the date mentioned, namely, 16th April, 1947.
    Amendment agreed to.
    Mr. Birch: I beg to move, in page 44, line 14, at the end, to insert:
    "providing that no stamp duty is payable it the bonus is less than five per cent. and that where the bonus exceeds five per cent. the duty be payable on any excess over five per cent."
    This Amendment is designed to improve what we believe is an entirely wrong and bad Clause. The real point is that some of the harm which can be done may be mitigated if this Amendment is accepted. When a person is fixing the price of an issue he has got to look some way ahead. Therefore, if he is issuing to shareholders, he has to issue slightly under the market price. Hon. Gentlemen opposite, when boasting of their successful speculations, talk as if the price is always going up, and it may well be that, as

    1245
    long as we have a Chancellor determined to make the price of the gilt-edged security market conform to his vanity, the prices will go up, much to the detriment of the nation. No doubt that is an expansion of the right hon. Gentleman's ego. That is not always the case, but we may well assume that it might be so until we have better direction. A person cannot tell at what price issues are going to remain when judging a long time ahead, and five per cent. is a very moderate margin. I have known many bonus issues where there has been a sharp fall after the issue was put out. We suggest here that somebody who has no chance of judging what is going to happen should not be charged at all if he allows a margin which, by any circumstances or in the experience of anybody who knows anything about issuing shares, is a very fine margin under normal circumstances. I think the right hon. Gentleman would be well advised to accept this Amendment, because it would do something to make this provision less wholly unreasonable than it is now.
    Mr. Dalton: We are now going to enter upon a discussion on the essential character of these proposals, and no doubt a good deal of that will take place on the Motion, "That the Clause stand part of the Bill." Therefore, I must be careful not to stray into repetition by advancing arguments, which would be more appropriate there. I must confess I am not clear as to the purpose of the hon. Gentleman the Member for Flint (Mr. Birch) I think that his intention is to cover the bonus element cases as well as what I might call the pure bonus cases, where no payment is made. In this case, therefore, I assume that what he is proposing has reference to cases where the bonus is less than five per cent., including cases where something has already been paid by the recipient. I am anxious to deal with his argument fairly and to know what he has in mind, and I am anxious to take advantage of any suggestion for the better drafting of the Clauses, if it can be achieved without damaging the intentions which we have.
    I am prepared to look at the drafting of the Clause to see whether there can be any provision made to avoid very small bonuses being caught within the operations of this Clause. I think that is the intention that the hon. Gentleman has in
    1246
    mind. I am not sure that we can do it, but I am quite prepared to have a look at the thing in the light of the discussion which will follow later on the Question, "That the Clause stand part of the Bill." I am a little embarrassed in handling this matter, because I would like to hear the general discussion before I consider whether this proposal could he accepted without prejudice to the main purpose which I have in mind.
    Mr. Assheton: It is a little difficult to be quite certain what is meant here. The discussion, I agree, on the Motion "That the Clause stand part of the Bill," should be the main discussion on this issue, but, as the Committee discovered last night, it is rather difficult to have a discussion of several Clauses. We cannot have a Second Reading Debate on several Clauses That means that we have to deal with this Amendment before we come to the Question, "That the Clause stand part of the Bill." If the Chancellor of the Exchequer means that he is really impressed by the argument my hon. Friend the Member for Flint (Mr. Birch) has put forward, and if, he thinks there is something in this suggestion that there should be, as it were, a margin—I think it is a very sensible suggestion—and if he is prepared to consider that proposition, I think my hon. Friend will be prepared to ask leave to withdraw the Amendment.
    Mr. Birch: I beg to ask leave to withdraw the Amendment.
    Amendment, by leave, withdrawn.
    Colonel Crosthwaite-Eyre: I beg to move, in page 44, line 18, at the end, to insert:
    "(4) A company may deliver to the Commissioners a statement prior to issuing any securities or varying the rights or liabilities attached to any securities previously issued as mentioned in subsection (1) of this section together with a declaration that such proposed issue or variation of rights or liabilities does not contain any element of bonus as mentioned in that subsection or an estimate of what in its opinion is the value of the bonus which would be likely to arise by reason of the proposed issue or variation of rights or liabilities in accordance with the principles of the next two succeeding sections and on receipt thereof the Commissioners shall as soon as may be confirm the declaration or estimate or assess an alternative value of the bonus and if the company accepts the value so assessed by the Commissioners the duty charged by subsection (2) of this section shall be assessed in accordance with such confirmation estimate or assessment and no further claim shall be made on the company in respect thereof."

    1247
    One of the difficulties that we feel confident will arise over these bonus issues is very similar to that expressed by my hon. Friend the Member for Flint (Mr. Birch). It will be occasioned by the delay and the time required to put the provisions of the Clause into effect. There is in these Clauses as they now stand a still longer delay occasioned between the time when the shares are issued and the time when the bonus, if any, is estimated by the Commissioners. What this Amendment strives to do is to place upon the Commissioners the responsibility for assessing the bonus element, if any. As I understand the procedure, the company making the issue, either a bonus issue or an issue with a bonus element, must furnish to the Commissioners full details of such issue, and then, subsequently, on the first day that the rights become marketable, or, alternatively, on the first day of a period not longer than a month after the date of issue when the shares are actually quoted, the bonus element is ascertained, and the company taxed by the Commissioners.
    The curious thing is that Subsection (3) refers to Section 12 of the Stamp Act, 1891; and that Act clearly lays down in Section 12 that it is the duty of the Commissioners in all such matters as this to evaluate what duty shall, in fact, be payable. This is the first time, as far as I know, that Section 12 of the Stamp Act has been evoked in the way it is in the Clause, so as to take away that function from the Commissioners. I think that Members will agree that it is perfectly right that the Commissioners should have this duty. After all, a company is faced with a tax imposed upon it by the Government, and I think it is only fair that where such a tax is imposed, the Government should be the people responsible for assessing it. As it stands at the moment, it is perfectly possible for a bonus issue, or an issue with a bonus element, of the highest benefit to the community as a whole to be propounded, and in the interval between the time it is propounded and the time it becomes assessible for tax all the circumstances may have changed. Consider a developing industry, particularly one with research departments. How can a board of directors honestly assess that bonus element, say, six or nine months in advance? Who can tell the changes that will take place in in-
    1248
    dustry, in development of products, in demand and in sales through the work of the research departments. All these cases would have a vital effect on the issue. But the directors, who are responsible, after all, to the shareholders and equally to the consumers, must, as it stands in some fashion, make that forward estimate I do not see that it is practicable.
    1.30 a.m.
    As I understand it, quite apart from the ethical or social considerations in the Chancellor's mind, with regard to the main issue, such purpose could be achieved whilst accepting this Amendment. All it means is that a gamble would become for the company a matter of ascertainable fact. A company which wished to indulge in a bonus element issue could go to the Commissioners and get an exact estimate of the liability into which it was going to run. If it is left as it is, the company will not be able to do that. It may make an issue which, to its mind, corresponds fairly with the situation as it sees it, but through circumstances be proved wrong. Hon. Members could think of many examples. Anyone of half a dozen things might happen, and what was sound and fair might change completely, and lay a company open to paying a very much higher tax which it would not be in a position to do. Very considerable difficulties might arise, and I suggest that the intention of Section 12 of the Stamp Act, 1891, should be carried out in this instance. As far as I know this is the first instance where this particular Section is not used in placing the liability on the Commissioners. All we seek to do is to carry on with a liability which we think is a just burden to place on those responsible for implementing the tax. Finally, I think the Amendment would be a great benefit to industry, because industry would know where it stood and could plan properly. If the Chancellor accepts this Amendment, he will be doing something to permit a bad tax to work in practice.
    Lieut.-Commander Braithwaite: I think my hon. and gallant Friend has made it quite clear that this is a machinery Amendment which could properly be considered on its merits without prejudice to any wider view. It endeavours to improve and simplify the arrangements under which bonus issues will be made. The Chancellor has moved a little in his

    1249
    attitude towards this matter since he took office. He frowned upon bonus issues, as such, I remember on more than one occasion. His attitude was invariably, "Get thee 'behind me, Satan." It has changed to "Get thee behind me, Satan, except on such occasions as the Capital Issues Committee may approve," and he has spoken of taking a 10 per cent. rake-off. That is where we stand now. If bonus issues are to be approved by the Capital Issues Committee and the right hon. Gentleman is going to participate to the extent of 10 per cent., he will be as anxious as anyone else that the preliminary arrangements should be on some kind of suitable basis.
    This Amendment would enable a company to he freed from that marked uncertainty which often develops. After all, what happens to the shares in the market once the issue is made is entirely beyond the control of the company. It cannot calculate a consequence which cannot be foreseen. There are cases where a company fixes its terms after taking most expert advice as to what would be a proper and reasonable price of issue, the probable market price, the probable value, and if inadvertently any preference or priority should be given to the existing shareholders, that would be caught by the stamp on any market rise in the shares. It is important to get rid of that possibility. This Amendment offers a way out by getting an adjudication before the issue is ever made. If that is accepted and the duty paid and done with, the company can then give as much preference as it desires to its own shareholders. It simplifies the whole proceeding and enables the Chancellor to avail himself of the 10 per cent. rake-off perhaps on a more secure basis. He may be able to participate in sin without the consequences which sometimes ensue.
    Mr. Dalton: The last hope held out by the hon. and gallant Gentleman the Member for Holderness (Lieut.-Commander Braithwaite) is, of course, very compelling, and I have no objection in principle to this Amendment, but I see difficulties in practice. I have taken advice on the working of this idea, and I see great practical difficulties. The general idea is reasonable enough—that the companies should be able to ascertain in advance of a bonus issue what the bonus will cost in the way of Stamp Duty. It
    1250
    would be to the advantage of all parties, including the Treasury itself, but it would be very difficult to get an assessment such as it is suggested the Commissioners of Inland Revenue should make. We would have to guess at just this element of the future which the companies find it difficult to guess. The difficulty is to be sure what is going to happen between the actual making of the issue and the consequential movement of security prices. We cannot get over the difficulty and uncertainty by asking the Inland Revenue rather than the company's advisers to make the guess. To give one example, it would be necessary to guess what the cum value of the security would be and also the ex value. I do not think that the Inland Revenue would always guess better than the companies' advisers. I am rather afraid that it is not a practical operation, and I do not feel that the Inland Revenue—and sympathy has been expressed with the burdens upon them already—should be required to attempt to do something which they are not really any more capable of doing than the companies' advisers. For that reason, rather than on any ground of principle, I cannot advise the Committee to accept the Amendment.
    Lieut.-Commander Braithwaite: Would it not be possible for the Treasury and the company's experts and advisers to have consultations on this matter?
    Mr. Dalton: I merely doubt whether the thing is feasible in practice, but I am fully prepared to look at it further. It is no use putting on one's advisers tasks which they cannot, with all their experience, perform effectively. As I have said, I will see if something can be done on those lines, and I say that because I am anxious, if possible, to meet hon. Members on this point, which I consider to be of importance.
    Mr. Assheton: Could I try to explain how the right hon. Gentleman can get over his difficulty? He raises the point that somebody has to guess, and he would rather that the company's officials should do the guessing. The Chancellor is to be the receiver of a large sum of money. If the company is to have to pay that money, surely, it is reasonable that, if there is any question of ambiguity, it should lie on the side of how much the Chancellor is to receive rather than how

    1251
    much the company is to pay. Why not let the Inland Revenue officials have some of the burden? If the company is to pay under these rigorous regulations, it will have to make up its mind how much it will pay. It must be remembered that it will be the company, and not the shareholders, who will pay. But the company wants to know what the tax will be. As I see it, the thing is absolutely in the air at the present time. The company may well be let in for a sum which its resources cannot reasonably bear under all the circumstances. The Chancellor is in the same position as he is in on the death of a millionaire. It comes into the Budget as a coup. The company in the case which we are discussing, wants to know what it will have to pay.
    The Chancellor says that it is difficult, but he is in the fortunate position of owning the Bank of England, and that has all sorts of contacts in the City of London. It has plenty of people, just as has the Treasury, to see what the effect will be. It is a matter for estimation in advance, but the Chancellor knows that somebody has to start the ball rolling. Somebody has to start the deal. The dealer or the jobber makes up his mind where he will try to start the market, and he may be up or down. He may be a little wrong, but it is possible to get some idea of what is going to happen. I suggest that the Inland Revenue should go to that trouble. I am not prepared to say that this Amendment should not be pressed, and I hope that, after what I have said, the Chancellor will accept it.
    Colonel Crosthwaite-Eyre: I think the Chancellor has given away the whole of his case. That is what I was referring to. The Chancellor is invoking this Section of the Stamp Act on which to hinge this procedure. Is there any previous case where liability to assess a duty has been taken away from the Commissioners? It seems to me that if, in their wisdom after 46 years, it has been possible on all these occasions for the Treasury to do it, the procedure should continue. If they cannot do it, they have no right to impose the tax. Surely it is extraordinary that now, for the first time, a tax of this complexity should be imposed on production. I suggest to the Chancellor that if he wishes to put through the machinery of this tax, he must accept the liabilities which go with
    1252
    it and remove from industry a burden he has no right to place on it. It will defeat the efforts to secure expansion of industry and it will tax the confidence of those who are running industry and trying to increase production. The Government will earn no reward for so doing. The Chancellor is not practising what he has been preaching in theory. This must have a grave effect on the national effort which he wishes to commend. But by accepting this Amendment he will do something to promote the expansion of industry.
    1.45 a.m.
    Mr. Birch: The Chancellor is leaving companies to speculate on what they will have to spend on the tax. In so doing, I suggest that he is going against one of the fundamental principles of taxation which has always been observed. It was, I believe, the third canon of Adam Smith that taxation should be certain and not arbitrary. I know of no other example in British taxation, or in taxation in any other country, where there is this uncertainty as to what one may be let in for. It seems to me that this Amendment is wholly reasonable, and that there is no reason why it should cause difficulties to the Treasury.
    Mr. Dalton: I think that perhaps we have not clearly separated in this discussion the two different problems of assessment. I am thinking particularly of the remarks of the hon and gallant Member for New Forest and Christchurch (Colonel Crosthwaite-Eyre). It is the duty of the Commissioners of Inland Revenue to assess the sum of duty to be paid on any transaction. That is an assessment made by the Commissioners of Inland Revenue on all the facts and on any particulars which may affect liability. I accept the fact—and I have never said anything to the contrary—that in this case, as in the others, it is the duty of the Commissioners of Inland Revenue to assess the duty payable. The question is, when do they make the assessment? They assess it after the event. The suggestion here is that they should be invited to assess before the day. To assess after the fact involves no guesswork. Therefore, I am not suggesting anything contrary in this respect to what has been the practice up to now. As things would stand without this Amendment, they would assess after the fact. I repeat that

    1253
    I cannot accept this Amendment as it stands. The Opposition can take it to a Division if they wish; that is their responsibility. If they do so, I shall ask the Committee to reject it. But whatever they do, I will have this matter looked into again, in the light of what has been said to see whether anything can be done to diminish the uncertainty. Much the same arises in the field of what taxes one has to put on the price of goods taxed ad valorem.
    Mr. Brendan Bracken: In fact, the Commissioners of Inland Revenue make many arrangements in advance with firms about taxation. It so happens that many firms in the City consult the Commissioners before they make issues and before they do any financial transaction. Surely, the right hon. Gentleman could accept this Amendment, as commercial firms have been doing for many years what my hon. Friend asks for in this Amendment.
    Mr. Dalton: There is still a difficulty, because the Commissioners of Inland Revenue would be consulted before the definite facts are known. They may give an estimate, but if it varies, then the tax liability also varies. As I understand it, the proposal is to get the tax liability fixed in advance, and it is to that extent difficult. I hoped my statement would contribute to relieving some part of the difficulty. I will look at the matter in the light of the discussion, but I cannot accept the Amendment, because it requires closer consideration and, in any case, the words may not be appropriate.
    Mr. Pitman: May I make one point which may help us to advance in this case? It arises out of the valuation made by the Inland Revenue in regard to Estate Duty on shares not quoted on the Stock Exchange where it is a matter of guesswork which can neither he settled in advance of the facts nor after the facts, because it is an issue of judgment. The point we are trying to make from this side is that the determination of bonuses will depend largely on what the tax is going to be under this head, and it is an absurd business proposition to embark on an as yet unknown factor of anything as big as a 10 per cent. duty on capital. It is on capital and not on income. That is the particular point. If you do not know the amount of tax there will be frenzied
    1254
    movement on the Stock Exchange when the price goes up, because people will calculate what the effect will be of increased duties as it goes up, and bring it down again. It is entirely in the Chancellor's interest, as well as in everybody else's interest, if this tax is to be levied at all, that it should be levied on a pre-determinable and, therefore, controllable factor.
    Mr. Assheton: I think the Chancellor was trying to accommodate this side, and we are grateful to him for doing so. What we have in mind is this: is he prepared to see the risk is taken from the company and put on the Exchequer? We want him to give us that undertaking—to find a way of taking away the risk substantially from the company—and then we shall be very glad to withdraw this Amendment.
    Mr. Dalton: I am not quite sure that the right hon. Gentleman does mean that. I am not quite sure that if I take him at his word, I am not taking advantage of him. Does he really want me to provide that the Commissioners of Inland Revenue should estimate in advance and that estimate should be binding upon a company even if it turns out that the estimate is wrong?
    Mr. Assheton Mr. Assheton indicated assent.
    Mr. Dalton: He does mean that? That is obviously worth considering. If the suggestion is that the Commissioners of Inland Revenue should pre-determine what the charge should be on the basis of certain informed guesses and that that decision shall hold, no matter whether, in fact, the prices conform to expectation or not, that is certainly a proposition which, from the Treasury point of view, is worth looking at; but I do not want the right hon. Gentleman to say what he really does not mean. If that is what he means, and that is the desire of hon. Members behind him, I am quite willing to look into it, because from the Treasury point of view the certainty of revenue is desirable.
    Mr. Assheton: I am quite satisfied with that undertaking. What we want is certainty. If an assessment is too high, then a company will not indulge in bonus issues. The arrangement is that if the figure is too high, companies will not proceed. If the Chancellor is prepared to do that, we will not press the matter now.
    Colonel Crosthwaite-Eyre: I beg to ask leave to withdraw the Amendment.
    Amendment, by leave, withdrawn.
    Motion made, and Question proposed, "That the Clause, as amended, stand part of the Bill."
    Mr. Assheton: I think this is an appropriate moment to try and obtain a sort of Second Reading discussion on the main question of bonus issues. I do not know whether the Chancellor agrees, but it seems to me that a general discussion on this point is desirable.
    Mr. Dalton Mr. Dalton indicated assent.
    Mr. Assheton: Earlier in the discussion yesterday, I think it was, the right hon. Gentleman criticised a series of observations made by my hon. Friend the Member for Louth (Mr. Osborne), and I think he was rather harsh and overdid it. He told the Committee that he felt the suggestion made by the hon. Member—which, after all, was only a suggestion to reduce taxation—was totally irresponsible, lunatic finance. I use that phrase again, and I want to make it clear to the Committee that I believe that this proposition made by the Chancellor in relation to bonus issues is totally irresponsible, lunatic finance. I am sorry that the Chancellor of the Exchequer insists on having these discussions late at night. I am afraid he is not at all willing that they should take place in the light of day. He knows he has a rotten case, and he is going to bulldoze it through the Committee, right or wrong. He does not want the arguments to be known to the country. That is why he has arranged to have discussion late at night: he is afraid of it, and does not appear to have an answer to the problems put.
    One of the remarks made by the Chancellor last night was that by capitalisation without any corresponding change in assets, companies make it appear that they are less prosperous than they really are. I want the Committee to understand the difference between real capital and nominal capital—I do not believe that is really grasped by hon. Members. Nominal capital may be far less or more than the real capital of a company at any one moment of time. The Chancellor of the Exchequer suggested on a previous occasion that bonus issues were always made with a view to making it appear that companies
    1256
    were less prosperous than they really are. He used that as an argument for thinking that bonus issues must be bad. He did not point out the converse side of the argument. There are plenty of companies which are now paying a high rate of dividend. Let us take the example of a bank. The "Big Five" banks are all paying a high nominal rate of dividend, from about 14 per cent. to 16 per cent. But do not let anybody imagine that they are earning that amount on their assets. I do not think any one of the big banks is earning today as much as 4 per cent.; yet the dividend being paid is from 14 to 16 per cent. It is just as unsatisfactory from the public point of view that there should be a discrepancy between the real value and the nominal value: but if arrangements are made by bonus issues to bring them nearer together, then the Chancellor condemns it as a wrong thing to do. He cannot have it both ways.
    2.0 a.m.
    A straight bonus issue means that you hand to the shareholders some more bits of paper, and these represent profits which have been put to reserve in the past and already belong to the shareholders. You may have a share standing at £2, and the company may decide that they will give a bonus issue of one share for every one held by the shareholders. So instead of the capital of the company being, let us say, £1 million, the day after that issue is made it will be £2 million. All that has happened is that each holder who had one share will now have two shares, and the two shares will be worth what the one share was worth before. You cannot distribute more than you have. You merely give an extra piece of paper to each shareholder.
    Why is it that the shareholders like these extra bits of paper being given to them? That is a question which hon. Members opposite may reasonably ask. It is attractive for several reasons. One is that when there are more shares there is a wider market, and the company's shares are more readily marketable. That is of some advantage to the shareholders. Take the case of a company I mentioned whose shares were standing at £2. After the bonus issue is made, the shareholder, instead of having one share of £2, is going to have two shares. What will the value be in the market? He will have two shares, one would assume, at first blush, of 20s. But it may be that, owing to the

    1257
    fact of the bonus issue having been made, and the shares being more marketable—and that it is generally taken as an indication that the company is doing fairly well—these shares would rise to 22s. or 22s. 6d. Then the Chancellor would say, "That is where the bonus comes in; the shareholder is going to have two shares of 22s. 6d., making 45s., and making a bonus of 5s., and I am going to tax him on it." The only possible profit the man has reaped is 5s., but the Chancellor, under this Bill, is going to tax him on 22s. 6d., an extraordinary proceeding, because he is ignoring the fact that the old share, previously worth 40s., has now fallen to 22s. 6d. There is to be no offset for the old share which has fallen to 22s. 6d. How he can justify imposing a tax on 22s. 6d. rather than on the 5s. I really cannot understand.
    The next point I want to make is that it is thoroughly objectionable that this Clause should discourage companies from ploughing back their profits with a view to building up reserves. The Chancellor has told us time and time from the Government Front Bench, "Companies should plough back their profits into their businesses." Why do they plough their profits hack? In order to build up their businesses and one day make bigger profits. But the Chancellor at one time talks about companies ploughing back their profits, and then, on the next available opportunity, he decides to tax the companies on that very act. At that moment it becomes impossible for companies to distribute that money to their shareholders.
    From the Chancellor's point of view, that is a splendid thing to do, for they cannot distribute the money. It is in reserve and it could have been distributed, but from the moment when the bonus issue is made, that money cannot be paid out, because it becomes capital. Then, so the Chancellor says, it is to be subject to tax. To me it does not seem to be a very sensible thing to do. Companies which have been extravagant and have paid out dividends on a more generous scale than was warranted or justified are going to be in a better position than companies which have been careful. The company which is able to raise more money by issuing bonus shares to its shareholders is to be taxed, but the company which has had to go to the
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    market in the ordinary way for its money is going to escape. What a commentary on prudence and sound management.
    The next point I wish to emphasise is that the companies and the shareholders are not the same thing. The individual shareholder and the companies are totally different things. In this case it is the individual shareholder who gets any advantage from the company's issue, if there is one; but the Chancellor proposes to tax the company which does not get any benefit, and not the shareholder, who does. It is a most extraordinary proposition. I pointed out the errors from the arithmetical point of view, and I want the Chancellor to answer that, and also to tell me why he taxes the company when it is doing something good instead of when it is doing something naughty. I also ask him once again to do his best to accept an Amendment which will, at any rate, give some certainty. We have had a discussion on that point, and I think the Chancellor has been impressed with the need for it.
    Finally, if bonus shares are so wicked, why does he not stop them altogether? What is the good of saying, "They are wicked things, but I am going to let them go on and tax them at 10 per cent."? If they are as wrong as all that, put an end to them. If they are right, let them go on and let them be encouraged. We all know, as a matter of fact, what is the real reason behind the Chancellor's proposals. It is that he is trying to create prejudice. I said that on a previous occasion, and I say it again. He wants to see companies with a small nominal capital declaring a very high dividend so that he and his friends can draw the false conclusion that an unreasonable rate of profit is being earned. The hon. Member for Moscow—[HON. MEMBERS: "Order."]—the hon. Member for West Fife (Mr. Gallacher) has been cheering the Chancellor all the evening, to the right hon. Gentleman's embarrassment. When I made this suggestion just now and the Chancellor was saying "No," and nodding his head, his hon. Friend behind him, so much better informed, was saying "Hear, hear."
    Lieut.-Commander Braithwaite: He had the wrong instructions.
    Mr. Assheton: He knows what the real purpose is. He knows why it is such good

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    politics from the Left Wing point of view. They are quite prepared to bring forward legislation purely from the point of view of prejudice, and to mislead the public. Some hon. Members opposite know it perfectly well. I believe some of them do not know why it is being done, and that it is being done to mislead the public, and to create prejudice. I hope they will study the matter. We think that this is irresponsible and lunatic finance, and we shall vote against the Clause.
    Sir J. Mellor: The Chancellor of the Exchequer is very inconsistent in this Bill. In the case of the Profits Tax on distributed profits, he has gone out of his way to encourage the ploughing back of profits into business instead of their being distributed to the shareholders. As my right hon. Friend the Member for the City of London (Mr. Assheton) has shown, in this case he has taken exactly the opposite tack, because, in taxing bonus shares, he has gone a long way to discourage the capitalisation of reserves, and is taking a straight course in discouraging the ploughing back of profits into business. My right hon. Friend has shown very clearly how, if bonus issues are made through the capitalisation of reserves, it ensures what can be ensured in no other way—that accumulated profits are retained in business. It seems to me an extraordinary thing that in one Bill the Chancellor of the Exchequer should adopt two such inconsistent courses, and I hope that when he comes to reply, he will try to reconcile, if he can, these two courses.
    Mr. Ernest Davies: I do not think the right hon. Gentleman the Member for the City of London (Mr. Assheton), in the arguments that he produced, justified at all the necessity for the creation of bonus shares. The first argument he used—in what was, in my view, rather a W.E.A. lecture tonight—was that the issuing of bonus shares created a wider market in the shares for the sake of the shareholders. There are other ways, as he knows well, in which wider markets for shares can be created, without the issuing of bonus shares. Most companies today have their equity capital quoted as stock, and it is quoted in the form of units. If for instance £1 shares be quoted at such a high price that they do not enjoy a free market they can be quoted
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    as stock, and split into one shilling units or even smaller ones.
    The second argument he used was that it discouraged the ploughing back of profits. I cannot quite see the argument there from the shareholder's point of view. Why should the fact that bonus shares are likely to be issued, or are to be forbidden, or taxed, discourage the ploughing back of profits? The shareholder is no better and no worse off whether bonus shares are issued or not. The right hon. Gentleman argued that the price of the shares falls after a bonus issue, and so one could argue that that discourages the ploughing back of the profits. The prices quoted on the Stock Exchange in any case reflect the profits ploughed back, so the shareholder benefits whether a bonus is distributed or not. Because the effective capital of, the company is not changed at all by the issuing of bonus shares. Whether the profit is ploughed back and held in reserves or turned into nominal capital through bonus shares makes no difference whatever to the operation of the company or to the shareholders. Therefore, on the arguments which the right hon. Gentleman posed, I cannot see that he made out any case whatsoever for the issuing of bonus shares.
    2.15 a.m.
    Mr. Assheton: I was addressing myself to the question whether or not bonus share issues should be taxed. I was not merely seeking to make a case whether there should be bonus issues or not. If the Chancellor of the Exchequer thinks that there should not be bonus issues at all, he had better stop them.
    Mr. Davies: The right hon. Gentleman was arguing in favour of bonus shares. I was attempting to answer his argument as regards that point. On his final point regarding the possible deception of the public by the Chancellor's taxation or bonus shares, we on this side of the Committee, as the right hon. Gentleman knows, argue precisely in the opposite direction. We are arguing continuously that one of the main objects of the issuing of bonus issues is to deceive persons employed in the industry and the public as a whole. I remember the time when evidence was being given before the Sankey Commission, and when figures were produced with regard to colliery companies where bonuses had been issued. Before the Sankey Commission, the colliery owners

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    argued that their dividends were so much, and, therefore, were low in comparison with their capital. There was another witness who produced figures to show what bonus had been issued by these colliery companies. There was a case where the colliery owners were deceiving the public intentionally, having done so by the issue of bonus shares.
    Mr. Assheton: I am sorry, but they could not issue bonus shares unless the money had been put to reserve before and the capital increased.
    Mr. Davies: Of course, they could not, but they were claiming before the Commission that they were only paying dividends of for example, five per cent., and that they could not afford to give better working conditions to the miners, and could not afford to reduce the price of coal, whereas, in fact, the earnings on their subscribed capital were many times higher than five per cent.
    Sir J. Mellor: When issued share capital is brought into close relationship with real capital employed in a business, does the hon. Member consider that is deception?
    Mr. Davies: No, not when reserves are ploughed back into a company and they are converted into capital; but there is a very large number of companies, as we know—Marks and Spencer's, Imperial Tobacco Company and Carreras—which are continuously issuing bonus shares. Those are the companies which have made what are considered to be excessive profits. It is only because they have been able to make excessive profits that they have been able to plough them back and convert them into bonus shares. That is one of the main arguments which can be used for taxing bonus sharps. I am content that the Chancellor of the Exchequer is right in introducing this tax.
    Mr. Pitman: I do not know to what extent it is possible to deal with the hon. Member's speech. It shows an abysmal ignorance of the true situation. There are many companies in this country which have started off with a purely nominal capital and many have financed their expansion from some other source than share capital. The amount of real capital employed in a company very often bears ultimately no relation whatever to the original subscription of
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    capital. Supposing it starts with £100 capital and ploughs back the 5 per cent. dividend which it could pay, but does not, and it does that for 20 years, it has doubled its capital. The assets employed in the company are doubled and the dividend, even if it is at the rate of 10 per cent., is nothing more than 5 per cent. of the real capital employed in that business.
    However, the real point we are discussing at the moment is surely the general principle of this particular Clause of this Bill. This kink—this puerile kink—in the Chancellor's mind about bonus issues is one of treble history. He cannot have it both ways. He was Professor of Commerce at the London School of Economics, and this was the subject which he professed, and either he knows that he is extremely puerile and stupid on this issue, or there is on this issue, as the right hon. Member for the City of London (Mr. Assheton) pointed out, smoke clouds of prejudice and absolute nonsense. Let me give the history of this kink. First, we have the question of refund on the E.P.I. The Chancellor's avowed purpose was that the E.P.T. money paid back by the Inland Revenue to the company should be retained in the business. The whole purpose of moving some amount from a distributable balance in your balance sheet and putting it higher up on the liability side into the capital structure of the company is in order that you can in no circumstance distribute it without going to the court. It is a most difficult thing to distribute that money once you have turned it into capital. Here we have the Chancellor of the Exchequer putting a provision into the Finance Bill that companies may not build the refund into the capital structure which shows clearly that he completely misconceives the whole story. The next thing we had was the Borrowing Bill in which a bonus issue was included on the ground that it was a form of borrowing. Yet tonight we are discussing a Bill which treats bonus issues as distribution. Really, the extent to which the Chancellor has shifted his ground and changed his story is astonishing. Finally, we get this Bill tonight which is seeking to tax bonus issues as a distribution. In fact it is the recognition of past capitalisation out of profits.
    The Chancellor knows quite well that I have challenged him on three separate

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    occasions, by letter to him, to produce any instance, real or hypothetical, in which a bonus issue has been used to evade Surtax liability and he has not produced a single instance. Where the public are so stupid as to think they have been deceived, there has been no deception, because the real capital employed has been increased. It can hardly be deception, where the capital employed in the business is so much greater than the issued capital, to bring the latter more into line with the former and to make that amount of the employed capital no longer distributable as dividends. If it were true that people are deceived, I can only say they could have been more deceived by the company's chairman declaring a dividend per share against which there is nothing to prevent. One can declare a dividend, and one does not have to say on what sum it is declared, and one can call it what one likes. The fact is that it does not deceive them, or if it does, the trade union leaders, and the public generally, are more stupid than can possibly be conceived.
    There are two arguments, and neither of them holds water. The first is that it is an alleged evasion of Surtax. The second is that it is a deception. Both can be shot through. There remains only this one last point that it is good electioneering politics, because the average man in the street does not understand what a bonus issue is. A bonus, to the man in the street, means something rather fat and nice. He does not understand that it is a piece of paper which means that profits cannot be distributed as dividend. The formulation of bonus issues is a socially desirable thing in itself, because the only thing which that bonus does is to fossilise into the capital structure of the company that which otherwise could have been distributed. The Chancellor says he wants the companies to keep their assets and not distribute them in higher dividends. Yet that is the very thing which, in this proposal, he is proposing to tax.
    Mr. Jay: The hon. Member for Bath (Mr. Pitman) knows a great deal about this subject, but he is rather free in his allegations that nobody on this side of the Committee really understands the facts. He keeps inviting us to quote a single case in which a bonus share issue
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    was used to evade Surtax. I have twice cited the British Electric Traction Company. I spoke at length on that very point during the Second Reading, and this was an occasion where a bonus share issue was used in both the ways to which the hon. Gentleman has referred.
    Mr. Eccles Mr. Eccles rose—
    Mr. Pitman Mr. Pitman rose—
    An Hon. Member: One at a time.
    Mr. Jay: I explained that successive bonus issues were made by the British Electric Traction Company, and it is true that part of the object of that operation was to enable larger distributions to be made than the workpeople and the public will have been willing to accept. The dividend today on the inflated capital is 45 per cent., and it would have been necessary to pay a dividend of 300 per cent. on the original capital if no bonus issues had been made. This was deceiving the public.
    Mr. Drayson: Will not the hon. Member agree that it would be better for the company to plough their money back into the business and provide a better transport system, and has not that money ploughed back resulted in a better standard than previously?
    2.30 a.m.
    Mr. Jay: I notice that when facts are provided on this subject it always provokes hon. Members on the opposite side of the Committee. I want to make three modest points on this subject. The first is that I do not think that we can accept the logic of a dilemma which the hon. Member for the City of London (Mr. Assheton) put before us. We do not follow out his suggestion in regard to beer, whisky, or other things. He says that either the tax is sinful, and ought to be stopped; or else it is innocent, and ought not to be stopped. But that is not an argument we apply to beer, whisky or tobacco. So I do not think that argument holds water. There is quite as good a case for the taxation of bonus issues as there is for the taxation of smoking. Secondly, we on this side of the Committee contend that there is no validity in the argument that since profits are being ploughed back into industry and capitalised the whole operation is, therefore, perfectly legitimate. We contend

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    that in many cases these profits are excessive, and should not have been made. We contend also that in many cases the possibility of the issue of bonus shares is an encouragement to the earning of excessive profits. I suggest that the case of the British Electric Traction is an obvious instance of this. The profits earned were excessive because the fares charged were too high, the wages paid were too low, and the company was in a monopoly position. The fact that it was able to make bonus share issues, and to conceal the size of its dividends enabled and encouraged it to maintain high fares and to go on paying low wages. Therefore, it is no answer to the case to set forth the argument that it was always right to plough back profits and to capitalise reserves. It all depends on whether the profit should have been earned in the first place.
    Mr. Bracken: The hon. Member has given a long disquisition on the British Electric Traction. Who are the people who complained about the fares? Did the British Electric Traction actually operate buses, trains and tubes everywhere? Will he give the complaints made about the charges made by British Electric Traction?
    Mr. Jay: The right hon. Member is putting into my mouth something which I did not say. I said that the fares were too high. They could have been lower without any damage to the company. By maintenance of excessively high fares, excessive profits were made.
    Mr. Bracken: Will the hon. Member answer my question? The British Electric Traction did not charge fares. It is a holding company. What is the story about their charging fares which were too high?
    Mr. Jay: The hon. Member knows perfectly well that it is a holding company in a number of operating bus companies. Even at this time of the night it is surely obvious to the hon. Gentleman that I was talking about the fares charged by the operating companies.
    My final point is this. As I have argued earlier, on broad justification of this tax is, that in the majority of cases capital profits are made by shareholders as a result of bonus issues. It has been argued that a bonus issue is a theoretical
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    and purely mathematical transaction: that, for instance, for 100 £1 shares in a company another 100 £1 shares are given. Theoretically that meant that the shares fell in value to 10s. and, it was argued, the shareholders would be no better off than they were before the bonus issue. Although this might be true theoretically, it does not work out in that way in practice in the great majority of cases. In the great majority of cases, capital profits are made.
    In an earlier Debate I quoted some cases both before the war and since. I have looked up other cases since. I will take one before the war, the well-known case of Woolworth's. They made a 100 per cent. bonus share issue in 1936. Those who held £100 worth of shares before the operation found those shares worth £818; and if they still held the increased number of shares, after the operation, they were worth £875. Without doing anything about it, they made £57 a 6 per cent. profit. That seems to me to be "money for jam." The Chancellor of the Exchequer used the phrase in the original Debate and it was called in question. I would have said that was "money for jam."—[Interruption.] If I may be allowed to go on, I have also looked at all bonus share issues made since the autumn of last year and I have calculated in all these cases what was the market value of a certain block of shares at the beginning of operations and what was the market value of the corresponding shares which the shareholders would hold at the end. I have deducted from that the amount of new money put up through the operations and computed whether capital profit was made or not on them in the period. The result was that out of 20 issues made in that period, 16 show a capital profit, which varies up to 55 per cent. I think the fact that capital profit is shown in 16 out of 20 cases does substantiate the argument that, in fact, capital profits are made by these operations. It may interest the Committee to know that the average profit in all cases over the period was 18.7 per cent.
    Mr. Stanley: Does that profit ensue immediately after the bonus issue? It is not profit that accrued between today and the time the issue was made; it might have depended on the course of the market?
    Mr. Jay: I have taken the profit from the time before issue up to today. It may interest the right hon. Gentleman to know that the profit shown over the same period by the same ordinary share index was 7 per cent. It is difficult to make this computation; and one has to take some period. I do, however, contend that these figures show that capital profits are in fact normally made, and that this does constitute a broad justification for the tax.
    Mr. Pitman: The hon. Member purports to show that he has answered the challenge I made. I would like to ask two questions. In the first place, my challenge was that there was a certain tax evasion by reason of bonus issues. Is it not the fact, taking Woolworth's as a case in point, that the shareholders could have realised their holdings and so got exactly the same profits? Is it not clear that the issue about Surtax arises only because of the accumulation of past profits leading to a capital appreciation of shares before bonus issues? On the question of deception, is it not equally true that, if the declaration of dividend had been made on shares, they would have had exactly the same quotation, and in point of fact it bas deceived no one?
    Mr. Jay: In the first place, I did not cite the case of Woolworth's, but of the British Electric Traction Co. My contention is that since that company was not willing, in face of public opinion, to raise its nominal dividend, it would not have been possible for it to raise the value of shares by the alternative method of raising the dividends.
    Mr. Norman Bower: It seems to me that what the hon. Member for North Battersea (Mr. Jay) has been saying shows conclusively that this tax on bonus issues is being levied on an entirely wrong mathematical basis. I did give an answer to him in discussion on the Budget Resolutions on the Report stage, but it was completely ignored by the Chancellor. I would like to put it to the right hon. Gentleman again now, because, in the meantime, it has been submitted to him in a memorandum signed by the Association of British Chambers of Commerce and the Federation of British Industries. This example shows quite clearly that there are cases in which the individual shareholder—as the hon.
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    Member for North Battersea has said—may make a profit immediately after an issue of bonus shares. In that case, the profit which he makes if he sells his shares is quite easily ascertainable and discoverable, and taxes should be levied not on the company, but on the individual shareholder. On the basis on which the tax is being levied, no account is being taken of the fall in value of old shares, which greatly reduces the profit which the private individual shareholder makes. The whole thing is being treated as if he was making a profit between what was paid for the new shares, and the price at which the shares stand after the issue, whereas, in fact, he is not making that profit at all, if allowance is being made for the fall in value of the shares he has previously held.
    I would ask the Chancellor carefully to examine the example I have given before. It is in the statement of the organisations I have mentioned, and it does show that the whole mathematical basis of the tax is wrong, and that much too much is being charged. It we are going to have a tax of this kind at all—and I do not admit that it is a good tax—surely, the Chancellor will admit that the only right and fair thing to do is to tax the profit which is actually being made—something actually in existence, and not some kind of mythical profit which does not exist at all. What he is doing is to tax a company deriving no benefit whatever from these issues, and leaving the individual shareholder, who may be making a definitely ascertainable profit, untaxed. At the same time, the tax he is levying on the company bears no relation to the profit being made by the individual shareholder.
    2.45 a.m.
    It was said by the hon. Member for North Battersea that the British Electric Traction Company shareholders made a capital profit of about 1000 per cent. That only goes to show where the actual profit lies, if there is any—namely, with the individual shareholder and not with the company. He also talked about excessive profit, and said that in some cases the profits of these companies were excessive. It may be that in some cases they are, but in other cases they are not. If it could be shown that profits in some cases really were excessive there might be a case for imposing a tax on a bonus issue which ought not to have been

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    possible; but in this case bonus issues are being taxed in the case of all companies, whether their profits are perfectly legitimate or not. Even if profits are excessive in some cases, it is surely better that they should, in present circumstances, be ploughed back in the form of bonus issues rather than distributed in the form of dividends.
    It is clear to me that the real object of this tax on the bonus issue is simply to perpetuate a deception which now exists, and to make it, while technically and ostensibly possible, virtually and practically impossible to present a true picture as regards a company's real and nominal capital and the dividends being paid on it. There are very few companies indeed, if any, which would be willing to make a bonus issue on these terms, of having to pay some completely undiscoverable amount which they cannot possibly find out before the issue has been made. When I asked some time ago why the Imperial Tobacco Company had not been allowed to make a bonus issue, the Chancellor said that to allow them to do so would have meant that they would have been able to pay a smaller dividend on a larger capital and, therefore, it might have deceived the public. Well, the deception is of course entirely the other way round. That answer might be perfectly clear if he is anxious to perpetuate the present deception, because it is politically advantageous for him to do so. I submit that this is a thoroughly bad tax, an irresponsible tax, from every point of view. I go further, and say that it is a malicious and vindictive tax which is put on for one reason only, to make it practically impossible to do something which the Chancellor professes to make possible.
    Mr. Gallacher: I would support any measures to prevent bonus issues being made. The right hon. Gentleman who spoke first said that bonus issues were the outcome and consequence of money ploughed back, and that the Chancellor after advising companies to plough money back was taxing them on the consequences of doing so. He also said that money was ploughed back into industry in order to make more profit. That is a rake's progress. There is no question about it. The mining industry is the classic example of money ploughed back to make more profit, until the stage is reached when the industry is sucked completely dry. Where
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    do the profits come from? The right hon. Gentleman asked a question about the fares that were charged. That is not the question which he should have asked. What he should have asked was, what wages are being paid and what hours are being worked? That is where the profits come from. There is no possibility of profit unless from the labour engaged in the industry.
    The Chancellor has talked about money being ploughed back. He is not suggesting that it should be ploughed back in order to take more profits out of industry and make bigger profits. The Chancellor has suggested that the money should be ploughed back where the profits are excessive because too much has been taken from the workers, and that the profits so ploughed back should be used to give the workers in such a firm more wages and better conditions. Did hon. Members opposite ever think of that? It never entered the mind of even one of them for a moment that the ploughing back should have any relation whatever to the workers engaged in the industry who make the profits.
    I could take hon. Members to industry after industry in this country where they would find slum conditions. They would see for themselves the awful conditions under which some workers have to carry on with their jobs. The lavatory accommodation would turn one's stomach if one had to use it. Let hon. Members opposite go and see the conditions that are provided in many of the industries for supplying the workers with meals. Where is there any of the big industries, except an odd one here or there, which provides the workers with any sports amenities or building a clubhouse for them?
    The Deputy-Chairman: The hon. Member is wandering from the Clause.
    Mr. Gallacher: I am talking about ploughing back the profits. Hon. Members opposite want to plough back the profits into industry in order to get more profits. I should like to ask hon. Gentlemen opposite, and particularly the hon. Gentleman who has connections with banking business, how long can this process of ploughing back the profits go on? Are they to be ploughed back until the whole business collapses? That is the characteristic contradiction which arises from the whole method of capitalism. A

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    state is reached when the accumulation is so great that nothing can be done with the accumulated capital and the industry is shut clown. It was not for lack of capital that many industries closed down in this country between the two wars. It was because the accumulations had been going on to such an extent that the capital could not be used. Many of these industries only opened when the war started.
    My argument is that when the Chancellor is talking about ploughing profits back into industry he is saying that the profits should go back to where they belong and provide better wages and conditions in the industry for the workers, and that there is no question whatever of ploughing hack the profits in order to get bigger profits, as is suggested by hon. Gentlemen opposite. I hope the Chancellor of the Exchequer will insist on this tax and, if possible, put an end to bonus shares altogether.
    Mr. H. Strauss: I should very much like—[Interruption.] I was attending a dinner of a learned society tonight.
    Mr. Gallacher: How did the hon. and learned Member get in?
    Mr. Strauss: In common with most Members of the Committee I rather wondered what was the intellectual basis of these proposals of the Chancellor of the Exchequer. Now that we have listened to the hon. Member for West Fife (Mr. Gallacher), we know what is, in fact, the intellectual basis for the Chancellor's proposals. It may be, indeed, that the hon. Member for West Fife, who put his points, as he generally does, with great clarity, in fact drafted these proposals in the Budget. He stated that he fully supported the Chancellor of the Exchequer. It will be very interesting to know whether the Chancellor of the Exchequer fully accepts his arguments.
    The hon. Member for North Battersea (Mr. Jay) performed a service to the Committee by making clear what, I think, is the only point of substance that has been put forward in connection with these proposals. I do not think it supports them, but, at any rate, it expresses a point of view. That point of view is that a great many profits are much too big; that a great many companies are making profits that, in the public interest, they
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    ought not to make. Whether or not it would be in Order to discuss that on this Clause I do not know. But the one thing that is quite certain is, that the possibility of making these excessive profits will be in no way affected by the Chancellor's present proposals which we are discussing. However excessive those profits may be, there is nothing in the Chancellor's present proposals which will stop them from being made. The only effect, if bonus issues are stopped or discouraged, will be that those profits must be distributed in cash, and must not be put back as capital into the business. Does the Chancellor think that a desirable result? Does he think that profits and profitable companies are, in themselves, undesirable? Does he wish by these, proposals to discourage the making of profits? Quite obviously, I think, the two hon. Members who have spoken from the back benches opposite, apart from the hon. Member for West Fife, do wish to discourage the making of these big profits. I want to know whether the right hon. Gentleman the Chancellor of the Exchequer is putting forward these proposals in order to discourage the making of profits by public companies. That is the first point.
    If his answer for any reason is that that is not his object, then my second question to him is, Why does he want to compel the distribution of these profits in cash and not to see them capitalised? Because the effect, of course, of discouraging the bonus issue is that, even if the profits are placed to reserve, those reserves remain legally distributable in cash at any moment. I do not know whether that is what the Chancellor desires. I should like to say, because I appreciated the speech of the hon. Member for West Fife, that I cannot help thinking he is a little out of date as regards the policy of his own party; because he seemed to think that there was something terribly wrong about profits and the profit motive; whereas, if he had attended to the lessons of Comrade Horner, he would have known that the profit motive is all right provided it is called "financial incentive."
    The hon. Member for North Battersea referred to the British Electric Traction Company, and suggested that somehow it made an avoidance of Surtax possible. When the "Economist"— a paper that he will agree is of some intellectual re-

    1273
    pute—made a similar charge and was challenged by the hon. Member for Chippenham (Mr. Eccles), the "Economist" unreservedly withdrew, and said it had made a mistake. It is, of course, the fact, as has been pointed out by several hon. Members, that without any issue of bonus shares the same result can be brought about by the sale of the old shares.
    3.0 a.m.
    Mr. Jay: The "Economist" assumed that it would have been open to the company, if no bonus issue had been made, to raise its dividend and so present a capital profit to the shareholders by the resulting rise in shares. I say that would not have been possible because the company was not willing, in face of public opinion, to raise the dividend. Therefore, there was an evasion of Surtax.
    Mr. Strauss: If the hon. Member thinks that is a good answer I am rather surprised that he did not make that reply to the "Economist," but I have little doubt what their answer would have been. But I appreciate the point such as it is. The hon. Member thinks that in the event of bonus issues being discouraged companies will hesitate to raise their dividends. I think that is an illusion. I think they can easily adopt the suggestion made by the hon. Member for Bath (Mr. Pitman) of simply declaring a dividend of so much per share.
    As I said, I can appreciate the argument that you should stop the profits of public companies or discourage them. I very much want the Chancellor of the Exchequer to say whether he adopts that argument. I now come to the perfectly simple point that I mentioned on previous occasions and which I repeat now. Let me give an example of a company whose method of finance and whose contribution to the prosperity of this country are, I think, generally admitted. That is the case of Courtaulds. Courtaulds have built up and financed their advance almost continuously by this process of bonus shares, sometimes by what the right hon. Gentleman called pure bonus and sometimes, perhaps more usually, by issuing shares with what the right hon. Gentleman called a bonus element. I would not deny that an alternative method might have been possible, by which they could have financed their advance, but what I want to know from the right hon. Gentle-
    1274
    man is whether he thinks that their method was a bad thing, and whether he really wishes by his Budget proposals to bring it about that no company in future shall ever succeed and finance itself in the way that Courtaulds have over a very long period of years. Does he think there is something wrong about it and want to stop it? I believe that there is nothing to be said for the present proposals that provides any justification which is not intellectually and academically disreputable. I do not myself necessarily agree with the suggestion of the right hon. Member for the City of London (Mr. Assheton) that the Chancellor of the Exchequer has put them forward with the deliberate object of creating prejudice. I think, having heard some of his back benchers, that he might have acted as he has, because he despaired of ever persuading them of the truth and thought they were incapable of understanding it and gave up the struggle. That is a possible alternative explanation.
    In the absence of some explanation the thing simply is incomprehensible. The criticisms that have been advanced by every economist of note were, I should have thought, such that, if the right hon. Gentleman retained any regard for his academic reputation, they would have worried him, and I hope that tonight he is going to give us some explanation of these rather ridiculous proposals. Does he adopt the principle of his back benchers, that the object is to discourage the making of profits by public companies? If he does not adopt that principle, does he adopt the alternative that these profits, if made, must be distributed only in cash and must not be capitalised as reserves, and, if he does not adopt either of these theories, what is the principle on which he bases his proposals?
    Mr. Dalton: After this interesting Debate it may be useful for me to restate the position. I cannot promise that it will be much more than a restatement of the case. Several hon. Members have suggested that we ought to put this tax not upon the company but upon the shareholders individually, and they have coupled with the suggestion that the thing should be assessed on the individual shareholder, not, as the Bill proposes on the basis of the actual bonus share issue, but on the basis of the difference between the value of the old plus the new. On the

    1275
    first point there is very great inconvenience in collection from a very large number of individual shareholders. Evidently if you are going to levy a tax in an economical and labour-saving fashion you should levy this upon the company. Many of these companies have very large numbers of shareholders, and to go about collecting this in addition to Income Tax and other taxes from a very large number of shareholders would be very bad administratively. That is the short answer to that point.
    If it is admitted—and I know there are differences on this—that this is a suitable taxable object at all, the administratively efficient way to collect it is through the company. As to whether the tax itself should be assessed as we propose to assess it here or as the hon. Gentleman proposes to assess it, I should be prepared to argue against some views expressed on the opposite side, even on the basis that we should get a smaller amount—unless we put the tax up to an absurdly high figure—on a relatively narrow basis of assessment. If the object is to put a tax on this operation and to get a reasonable revenue from it, then I suggest that the way to do it is as proposed in the Bill and not in the manner proposed by the hon. Gentlemen opposite. I think there is some slight confusion. I have often spoken well of Courtaulds. I am always prepared to do so. It is a remarkable firm. If all other firms in this country had shown the same genius, public spirit, and enterprise as Courtaulds have shown, this would be a better country. But they have not financed themselves by making pure bonus issues.
    Mr. H. Strauss: I think the right hon. Gentleman will find that I said sometimes pure bonus issues and more often issues with a bonus element, but in either case bonus issues for the purposes of the right hon. Gentleman's own Clause.
    Mr. Dalton: The point I am making is that it is a confusion of language to say that a firm is financing itself. Let us take the case of the pure bonus issue. In that case a firm is not financing itself. That is a misuse of the word "finance." It has certain sums of money in reserve. By "financing itself," I understand one to mean that it is collecting fresh money from outside which previously it had not
    1276
    got in its reserves or elsewhere. I suggest that it is a misuse of the word and that we get the whole thing into the wrong perspective if we talk of firms "financing themselves" in this way. What I am saying is that a company, when "financing itself," needs new money from outside in the ordinary form of a new issue, with no element of a bonus issue.
    Mr. H. Strauss: The right hon. Gentleman wants to deal with the point of substance, and not to dispute about words. The effect of what has been done is to render money, hitherto distributable in cash, not distributable in cash. I do not think it is a misnomer to say that that is financing the business. But my specific question is this. Does the Chancellor think that that method of procedure is undesirable, and does he wish to stop it for the future?
    Mr. Dalton: I say that these modes of distributing some part of capitalised reserves do not give the company any new reserves whatever. It had the reserves before, and it uses them in a certain way. It is a misuse of the word "financing."
    Mr. Pitman: No.
    Mr. Dalton: Well, I think that it is. Perhaps the hon. Member uses the word differently, but if he has a sum of money in his possession and uses it in a certain way, that is all right. But this does not finance development. I have satisfied myself that there is a misunderstanding in what we have been saying. Never did a bonus issue promote the efficiency of the company making it, nor did it further the economic welfare of the community. It is an entirely unnecessary financial operation, and anything unnecessary is a reasonable object for taxation. Just as with smoking, we are not required to say we ought to stop anything because it is wicked, or innocent, because, if one takes that view, we should not get any taxation at all. It cannot be said that anything in our field of taxation is wicked or innocent, but these things have certain characteristics which enable us to put taxes properly upon them. Bonus issues are one of those things, and when allowed to go through by the Capital Issues Committee, they are a suitable object for taxation. It will enable me not to press so hard on some other form of taxation.
    Mr. Pitman: The hon. Gentleman will not get it.
    Mr. Dalton: If I do not get it I think that will prove that these things are totally unnecessary. It will make these about to make these issues realise that they are totally unnecessary.
    Mr. H. Strauss: Even if they are unnecessary, that would not prove that they are undesirable.
    Mr. Dalton: I am resting my argument, first of all, on whether or not they are unnecessary. It will make those about to that bonus issues had had the effect, quite frequently, of misleading the public as to the rate of profitability of an enterprise. To take a simple illustration, it is clear that if you double one bonus share for every share previously held, and increase your capital, you get a sum of money distributed as interest which would not previously have been shown.
    3.15 a.m.
    Mr. Assheton: The right hon. Gentleman must look at the converse of that proposition. He has not answered the point at all. If it is deceiving the public if the dividend is reduced and gives an impression of lower profits, is it not also misleading if a dividend of 15 per cent. is paid and only 5 per cent. is put into the business?
    Mr. Dalton: I would not agree with that. What we are considering is what happens when substantial bonus issues are made. The immediate effect is to inflate the nominal capital, without at the same time improving the machinery of the company or increasing its efficiency, or bringing into its employment more salesmen. It is, in the first instance, a pure manipulation—though I do not use this word in any derogatory sense. The consequence is that you are able to present to the public, many of whom are not very deep students of these matters, a state of affairs in which your rate of dividend has been deliberately reduced, as a result of increasing your nominal capital. You are not only deceiving the public at large—and I do not suggest that this is done deliberately—but you are so acting that the public is liable to draw a false conclusion, though you have so acted possibly without realising what the consequence of your action may be. That reacts both on price policy and on discussions about wages and conditions. It is possible for you to say that only a
    1278
    miserable 3, 4 or 5 per cent. was paid last year; how can you be asked to reduce your prices even though you have a certain monopoly position and might, therefore, be expected to be in a position to do so.
    With regard to wage negotiations, many of us have had experience of the way the arguments are put from the two sides of the table, and know that employers say how could they be asked to reduce a profit which was very low. That argument was naturally used and created a situation in which the dice were loaded—I am not saying on purpose—against the public, the consumers, who were reasonably hoping and asking for cheaper and better service, and against the workers in the industry who were asking for better conditions.
    Mr. Drayson: The only figure that really matters is the profit of the company, and whether it is distributed at 5 per cent. or at 10 per cent. on a smaller capital has nothing to do with the case. It is the profit it makes and whether it is increased by these bonus shares.
    Mr. Dalton: The hon. Gentleman is agreeing with me up to a point. I do agree that what really matters is the profit the company makes, but in debates which may arise in the Press and elsewhere questions will be asked about the capacity of the company to review prices or pay back in wages. Attention is not exclusively focused on what we agree is the important point, it is also focused on what dividend the company declares.
    Commander Galbraith: When he says the profit the company makes, could the right hon. Gentleman say on what—on the nominal capital or on the actual capital employed, because the two are quite different?
    Mr. Dalton: I mean the total sum of money which is possessed by the company at the end of a period.
    Commander Galbraith: On what.
    Mr. Dalton: I am agreeing with the hon. Member for Skipton (Mr. Drayson) that the capitalisation is not really relevant. What matters is the total sum of money made as profit, and, therefore, I would say to the right hon. Gentleman on the Front Bench, it does not matter for purposes of this kind.
    Commander Galbraith: It matters completely.
    Mr. Drayson: I said the profit made had to be related to the total capital employed in the company, whether actual capital or actual capital. The public must compare the two figures they are appropriate.
    Mr. Dalton: With great respect, the hon. Gentleman did not say that at all. I agree with what he said at the beginning. The Opposition encourage one to make a case on one particular argument and then they produce another one. This practice of making bonus shares is apt to mislead the public; that is why I am very suspicious of it in that light.
    Mr. Bracken: May we have an instance of what the right hon. Gentleman means?
    Mr. Dalton: There is no need to give instances at all. I do think I have made it clear. What I complain about is that if with a given total profit, a company increases the nominal capital by the issue of a number of bits of paper to shareholders, it can thereby make it appear that the rate of dividend was less than issued. Chen one creates an illusive element in the minds of the public. And if that is not clear I cannot make it any clearer.
    Mr. Assheton: I have tried to make the Chancellor look at the converse of this problem but he refuses to do it. He says it is apt to mislead the public if bonus shares are allowed because it results in a dividend lower than it would otherwise be and false conclusions as to the prosperity of the company can be drawn from that. Is it not just as apt to mislead the public if bonus shares are not allowed? Is that not just as likely to create an illusive element in the public mind as to the prosperity of a company? If that proposition is not correct, in what respect do I err?
    Mr. Dalton: I do not think there is an exact symmetry here. In the case of bonus issues we are only seeking to tax bonus shares, because in this case you get a deliberate re-arrangement of capital. If it is not now clear, I have no hope that I can make it clearer. I have heard it said tonight that this tax on bonus shares, very moderate though it is, is going to have the result in some fashion or another of checking improvement of a
    1280
    company's equipment, and so on, through checking, as it is said, capitalisation of reserves. I do not accept that view. You can perfectly well instal improved machinery without making bonus issues: there is no connection between the two things, and a great number of companies have done it for a long time past. Supposing you invest your resources in improved plant and more up-to-date machinery, there is no need whatever for bonus issues. Take the cotton industry—I am not making a joke—I would much prefer to find companies in the cotton industry with up-to-date plant. Surely, it would be much better to have a firm in the cotton industry that had spent money on getting good, up-to-date plant, rather than putting a lot of money into reserve and distributing bonuses to shareholders?
    In the last resort, all this monetary discussion is completely secondary. I entirely reject the suggestion that if companies are not allowed to go through this particular operation they are unable to capitalise reserves or make use of them. It is an operation which is totally unnecessary, and often harmful. There may be exceptional cases in which a case of sorts could be made, but I am astonished that there should be such strong opposition from the other side of the Committee. If I were going through the various items in the Finance Bill, trying to guess which would be the most objectionable, I should not have expected such a disproportionate dislike of this matter. I maintain that it is a most suitable object of taxation.
    I have given the Committee the undertakings that I am perfectly willing between now and the Report stage to consider suggestions in the terms of Amendments to see whether—given the basic principle which I ask the Committee resolutely to uphold—we can make minor adjustments.
    3.30 a.m.
    Commander Galbraith: I have been listening to the Chancellor of the Exchequer very carefully, and have been wondering whether he really understood what he was saying. [Interruption.] I am not being rude. One of the last remarks he made proved to me conclusively that he did not. He said the cotton industry should have been built up with new machinery, and "I would far rather have seen the money put into new

    1281
    machinery than put to reserve and distributed to the shareholders." If the right hon. Gentleman will look at what he said tomorrow, he will find that is a correct description of what he said. It is the most extraordinary statement I have ever heard. Coming from one who has taught at the School of Economics, it really beats the band. I suggest he should get a first-year apprentice to teach him what he is talking about tonight.
    Mr. Dalton: Before the hon. and gallant Member generates more heat, may I repeat what I think he will find, if he studies the accurate report that will no doubt be furnished by HANSARD, what I said. I said what matters, in regard to a firm in Lancashire, is much more whether it has spent its money on up-to-date machinery and equipment than whether it has put that money to reserve funds and then, said that because it has a lot of money in reserve there was good ground for making a bonus issue. Certainly, that is the ground on which many of these issues are made.
    Commander Galbraith: Surely, the right hon. Gentleman will agree that if they had this money in reserve and made a bonus issue they would not make it in scrip but in cash, and that is not what they do. There was a company which started in 1905 in a new industry. Its ordinary capital was £2 million and its preference capital £1 million. The company paid no dividend whatever until 1916. It ploughed everything back to reserves, which were used for the purchase of equipment. The whole lot was sunk in new equipment. In 1937 it made a bonus issue of one share at 20s. for every two shares held. The shares were standing at 42s. 6d. The right hon. Gentleman likes to make out that a profit is made. The Minister of Fuel and Power quoted this case on the Electricity Bill, and said that as the shares had been issued at 20s. and the market price the day after was 35s. they had made a profit of 15s. Actually their other shares had fallen from 42s. 6d. and the result was exactly square. Were these people entitled to get that bonus issue? They had gone for years without any dividend whatever. The highest dividend ever paid was 8 per cent. It was all money they had surrendered in profits to go back and be capitalised. I suggest that is the kind of thing you want to encourage.
    1282
    The right hon. Gentleman also spoke about financing by way of bonus issues. What actually happens is that the business is being financed out of profits made which the shareholders did not take at the particular time, and that is something to be encouraged. As to misleading the public, I cannot understand why the right hon. Gentleman cannot answer the question put by the right hon. Member for the City of London (Mr. Assheton). You want to show what profit is being earned on the actual capital employed in the business. That is what the public want to know. Unless a firm is going to capitalise the reserves that are ploughed back, it is not going to show a proper profit. It is ridiculous to propose in the example that I have quoted that these people were earning a profit on an original capital of £3 million when at the end of the day the capital in the business was over £10 million. To accept that would show that they were earning three times what they were actually earning. That is something which we do not wish to happen. I cannot understand the right hon. Gentleman. I do not believe that he is stupid, and the only other explanation I can give is that he is grossly misleading.
    Mr. Eccles: The Chancellor at the end of his remarks expressed his surprise at the strength of the opposition from this side of the Committee to this particular tax. I do not want to go into a great many details at this hour of the morning, but I will try to put to the Committee as briefly as I can why there is such a strong opposition to this proposed tax. The Chancellor must know that there is no corner of informed business which is not against it. There is not a city editor of any daily newspaper or of any weekly who has not come out against this tax absolutely full and square. It is interesting to examine why that might be, especially as those who call themselves economists on the other side of the Committee are trying to justify the tax.
    The answer lies in the practice of British business as against theoretical figuring in the Library which can be done with a pencil, few graphs and tables. The companies which have been cited as having sinned in this way with bonus shares—and I took the name of each as

    1283
    it was mentioned—are as follows; B.E.T., Woolworth, Imperial Tobacco, Marks and Spencer, Carreras and Courtaulds. It would be hard to select six more famous or flourishing companies in this kingdom. It is because the practice of financing themselves in this way turned out to be so successful that it is so respected and that we find the entire business community up in arms when they see one of the traditional methods of financing, which has been developed and improved for over 50 or 100 years, being taxed in this way.
    This is a serious issue, because the Chancellor and his friends are constantly telling us that private enterprise is to be encouraged to produce 80 per cent, of the goods of this country. If that is to be done the methods of financing that private enterprise is permitted to adopt should enable it to grow and to flourish; especially should those methods be encouraged which have been tested by time and found to be successful. There is no point in the soft speeches at Margate when ten days later we come to a penal vindictive Clause like this. Is there a single voice speaking with authority in business which has not singled it out as a bad tax?
    There are two kinds of bonus issues—first what the Chancellor calls the free bonus, where a share is given and no cash is paid. That operation he says is quite unnecessary. He can only say that because he is looking at it at the moment it is made; the point is that if there had been no prospect of such financing, it is most unlikely that the profits would have been retained in the company and the reserves made up out of what a free issue was afterwards made. Do we, or do we not, want profits to be put back into business? We all do. It is one of the obviously desirable things to do. As I said on an earlier Clause of the Bill, inducements are better than penalties, and if we want profits to be put back into companies we must make it worth while for shareholders to go without dividends for a certain time. That is, indeed, what happens.
    The Chancellor of the Exchequer told us his really strong argument against free bonuses was that they deceive people. I can believe that in the distant past they
    1284
    have deceived people. But they have deceived people because the level of understanding among the workers, particularly of the financial structure of private industry, has been low, and we are responsible for that on this side of the Committee.
    Mr. Gallacher: We know what is going on all right.
    Mr. Eccles: We have not shown the workpeople of this country nearly as carefully as we should have done how the economic and financial processes of industry work, and it is high time we did. But if we are not able to explain to the workers that the true rate of dividend, the one that is of real interest to any instructed person, is that which is earned and paid on the amount of capital employed in the business and not on the nominal capital, then all I can say is that we shall never explain to them the various inter-related parts of our economic system, and if we do not do that management, capital and labour will never co-operate sufficiently to get increased production.
    Mr. Gallacher: Will the hon. Member excuse me?
    Mr. Eccles: No, I want to finish. This is a very serious matter, because this tax on bonus shares is an attempt to perpetuate ignorance. For political purposes an attempt is being made to trade upon the ignorance of one side of business about the other. I fully admit the responsibility of this side of the Committee for this ignorance. But both sides of the Committee have to cure it now, or the country will not get out of its difficulties. Another form of bonus share is that in which some money is subscribed, and the shares are issued at a lower price than the market price, and issued to shareholders for the purpose of financing development. The Chancellor was really quite wrong on this when he said this was not a good way to finance business. Consider the mining companies. When they start they start with small capital. They test with a bore and find some evidence of minerals and then they have to raise more money, and sink a shaft and then having opened up the ore-body they must raise more money again. The most sensible way in which that can be done is by a series of issues to the shareholders. They came in at the beginning when there was nothing proved, when there was an

    1285
    even chance that they would lose the money they put in. It is the prospect of being able to stick on the horse until he wins that makes it worth risking losing the lot. I should say the mining industry in the British Empire, which is by far the most successful mining industry in the world, has been financed very largely on bonus issues.
    The effect of the Chancellor's proposal is going to be bad. He says he does not mind if no bonus shares are issued. I am sorry I have forgotten the name of the body—is it the Industrial and Financial Corporation—overwhich Lord Piercy presides on behalf of his Majesty's Government to assist new ventures to get on their feet. I am told that over 30 schemes of expansion that institution was considering will have to be abandoned on account of the threat of having to pay tax on bonus issues. It will happen again and again. Businesses will be distributing their profits instead of putting them back, because they know that they will be taxed if they issue a bonus.
    3.45 a.m.
    Now I come to my final point. This tax is, to business, a clear sign that the Labour Government do not want the private sector of industry to flourish. That is why there is opposition, not merely on these benches but throughout industry. I hope I shall not weary the Committee if I tell them of an experience of my own. I was a director of a railway company in Spain when King Alfonso XIII was turned out, and when the Spanish Republic came in I had to deal with the Spanish Minister of Finance and the Minister of Public Works, who were the Republican Ministers of the new regime. We had great difficulty with our railway company. So did the other railways in Spain, because wages were put up by decree and the tariffs were not allowed to be raised. We also needed some money to complete a branch line. I went to these Spanish Ministers and said, "If you do not let us get this new money, we shall not be able to complete this job. If you do not let us put up the railway fares we shall 'go broke.'" They replied "We, as Socialist Ministers, desire to see your company 'go broke' in order that we may take it over for nothing." That very much entered into my mind and I never forgot it. Now this tax is going to injure the system of private
    1286
    enterprise, under which such a large proportion of our production is carried on, and this morning I remember what happened to me in Madrid in 1931 and I ask myself whether this is going to happen again here. It would be a disaster for the country at a time when it is quite clear that we ought to get together and produce all we can with our national resources.
    There is no intellectual justification for this tax whatever. What is going to result is that either a company will pay money-to the Treasury which ought to be spent on machinery, or to make other improvements, or to increase wages, of alternatively, the company will not accumulate profits out of which it could have made a bonus issue. It will distribute the profits in dividends which would be of little use to industry. There is no benefit to efficiency or employment in industry through this tax. So far as I see it, industry will be restricted and injured by every operation that is conducted under it.
    Sir H. Lucas-Tooth: I will not keep the Committee very long, but I would like to answer one point made by the Chancellor of the Exchequer. He said that there was no purpose in making a bonus issue, and because it was a useless sort of thing to do, it was a useful subject for taxation. I want to give the Chancellor one kind of case in which a bonus issue could serve a very useful purpose. I did, myself, practise for a short time in a humble way in the company court. I did see quite a number of papers in which the question of making provision for a bonus issue arose.
    I think it is no exaggeration to say that in no single case that I saw was it proposed to make a bonus issue for the simple reason of creating a bonus issue. In every case the issue of bonus shares was linked up with some definite other purpose, and, normally speaking, that other purpose was in order to get fresh capital for the company. Normally speaking, a bonus issue is only put in hand when, in fact, the company's actual capital assets are very greatly in excess of its nominal capital. Two or three times the amount would not be uncommon. I will take the case of a company with £1 shares whose capital assets are worth something of the order of £3. Now, in the ordinary way these

    1287
    £1 shares will be standing at £3 value. That company wishes to raise fresh capital. The whole position is this. Unless it does something to bring its nominal capital into line with its actual capital, it can only create new shares sold on the basis that they will be issued, in the first place, at three times their par value. I should have thought that that was an undesirable thing in itself, but whether it is undesirable or not, quite clearly it is going to be very prejudicial on the whole to the successful issue of new shares.
    If new shares were issued at par it would be wholly unfair to the existing members of the company. They would in fact be put into the position of having to hand over a substantial part of the accumulated capital to the newcomers who would only pay £1 for a share which would be worth substantially more, something like £2 or £3. The only way to get around this difficulty is by a bonus issue by which you can at once put your nominal capital into line with your real capital, and as soon as you have done that you can raise fresh capital by the issue at par. I think that it would be no exaggeration to say that every bonus issue of shares which I personally have seen proposed has been in connection with a scheme of that sort. It is true that nowadays opportunities for a scheme of that kind are not so common as they were before the war but the time will come when it will be necessary for companies to begin reorganising their capital and raising fresh capital in the way they did in the years between the wars. I thought it was most desirable to leave this facility in the hands of the companies without
    penalising them so that fresh capital can be realised. I think it is true to say, and I would challenge any hon. Member opposite to deny it—and I see one supporter of the right hon. Gentleman, and the only one, I believe, who ever practised in the Chancery Court, who has made no speech this evening in support of the right hon. Gentleman—that under a scheme put forward by any reputable company for the creation of bonus shares in connection with some quite proper purpose such as that I described, this will prevent such issue and must ultimately damage English industry.
    Mr. W. Fletcher: I do not know exactly how to make it clear, but the Chancellor seems to be trying to say that the practice of issuing bonus shares would prevent the Lancashire cotton industry from re-equipping itself. He seemed to me to draw a picture in which one took money from the safe and gave it to the shareholders, or, in which one spent the money on re-equipment. It is not a true picture at all. The right hon. Gentleman is one of the putative fathers of the Lancashire cotton industry, and I do not think he should draw a picture which is not correct at all. The use of bonus share issues anchors the capital to the company, and that makes it all the more certain that it will be used in re-equipping the industry. It is not right to allow the picture he has drawn to go unchallenged, and it is for that reason that I have made this short speech.
    Question put, "That the Clause, as amended, stand part of the Bill."
    The Committee divided: Ayes, 144; Noes, 59.

    Division No. 251.]

    AYES.

    [3.58 a.m.

    Adams, W. T. (Hammersmith, South)

    Davies, Ernest (Enfield)

    Hall, W. G.

    Anderson, A. (Motherwell)

    Davies, Harold (Leek)

    Hannan, W. (Maryhill)

    Attewell, H. C.

    Deer, G.

    Harrison, J.

    Austin, H. Lewis

    Delargy, H. J.

    Henderson, A. (Kingswinford)

    Baird, J.

    Dodds, N. N.

    Henderson, Joseph (Ardwick)

    Barton, C.

    Driberg, T. E. N.

    Hewitson, Capt. M.

    Berry, H.

    Dumpleton, C. W.

    Hobson, C. R.

    Beswick, F.

    Ede, Rt. Hon. J. C.

    Holman, P.

    Blackburn, A. R.

    Farthing, W. J.

    Holmes, H. E. (Hemsworth)

    Blyton, W. R.

    Fernyhough, E.

    House, G.

    Braddock, T. (Mitcham)

    Foot, M. M.

    Hoy, J.

    Bramall, E. A.

    Forman, J. C.

    Hudson, J. H. (Ealing W.)

    Brook, D. (Halifax)

    Freeman, Maj. J. (Watford)

    Hughes, H. D. (Wolverhampton, W.)

    Brown, George (Belper)

    Freeman, Peter (Newport)

    Janner, B.

    Champion, A. J.

    Gallacher, W.

    Jay, D. P. T.

    Collindridge, F.

    Gibbins, J.

    Jones, D. T. (Hartlepools)

    Corbet, Mrs. F. K. (Camb'well, N.W.)

    Gilzean, A.

    Jones, Elwyn (Plaistow)

    Corlett, Dr. J.

    Glanville, J. E. (Consett)

    Jones, P. Asterley (Hitchin)

    Crawley, A.

    Greenwood, A. W. J. (Heywood)

    Keenan, W.

    Daines, P.

    Gunter, R. J.

    Kinley, J.

    Dalton. Rt. Hon. H.

    Guy, W. H.

    Lang, G.

    Lee, Miss J. (Cannock)

    Peart, Thomas F.

    Thomas, Ivor (Keighley)

    Levy, B. W.

    Pritt, D. N.

    Thomas, George (Cardiff)

    Lewis, A. W. J. (Upton)

    Proctor, W. T.

    Timmons, J.

    Lipton. Lt.-Col. M.

    Pryde, D. J.

    Tolley, L.

    Logan, D. G.

    Ranger, J.

    Ungoed-Thomas, L.

    Longden, F.

    Rankin, J.

    Usborne, Henry

    McAllister, G.

    Roberts, Goronwy (Caernarvonshire)

    Wallace, G. D. (Chislehurst)

    Mack, J. D.

    Robertson, J. J. (Berwick)

    Wallace, H. W. (Walthamstow, E.)

    McKay, J. (Wallsend)

    Rogers, G. H. R.

    Watson, W. M.

    McKinlay, A. S.

    Ross, William (Kilmarnock)

    Weitzman, D.

    McLeavy, F.

    Royle, C.

    Wells, P. L. (Faversham)

    Manning, C. (Camberwell, N.)

    Sargood, R.

    Wells, W. T. (Walsall)

    Mellish, R. J.

    Segal, Dr. S.

    West, D. G.

    Middleton, Mrs. L.

    Shackleton, E. A. A.

    White, H. (Derbyshire, N.E.)

    Mikardo, Ian

    Sharp, Granville

    Whiteley, Rt. Hon. W.

    Millington, Wing-Comdr. E.R.

    Shawcross, C. N. (Widnes)

    Willey, F. T. (Sunderland)

    Mitchison, G. R.

    Simmons, C. J.

    Willey, O. G. (Cleveland)

    Monslow, W.

    Skinnard, F. W.

    Williams, D. J. (Neath)

    Morris, P. (Swansea, W.)

    Sorensen, R. W.

    Williams, J. (Kelvingrove)

    Moyle, A.

    Soskice, Maj. Sir F.

    Williams, W. R. (Heston)

    Neal, H. (Claycross)

    Stewart, Michael (Fulham, E.)

    Willis, E.

    Nichol, Mrs. M. E. (Bradford, N.)

    Stokes, R. R.

    Wills, Mrs. E. A.

    Noel-Buxton, Lady

    Swingler, S.

    Woods, G. S.

    Oliver, G. H.

    Symonds, A. L.

    Wyatt, W.

    Paling, Will T. (Dewsbury)

    Taylor, H. B. (Mansfield)

    Yates, V. F.

    Pargiter, G. A.

    Taylor, R. J (Morpeth)

    Paton, J. (Norwich)

    Taylor, Dr. S. (Barnet)

    TELLERS FOR THE AYES:

    Pearson, A.

    Thomas, D. E. (Aberdare)

    Mr. Snow and

    Mr. Popplewell.

    NOES.

    Assheton, Rt. Hon. R.

    Fraser, H. C. P. (Stone)

    Nield, B. (Chester)

    Baldwin, A. E.

    Fraser, Sir I. (Lonsdale)

    Noble, Comdr. A. H. P.

    Beamish, Maj. T. V. H.

    Galbraith, Cmdr. T. D.

    Pitman, I. J.

    Birch, Nigel

    Gomme-Duncan, Col. A. G.

    Prior-Palmer, Brig. O.

    Bossom, A. C.

    Grimston, R. V.

    Ropner, Col. L.

    Bower, N.

    Hare, Hon. J. H. (Woodbridge)

    Shephard, S. (Newark)

    Bracken, Rt. Hon. Brendan

    Haughton, S. G.

    Spence, H. R.

    Braithwaite, Lt.-Comdr. J. G.

    Henderson, John (Cathcart)

    Stanley, Rt. Hon. O.

    Bromley-Davenport, Lt.-Col. W.

    Jarvis, Sir J.

    Strauss, H. G. (English Universities)

    Buchan-Hepburn, P. G. T.

    Joynson-Hicks, Hon. L. W.

    Stuart, Rt. Hon. J. (Moray)

    Clarke, Col. R. S.

    Keeling, E. H.

    Studholme, H. G.

    Conant, Maj. R. J. E.

    Lambert, Hon. G.

    Teeling, William

    Crookshank, Capt. Rt. Hon. H. F. C.

    Low, Brig. A. R. W.

    Touche, G. C.

    Crosthwaite-Eyre, Col. O. E.

    Lucas-Tooth, Sir H.

    Wadsworth, G.

    Cuthbert, W. N.

    Mackeson, Brig. H. R.

    Ward, Hon. G. R.

    Digby, S. W.

    Marples, A. E.

    Wheatley, Colonel M. J.

    Drayson, G. B.

    Marshall, D. (Bodmin)

    York, C.

    Drewe, C.

    Mellor, Sir J.

    Eccles, D. M.

    Molson, A. H. E.

    TELLERS FOR THE NOES:

    Fletcher, W. (Bury)

    Morrison, Maj. J. G. (Salisbury)

    Major Ramsay and

    Fox, Sir G.

    Neven-Spence, Sir B.

    Lieut.-Colonel Thorp.

    Question put, and agreed to.

    CLAUSE 50.—(Special provisions as to issue of securities.)
    The Solicitor-General: I beg to move, in page 44, line 43, after "issued," insert:
    "when they are allotted, and to be issued."
    I suppose we all have a fairly clear idea of what we mean by issuing shares, but in law there is no precise definition of the word "issue" in connection with an issue of shares. Therefore, this Amendment seeks to say that the shares shall be deemed to be issued when they are allotted. If the Amendment is accepted, Section (2) of Clause 50 will read:
    "For the purpose of the last foregoing section, securities shall be deemed to be issued when they are allotted, and to be issued by way of bonus to members or debenture holders of a company."
    1290
    The Amendment simply makes clear the word "issue" in this connection.
    Amendment agreed to.
    Mr. Assheton: I beg to move, in page 45, line 9, at the end, to insert:
    "Provided always that this subsection shall not apply to a bona fide issue of securities for the purpose of carrying out arrangements for the amalgamation or grouping of two or more companies, subject to a certificate granted by the Board of Trade that such amalgamation or grouping is in the public interest."
    This Amendment deals with the question of amalgamation. The Chancellor of the Exchequer is really subborn in his attitude towards the main issue but did show some signs of being reasonable with regard to two previous Amendments we moved at the beginning of Clause 49, and I hope that he or the Financial Secre-

    1291
    tary or the Solicitor-General will pay some attention to this Amendment, which really seeks to safeguard amalgamations and groupings which are frequently, in the view even of the Chancellor of the Exchequer, in the national interest. There are examples in the cotton and other industries. There may be the case where shares are issued to shareholders in existing companies in exchange for previous shares and the forms in which this is done may make the issue liable to tax under the Clause. It is obviously wrong that an operation of this kind should in any way be a case for restricting an amalgamation which would otherwise be a good and proper one, and without adding anything more to my argument I hope the Chancellor of the Exchequer may be able to concede the point.
    The Solicitor-General: We feel it is perfectly possible that what might be a perfectly bona fide amalgamation may come within the scope of the tax as the Clause is at present drafted. I ask the right hon Gentleman to withdraw his Amendment on the assurance that we will, between now and Report stage, look at it with a view to devising some form of words to exclude any bona fide amalgamation.
    Mr. Fletcher: Does that include amalgamations to take place under schemes being sponsored by the Government?
    The Solicitor-General: I should think the answer to that is possibly "Yes," but we wish to look at the whole issue.
    Mr. Assheton: I am obliged for what the hon. and learned Gentleman said. But he is certainly piling up a great deal of work for himself to do between now and the Report stage. I beg to ask leave to withdraw the Amendment.
    Amendment, by leave, withdrawn.
    4.15 a.m.
    The Solicitor-General: I beg to move in page 45, to leave out lines 14 to 30, and to insert:
    "the amount (if any) by which the aggregate amount or value of the consideration received or receivable by the company issuing the securities is less than the following amount, that is to say:

    (a) if letters of right relating to the securities are or have been quoted on a
    1292
    recognised stock exchange (within the meaning of the Prevention of Fraud (Investments) Act, 5939), the aggregate value of the letters of right on the day of the first quotation;

    (b) if no such letters of right are or have been quoted as aforesaid but the securities are or have been so quoted within one month after allotment, the aggregate value of the securities on the day of the first quotation;

    (c) in any other case, the aggregate value of the securities at the date of allotment:"

    This Amendment, which appears on the face of it to be of rather an extensive character, really does very little. It is designed to put Subsection (3) of Clause 50 more into conformity with the appropriate Stock Exchange terminology. Technically it is not correct to speak of "rights," as I am advised that you do not carry "rights." It is "letters of right" which are quoted, and we have recast Subsection (3), paragraphs (a), (b) and (c) in order to make that alteration, substituting the term "letters of right" where we have previously used the word "rights." That has imposed a certain amount of recasting, but the Subsection is precisely the same as it was before. We have taken the passage about "consideration received … by the company" out of the paragraphs and we have put it in upon a part of the Clause. In so doing we have made it applicable to each of the paragraphs, with the result that the meaning is as it was before.
    Mr. Assheton: I quite agree that the hon. and learned Gentleman was right in saying that this Amendment does not make very much difference. Since the Bill was issued, the Chancellor and those advising him have begun to find out a little more about the business they are trying to transact. I would have been very much happier had they found out before they drafted the Bill: that could easily have been done from those accustomed to dealing with these rights. None the less, the Bill has ken put into better shape now, and we will accept the amendment.
    Amendment agreed to
    Further Amendments made:
    In page 45, line 36, leave out from beginning, to "is," in line 37, and insert "issuing the securities."
    In page 46, line 4, leave out "rights," and insert "letters of right."
    In line 11, after "company," insert "issuing the securities."
    In line 16, leave out "rights," and insert "letters of right."—[The Solicitor-General.]
    The Solicitor-General: I beg to move, in page 47, line 6, to leave out from "statement," to "and," in line 7, and to insert:
    "may be treated as allotted immediately thereafter."
    This Amendment is designed to correct a defect in paragraph (a) of the proviso to Subsection (6). The position is this. If the Clause stands as it is, there may be a loophole which can be used to avoid making the statement including the number of securities which should be returned under this statement. Perhaps I could give an example to show what I mean and why the Amendment is necessary. Suppose that a company issued 100 shares—issuing No. 1 on 1st January and the remainder on 31st January in a particular year. The company is required under Subsection (6) to make a return on 1st February. It has to make it within one month. In making that return on 1st February, it need only return the one share issued on 1st January, because the others were issued on the 31st. When it makes its return for the month, 1st to 28th February, it can perfectly well say that it has not allotted any securities, and therefore need not include in that return the 99 securities issued on 31st January. We are seeking to cure that defect by substituting for the words in the Bill "need not be dealt with in that statement" the words of the Amendment. We postpone 31st January to 1st February so that the shares issued on 31st January would come in the next month's statement. The Amendment is simply designed to cure that defect.
    Mr. Assheton: We have no objection to this Amendment. It is stopping a hole up which I do not think any rabbit would ever have crept, but none the less it is a hole.
    Amendment agreed to.
    The Solicitor-General: I beg to move, in page 47, line 15, to leave out "or of the rights thereto," and to insert:
    "(or of other securities substituted or to be substituted therefor), being a sale."
    This Amendment and the next both relate to the same subject, and are designed to stop up another hole of a rather more
    1294
    extensive character. They are designed to deal with a possible evasion device. Securities may be issued to an agent of the company, on terms that he should resell to the shareholders, and while they are in the hands of the agent the securities may be converted into stock. Unless there is some proviso to put the converted stock into the position of the original shares, it may be possible to evade the requirements of the provision as to returning them in a statement for the purposes of taxation. We are now substituting securities in the two Amendments to prevent that type of evasion.
    Amendment agreed to.
    Further Amendment made: In line 23, at end, insert:
    "and
    (c) references in Subsections (3) to (6) of this Section to the securities issued by way of bonus shall, where the sale is of substituted securities, be taken as referring to the substituted securities."—[The Solicitor-General.]
    Motion made, and Question proposed, "That the Clause, as amended, stand part of the Bill."
    Lieut.-Commander Braithwaite: There is one point I should like to draw attention to before Clause 50 goes, and it relates to Subsection (3, c). Can the hon. and learned Gentleman tell us how the agreed value of the securities on the date of allotment can be proved? We feel that the method of valuation should be more clearly defined, so that companies may be able to assess the amount of tax they will suffer. In the case of public companies the value of the securities may be assessed as in the case of private companies, namely on their nominal capital, and unless it is clearer in the Clause it may be that quite an indefinite value would have to be made for Estate Duty purposes and for assessing liability generally.
    The Solicitor-General: If the hon. and gallant Member will turn to Subsection 4 (a) he will see a proviso which deals with the question of valuation. He will there see
    "that the value of the securities or the rights, as the case may be, shall be determined according to the same principles as would apply for the purposes of estate duty."
    apart from a certain proviso which is altogether irrelevant. There is a ready method of valuing if they had to be valued by the

    1295
    best standard, and the method to be followed is that when they have to be valued for Estate Duty. Ordinarily, for that purpose they are taken at the Stock Exchange quotation, and one can only say with regard to shares that they would be treated as any other species of property. Where there was no quotation they would be taken at the best value at which they could be taken.
    Clause, as amended, ordered to stand part of the Bill.
    Clause 51 ordered to stand part of the Bill.

    CLAUSE 52.—(Excess profits tax and profits tax—provisions as to remuneration of directors.)
    The Solicitor-General: I beg to move, in page 48, line 38, to leave out,
    "other than secretarial or managerial services."
    This is simply a drafting Amendment, because the same words appear later on, and are really surplusage.
    Mr. Birch: I think that this is slightly more than a drafting Amendment. I understand that it was decided in the High Court on 22nd January of this year, in the case of Richardson versus the Commissioners of Inland Revenue, that portions of a director's remuneration for certain cases like E.P.T. and the Profits Tax did not include remuneration paid to a director in a different capacity, such as the two things which the Solicitor-General proposes here to take out, namely secretarial and managerial functions, or for advisory or technical services, words which he is actually leaving in.
    The Solicitor-General: I was wondering if the hon. Gentleman would accept it from me that this Amendment is drafting, but, of course, the matter he has indicated would have to be discussed on the Clause.
    Mr. Birch: I will discuss it then if the hon. and learned Gnetleman likes, but I think it is perfectly relevant here.
    The Chairman: The hon. Member for Flint (Mr. Birch) is perfectly in Order.
    Mr. Birch: I think it is perfectly relevant. As I was saying, the judgment was given at the beginning of this year that these particular functions of directors—technical, managerial, secretarial, and advisory—should be remunerated and should not rate for E.P.T. and Profits Tax. Now this Clause, as modified by this Amendment, appears to me to reverse that judgment, and, perhaps, the Solicitor-General will answer the point, why that judgment is reversed thus, when we come to the Question "That the Clause stand part." It does seem quite wrong that directors should be penalised and not be able to get proper remuneration for technical services, when it has been established that that is right according to law.
    Mr. Joynson-Hicks: I should like to press the Solicitor-General on this Amendment, because I venture to think that it is not going far enough. As I understand it, he is moving to leave out the words in line 38:
    "other than secretarial or managerial services."
    But, surely, if those words fall there ought to fall with them the preceding words:
    "services rendered to the company in his professional capacity."
    because those words, presumably, tie up with following words. If the one group is to be deleted, and the services are services rendered, as the Solicitor-General explained, I do not see, if he is leaving out one half of the sentence why he does not delete the other half. The Amendment now will render the whole paragraph more imperfectly drafted than it is at present.
    The Solicitor-General: The point that was dealt with by the hon. Member for Flint (Mr. Birch) is really dealt with in Subsection (1) of the Clause. That Subsection reverses the judgment—or the effect of the judgment—in the case of Richardson against the Commissioners of Inland Revenue. That particular point does not arise under Subsection (2), though Subsection (2) deals with what hitherto has been a non-statutory concession, which is now made a statutory concession. The only reason I am moving the Amendment is that the words:
    "other than secretarial or managerial services."
    are repeated in brackets two lines farther on. I simply seek to leave them out in

    1297
    the first case because they are there superfluous. That is all I seek to do, but that does not, of course, touch the point, which hon. Members may wish to debate a little further, on the question whether the judgment should be dealt with in the way it is. It does not arise on this Amendment, which is simply drafting.
    Amendment agreed to.
    Motion made, and Question proposed, "That the Clause, as amended, stand part of the Bill."
    Colonel Crosthwaite-Eyre: I do think that important issues arise on this Clause, and I should like to hear from the Solicitor-General, now that we have got on to the wider aspect of it, just what those issues are. I am particularly worried about Subsection (3), which starts off with these words:
    "This section shall be deemed always to have had effect."
    They have, no doubt, been introduced for a very good reason, and I should like to know a little more about them, particularly as this Clause is concerned with paragraph 10 of Part I of the Seventh Schedule to the Finance (No. 2) Act, 1939. I looked that up. There are certain express reservations in regard to paragraph (d) of the Seventh Schedule, and I should like to know whether these new provisions made in Subsection (2), paragraphs (a) and (b) in relation to that Schedule are modifications of the rates previously given under the Finance (No. 2) Act, 1939.
    4.30 a.m.
    I ask in what respect they do modify these rights and how far Subsection (3) can, in fact, be made retrospective. If, as I read it, it means that it can be made retrospective in all cases except those in which judgment has been given or an appeal has been lodged from a judgment by a court, then it seems most dangerous, because, despite whatever judgments may have been made in the cases judged, the particular judgment has not, in fact, been made, and, as far as I can judge, the retrospective action can be taken at any date the Treasury may determine. That is something which the Committee should look at very closely before they accede to it.
    The Solicitor-General: As hon. Members will observe, this Clause applies both to
    1298
    E.P.T. and Profits Tax. If hon. Members would look at the first two lines of the Subsection, they will see that the provisions of the E.P.T. are contained in the provisions of the original Finance Bill of 1937, and they are very similar, though not entirely similar as far as the directors' remuneration is concerned. Taking the case of the Profits Tax, hon. Members will probably have in mind that, in computing the number of director-controlled companies and the remuneration of directors within whole-time service, the tax is not to be deducted in so far as it exceeds a certain sum. That limit is 15 per cent. or £1,500 whichever is the greater, subject to an overall maximum of £1,500. The hon. and gallant Member for Antrim (Major Haughton) mentioned the matter yesterday or early this morning. The question that this Clause deals with is the interpretation for the purpose of these two sets of Clauses. Hitherto, or up to the time the case of Henry Richardson Ltd. against the Commissioners of Inland Revenue was decided on 22nd January this year, the words "directors' remuneration" in this connection had always had a specific and well-defined interpretation. The interpretation was, in fact, set out in Command Paper No. 6559 dated October, 1944, and had always been interpreted as including the secretarial services, so that if a director did secretarial services and received remuneration that was regarded as part of his remuneration as a director.
    That was always considered to he the case, but at the same time that White Paper conferred what was really an extra-statutory concession, i.e., it was based upon the interpretation put upon the word "remuneration." That concession is really the concession which appears in Subsection (2) of this Clause as set out in the White Paper, very much in the same terms. What happened then was that, notwithstanding that the term had been so construed for years past, the learned judge who heard the case ruled that the construction was erroneous, and he construed the words "directors' remuneration" strictly in the limited sense of remuneration paid to the director and nothing else, therefore excluding, for this purpose, anything which could be said to be remuneration for secretarial services rendered by him in that capacity or while a director. The decision ran counter to

    1299
    the universal practice which had been adopted hitherto.
    Of course, that decision stands. I have no doubt that the learned judge was quite right on the true construction of the Act. That judgment and the precise case covered by it, and any appeal from that judgment, we leave untouched. We do not interfere with what the learned judge decided in that particular case or indeed what may be decided on any appeal from his judgment if an appeal is made. But apart from that case, it would lead to interminable difficulties if we had to reopen the countless cases assessed on that basis. The second Subsection makes statutory the extra-statutory concession which is set out in the White Paper. The third Subsection preserves the judgment in the case to which I have referred.
    Clause ordered to stand part of the Bill.

    CLAUSE 53.—(Provision applicable where joint and several liability has been imposed under Finance Act, 1943, s. 24.)
    Motion made, and Question proposed, "That the Clause stand part of the Bill."
    Lieut.-Commander Braithwaite: This is a Clause which has aroused some curiosity and not a little disquiet. It aims at some particular transaction. What concerns us most is the extraordinarily weighty powers contained in it. The Commissioners, as we understand it, are people demanding further payment on taxation notwithstanding that certain matters of liability have been settled, payment made and acceptance acknowledged, in cases where there was joint and several liability under the Finance Act of 1943. It does raise the whole question of retrospective action in connection with tax Clauses. Subsection (3, c) reads:
    "notwithstanding that the payment has been made or accepted or agreed to be accepted or acknowledged to be in discharge of all or any part of the liability of all or any of the persons liable under the original direction under the said section twenty-four,"
    and then it goes on to say
    "… fresh proceedings may be taken for recovering the amount thereof as if that judgment or order had never been made."
    That is the matter which is causing anxiety on these benches. On the face of it, this
    1300
    Clause gives powers so wide that we feel they ought to be challenged.
    Sir H. Lucas-Tooth: As I understand it, this enables the Commissioners to reopen a case where a payment has been made. Under the previous legislation, it has been possible to affect a number of persons with a joint liability in respect of a payment for Profits Tax. May I take a concrete case as an example? Suppose "A," "B," and "C" have been jointly and severally liable to pay what may be a very large sum in respect of profits; say, something of the order of £100,000. Between the three of them, they, in the past, may have paid the whole of that sum, and each of them will then have felt secure that the liability has been discharged and they can go ahead in the expectation that no further call upon them can be made. But, it may be that one of the individuals has been unable to pay the amount demanded. "A" may have been made a bankrupt: in respect of his liability, and have been able to pay only £30,000, and the rest has been provided by "B" and "C," the former paying £50,000, and the latter £20,000.
    As I understand it, this will enable the Commissioners at some future date to appropriate the amount that "B" has paid towards this particular obligation in discharge of some other obligations of his to the Commission. Furthermore, as I understand it, it may be that such an obligation has not yet even arisen. In Subsection (2, b), the words used are "or may thereafter." These words are of unlimited application. The Commissioners now, in certain circumstances, can treat the whole of the payments by "A" in respect of this liability of £100,000 as suitable for diversion to some other payment, leaving "B" and "C" to discharge the whole sum so diverted. The effect of that may be that, although "A" was a bankrupt, he may have got his discharge, but he could be made bankrupt a second time in respect of the same indebtedness. I really do not believe that that is the intention of the Government, and I should like an explanation from the learned Solicitor-General as to how that result is avoided. Or if a definite undertaking cannot be given a promise that some provision can be put in to ensure that this kind of thing cannot occur.
    4.45 a.m.
    The Solicitor-General: May I say one general word about retrospective legislation in the case of the Excess Profits Tax legislation. In the Excess Profits Tax legislation of the Finance (No. 2) Act, 1939, there are in it a great many provisions, and I believe that a great majority of the provisions are retrospective for the whole period during which the tax had been in operation. To give two random examples: there are Section 35 of the 1941 Act, and Section 33 of the 1944 Act. Hon. Members will see that these, together with a large amount of the Excess Profits Tax legislation, go back to the beginning of the Excess Profits Tax period. So that this does no more than the ordinary existing Profits Tax legislation. The Section which it is designed to follow, which is Section 24 of the Finance Act of 1943, also is retrospective. So that this Clause, in the sense that it is retrospective to the beginning of Excess Profits Tax legislation, is simply on a par with other Excess Profits Tax Acts and amending Sections.
    The position is one of extreme complexity in this particular case. I will endeavour to give some kind of idea of what we are aiming at in this Clause. If I may use neutral and inoffensive language, the effect of this Clause, and the effect of Section 24 of the 1943 Act, are not entirely unconnected with certain transactions which took place, in respect of which an appeal is pending in the House of Lords on another aspect. I hope the Committee will not ask me to go into great detail. It would not be right for me to do so. Section 24 of the 1943 Act was very drastic, and its terms were wide. Its object was to deal with this kind of thing. A company is dealing in a certain trading stock. It then gets into a position in which a group of persons acquire control of the company. Having acquired that control, those persons obtain possession of the stock, which they sell to outside persons. I am speaking now in general terms, and not with reference to any particular case. I am only giving a general illustration, and if it approximates to a particular case, I hope that hon. Members will put that case out of their minds. I am simply explaining the general position. The group, having obtained control of the trade assets of the company, proceed to sell those assets and so arrange the sale
    1302
    that it does not attract Excess Profits Tax. If that can be done, an enormous profit can be made. [An HON. MEMBER: "Legitimately?"] It can be done in that way legitimately, certainly.
    This Clause is designed to follow up on that Section, and to make it impossible to evade its effect as can be done at present, it would seem. Imagine the case where, as a result of a direction under Section 24 of the 1943 Act, persons have been found jointly and severally liable to make good the loss to the Inland Revenue. An order can be made against a company and against the individuals in a group. Suppose the company still has some assets after the group and company find themselves under joint and several liability to make good the loss to revenue. If the company can then be prevailed upon to sell its remaining assets and with the proceeds of the sale to pay up the liability of the group, then the group are discharged from liability. But what has happened is, that the sale by the company has given rise to a further E.P.T. liability, and when the Revenue seek to collect that further Profits Tax liability from the company, the company by that time have disposed of all their assets and have no further assets. It is impossible for the Inland Revenue to collect from the company that further E.P.T. This Clause is to prevent that happening.
    What the clause does is to provide for a direction to be given. The second sale of remaining stock has been applied by the company to discharge the joint and several liability imposed as a result of the first sale. Then the direction can say that the satisfaction of this joint and several liability by the proceeds of the second sale should he set aside, and the joint and several liability shall be deemed to be still in existence and the amount which was the result of the second sale and applied by the company to the satisfaction of the joint and several liability can be applied by the Inland Revenue to the satisfaction of E.P.T. liability Which arose upon the second sale. In a word, the Inland Revenue are given the power to disregard the fact that some portion of the second sale was given to the satisfaction of the joint and several liability and to treat it as satisfying the E.P.T. liability arising as the result of the second sale.

    1303
    That is the object of the Clause and what it does. It is frankly designed to make it impossible to make any diversion which can be described as purely evasive. It is anti-evasive and is necessarily drastic in its terms. There is the same anti-evasive legislation in the 1943 Act and in the Finance (No. 2) Act of 1939. Nothing less than this Clause would be sufficient to stop this type of evasion. At first sight I agree that it is rather frightening to look at, but it has to be drastic.
    Colonel Crosthwaite-Eyre: I think that in no part of the Committee would there be any intention of opposing something which would prevent the type of evasion the Solicitor-General has referred to. But surely he has taken out a legal steamroller which might have the most disastrous results if it got out of control. Looking at paragraphs (b) and (c) of Subsection (1), I do not see how anything other than the sale of stock can be justified.
    The Solicitor-General: Has the hon. and gallant Member observed that it only relates to E.P.T. liability, and as that has come to an end, the Clause can have only limited application.
    Colonel Crosthwaite-Eyre: I thank the hon. and learned Gentleman. If he looks at a later Subsection, he will see just what scope it can have. The word "stock" so far as I am aware, has no special definition in this Clause and can apply to any stock held. It seems much too wide, particularly when it has been said that this Clause is designed for a very small section of people who have been guilty of evasion. Under paragraph (c) one gets exactly the same sort of wide power.
    If one goes on to the next stage, Clause (3), I have not heard a convincing reason why the right hon. and learned Gentleman wants paragraph (a) of Subsection (3):
    "Whether or not the person who made the payment is one of the persons subject to the original joint and several liability imposed under section twenty-four."
    That is one of the most sweeping of phrases to put in a Bill; it means the Treasury can do exactly what they like. They can, in fact, spread their net so wide that if in their opinion someone has been
    1304
    guilty of evasion, or is suspected of being guilty of evasion, he can be brought into the ambit of this. It is further emphasized in paragraph (b) that money can be taxed by direction of the Commissioners whether it has come from any particular transaction or not. Whether a person is responsible or not, it can simply be swept in and held under Subsection (2) (c) by the Commissioners for any length of time for any purpose they may care. It seems to be so completely beyond any equivalent measure we have been asked to pass that I cannot see why it is justified.
    I ask the hon. and learned Gentleman if he thinks it fair to ask the Committee to make it possible for a judgment of any court to be set aside. The Solicitor-General is taking to himself the power to upset any of these judgments at any time that the Treasury may so desire. Finally, the hon. and learned Gentleman has said that these things are retrospective, like so many of these other measures of E.P.T., but what he did not say was that it goes for an unlimited period into the future. The more I look at this Clause, the more it seems to be drafted in such a fashion that wherever E.P.T. liabilities are concerned, it is possible for the Treasury to reopen any case, or any transaction in which, in their opinion, a case is likely to arise. It is not fair, particularly at five o'clock in the morning, to ask the Committee to pass such a sweeping measure without far more detailed justification. If it is merely some all-embracing measure to stop any evasion, it is wrong and is open to too much abuse. We on this side have just as much interest as hon. Members opposite in stopping evasion, but we want to stop evasion and not to pass some blanket measure which will cause incalculable trouble.
    5.0 a.m.
    The Solicitor-General: This is nothing like as wide as the hon. Member suggests. It is limited to a very few people. One Subsection deals with a case where a company has gone into liquidation, and the Inland Revenue are entitled to have regard to the tax which the company would have to pay had it not avoided doing so by going into liquidation.
    Sir H. Lucas-Tooth: I appreciate that the effect of the Clause is limited, but I am not certain about how far. Can the

    1305
    Solicitor-General give me an assurance that it would not include anyone who had not been a conspirator in the transaction—in other words, an assurance that no innocent party who had found himself left with this liability could be attacked a second time?
    Colonel Crosthwaite-Eyre: The hon. and learned Member gave me a very short
    answer. I am not a lawyer, and was not able to construe it with lightning rapidity. Can he explain why it only refers to a company in liquidation?
    Question put, "That the Clause stand part of the Bill."
    The Committee divided Ayes, 128; Noes, 43.

    Division No. 252.]

    AYES.

    [5.3 a.m.

    Adams, W. T. (Hammersmith, South)

    Holmes, H E. (Hemsworth)

    Rogers, G. H. R.

    Anderson, A. (Motherwell)

    House, G.

    Ross, William (Kilmarnock)

    Attewell, H. C.

    Hoy, J.

    Royle, C.

    Austin, H. Lewis

    Hughes, H. D. (W'lverh'pton, W.)

    Sargood, R.

    Barton, C.

    Janner, B.

    Segal, Dr. S.

    Berry, H.

    Jones, D. T (Hartlepools)

    Sharp, Granville

    Beswick, F.

    Jones, Elwyn (Plaistow)

    Shawcross, C. N. (Widnes)

    Blackburn, A. R

    Keenan, W.

    Simmons, C. J.

    Blyton, W. R.

    Kinley, J.

    Skinnard, F. W.

    Bramall, E. A.

    Lang, G.

    Snow, Capt. J. W.

    Brook, D. (Halifax)

    Lee, Miss J. (Cannock)

    Sorensen, R. W.

    Brown, George (Belper)

    Levy, B. W.

    Soskice, Maj. Sir F.

    Champion, A J.

    Lewis, A. W. J. (Upton)

    Swingler, S.

    Collindridge, F,

    Lipton, Lt.-Col. M.

    Symonds, A. L.

    Corbet, Mrs. F. K. (Camb'well, N.W)

    Logan, D. G.

    Taylor, H. B. (Mansfield)

    Corlett, Dr. J.

    McAllister, G.

    Taylor, R. J. (Morpeth)

    Daines, P.

    Mack, J. D.

    Taylor, Dr. S. (Barnet)

    Dalton, Rt. Hon. H.

    McKay, J. (Wallsend)

    Thomas, D. E. (Aberdare)

    Davies, Ernest (Enfield)

    McKinlay, A. S.

    Thomas, George (Cardiff)

    Davies, Harold (Leek)

    McLeavy, F.

    Timmons, J.

    Deer, G.

    Manning, C. (Camberwell, N.)

    Tolley, L

    Delargy, H. J.

    Mellish, R. J.

    Ungoed-Thomas, L.

    Diamond, J.

    Middleton, Mrs. L.

    Usborne, Henry

    Dodds, N. N.

    Mikardo, Ian

    Wallace, G. D. (Chislehurst)

    Driberg, T. E. N.,

    Millington, Wing-Comdr. E. R.

    Wallace, H. W (Walthamstow, E.)

    Ede, Rt. Hon. J. C.

    Mitchison, G. R.

    Watson, W M

    Farthing, W. J.

    Monslow, W.

    Weitzman, D

    Fernyhough, E.

    Morris, P. (Swansea, W.)

    Wells, P. L. (Faversham)

    Foot, M M.

    Moyle, A.

    Wells, W. T. (Walsall)

    Forman, J. C.

    Neal, H. (Claycross)

    West, D. G.

    Freeman, Peter (Newport)

    Noel-Buxton, Lady

    White, H. (Derbyshire, N E.)

    Gallacher, W.

    Oliver, G. H.

    Whiteley, Rt. Hon. W.

    Gibbins, J.

    Paling, Will T. (Dewsbury)

    Willey, F T (Sunderland)

    Gilzean, A.

    Pargiter, G. A.

    Willey, O. G. (Cleveland)

    Glanville, J. E. (Consett)

    Pearson, A.

    Williams, D. J. (Neath)

    Greenwood, A. W. J. (Heywood)

    Peart, Thomas F.

    Williams, J. (Kelvingrove)

    Sunter, R. J.

    Popplewell, E.

    Williams, W R. (Heston)

    Guy, W. H.

    Pritt, D. N.

    Willis, E.

    Hall, W. G.

    Proctor, W. T

    Wills, Mrs E. A.

    Hannan, W. (Maryhill)

    Pryde, D. J.

    Woods, G. S

    Harrison, J.

    Ranger, J

    Hewitson, Capt. M.

    Rankin, J.

    TELLERS FOR THE AYES:

    Hobson, C. R.

    Roberts, Goronwy (Caernarvonshire)

    Mr. Joseph Henderson and

    Holman, P.

    Robertson, J. J. (Berwick)

    Mr. Michael Stewart.

    NOES.

    Assheton, Rt. Hon. R.

    Eccles, D. M.

    Pitman, I. J.

    Baldwin, A. E.

    Fox, Sir G.

    Prior-Palmer, Brig. O

    Beamish, Mai. T. V H

    Fraser, Sir I (Lonsdale)

    Ropner, Col. L.

    Birch, Nigel

    Galbraith, Cmdr T. D

    Shephard, S. (Newark)

    Bossom, A. C.

    Haughton, S G.

    Spence, H. R.

    Bower, N.

    Henderson, John (Cathcart)

    Stanley, Rt. Hon. O.

    Bracken, Rt. Hon. Brendan

    Jarvis, Sir J.

    Strauss, H. G. (English Universities)

    Braithwaite, Lt.-Comdr. J. G.

    Joynson-Hicks, Hon. L. W

    Stuart. Rt. Hon. J (Moray)

    Buchan-Hepburn, P. G. T

    Lambert, Hon. G.

    Thorp, Lt.-Col. R. A. F.

    Clarke, Col. R. S

    Lucas-Tooth, Sir H

    Wadsworth, G

    Conant, Maj. R. J. E.

    Marples, A. E.

    Wheatley, Colonel M. J

    Crookshank, Capt. Rt. Hon. H. F. C

    Marshall, D. (Bodmin)

    York, C.

    Crosthwaite-Eyre, Col. O. E

    Mellor, Sir J.

    Cuthbert, W. N.

    Molson, A. H. E.

    TELLERS FOR THE NOES:

    Drewe, C.

    Morrison, Maj. J. G (Salisbury)

    Mr. Studholme and

    Major Ramsay.

    CLAUSE 54.—(Relaxation of rules as to use of postwar refunds of excess profits tax in case of nationalised undertakings, etc.)
    Mr. Glenvil Hall: I beg to move, in page 52, line 33, to leave out "subsections (2) and (3)," and to insert "subsection (2)."
    This Clause, as the Committee will have noticed, make provision for relaxing the rules as to the use of postwar refunds of Excess Profits Tax where industries have been nationalised, and it fulfils a promise given by my right hon. Friend earlier this year in reply to a Question, when he indicated that, where it was not possible, owing to an industry's being nationalised, for the excess profits refund to be ploughed back into a business, they should be distributed to the people entitled to them. This is actually a drafting Amendment, because Subsection (2) deals with the case where compulsory acquisition takes place before the refund has been made, and Subsection (3) deals with the opposite case where compulsory acquisition takes place after the refund has been made. Therefore it is quite wrong to lump these' two opposites together in Subsection (5).
    Amendment agreed to.
    Further Amendment made: In line 36, leave out "subsections," and insert "subsection (2)."—[Mr. Glenvil Hall.]
    Clause, as amended, ordered to stand part of the Bill.
    Clause 55 ordered to stand part of the Bill.

    CLAUSE 56.—(Treatment of farm animals, etc., for income tax and profits tax purposes.)
    Motion made, and Question proposed, "That the Clause stand part of the Bill."
    Mr. Assheton: Would the Chancellor of the Exchequer or the Financial Secretary give us an assurance that, under this Clause, the farmers of this country are not in any way prejudiced by these new arrangements?
    Mr. Glenvil Hall: I can give that assurance. As I believe the Committee knows, and as it was explained at an earlier stage of discussion of the Bill, when we were dealing with this, the farmers' organisations have agreed to, and have taken a
    1308
    hand in working out, the provisions which are laid down here.
    Question put, and agreed to.
    Clause ordered to stand part of the Bill.
    Clauses 57, 58 and 59 ordered to stand part of the Bill.

    CLAUSE 60.—(Winding up of Essential Commodities Reserves Fund.)
    5.15 a.m.
    Mr. Glenvil Hall: I beg to move, in page 54, line 42, after "pounds" to insert "fourteen shillings."
    This, again, is a slip. The Committee will have noticed that the total of the Essential Commodities Reserves Fund is actually £973,041 14s. 6d. and in the reference to it here the 14s. has been dropped by the printer.
    Amendment agreed to.
    Clause ordered to stand part of the Bill.

    CLAUSE 61.—(Payment out of Consolidated Fund of deficiencies of interest on Post Office Savings Banks Fund and Fund for the Banks for Savings.)
    Motion made, and Question proposed, "That the Clause stand part of the Bill."
    Mr. Birch: The Committee should realise two short points before we part with this. It is generally calculated that these institutions require a rate of interest of at least 2¾ per cent. in order to pay their way. I imagine that they are getting something like 2¼ per cent., so we are, in effect, subsidising saving. This will have a great effect upon the figures of small savings. What the Chancellor is doing is paying five times the rate for short money. He is paying 2½ per cent. for short money while the market rate is ½ per cent. At the end of the year there will be enormous trumpeting that small savings are very satisfactory because the money is in the Post Office and the Trustees Savings Bank has gone up by a large number of millions.
    Question put, and agreed to.
    Clause ordered to stand part of the Bill.

    CLAUSE 62.—(Monopoly value of new on-licence where current on-licence surrendered.)
    The Under-Secretary of State for the Home Department (Mr. Oliver): I beg to move, in page 56, line 5, to leave out from "on," to "there," in line 6, and to insert:

    1309
    "or before the grant of an excise licence in pursuance of the new licence."
    There are two other Amendments connected with this which we shall move later. The object of the Clause is to remove an anomaly which was commented upon as far back as 1932 when the Royal Commission on licensing in England and Wales made their report. It has been found by the County of London Planning Licensing Committee that this has caused some difficulty in making it possible to negotiate for the surrender of licences. Whilst licences may be transferred or may be renewed without any payment of monopoly value, any variation of the conditions attached requires the issue of new licences. That new licence attracts full monopoly value which must be paid to the Exchequer.
    Monopoly value is the difference in value between premises with a licence and premises without a licence. That, of course, may be a very considerable sum. Therefore, in those cases it is provided that where the new licence has been issued and the old licence surrendered, the amount which must be paid is the difference between the two licences. In other words, if there is a public house and the beer licence is surrendered and a hotel business is being obtained, obviously it is only right and proper that the beer licence which is surrendered should be taken into account in assessing the amount.
    Mr. Bracken: What Amendment is the hon. Gentleman dealing with?
    Mr. Oliver: I am explaining the Clause first.
    Mr. Stanley: Surely it is customary that one deals with the Amendment first and the Clause afterwards.
    Mr. Oliver: The intention of the Amendment is to provide that the surrender of the licence should take place as soon as the licensee is in a position to start business under the new licence.
    Lieut.-Commander Braithwaite: Many of us were wondering what the Home Secretary and the Under-Secretary were doing here for three or four hours. It is now clear that the Under-Secretary has been studying his brief and it is something of a disappointment to find that he is not yet word perfect. However, the revealing speech he has delivered does cast
    1310
    some light on this matter and when the other Amendments are put forward and he delivers the oration with which he has come prepared we may be far better seized of the position.
    Amendment agreed to.
    Further Amendment made: In page 56, line 38, leave out from "and," to "at," in line 42, and insert:
    "(a) an application to have the said amount determined may be made either at the general annual licensing meeting or."—[Mr. Oliver.]
    Mr. Oliver: I beg to move, in page 57, line 1, at the beginning to insert:
    "Where the two applications are made separately, then in the proceedings relating to the determination of the said amount."
    This Amendment is consequential on the last one.
    Mr. Stanley: I think we should have a little explanation, or at least a substantiation of this. Perhaps the hon. Gentleman, since he has said it is consequential, will explain what it is consequential upon, and how, and why.
    Mr. Oliver: The first Amendment makes it quite clear that the application may be made at the Brewster sessions or transfer sessions. This says that,
    "Where the two applications are made separately, then in the proceedings relating to the determination of the said amount."
    and that follows in a purely consequential way.
    Amendment agreed to.
    Motion made, and Question proposed, That the Clause, as amended, stand part of the Bill."
    Colonel Crosthwaite-Eyre: I should like, before we part with this Clause, to know a little more of what Section 14 of the Licensing Consolidation Act, of 1910, has to do with a justices' licence, and how far this Clause modifies any arrangements enacted under the Act of 1910. I am also slightly worried about Subsections (8) of Clause 62. Why is a licence for the sale of wine alone, or sweets alone, treated differently? What is the justification for the Government obtaining this? Surely the great object of the Amendment is to provide a wider range in the hotels of this country, and this sort of discriminatory Subsection ought, I think, to be dropped.

    1311
    The real question is, what is the meaning of the phrase "for securing monopoly value"? How does this follow on the licensing Act in which the word "monopoly" does not occur?
    Mr. Oliver: Under the Licensing Consolidation Act of 1910, Section 14, reference is made to a monopoly value.
    Colonel Crosthwaite-Eyre: I really would be very grateful if the hon. Gentleman would quote the exact reference in Section 14.
    Mr. Oliver: The Section reads:
    "The licensing justices, on the grant of a new justices' on-licence, may attach to the grant of the licence such conditions, both as to the payments to be made and the tenure of the licence and as to any other matter, as they think proper in the interests of the public. subject as follows:
    (a) Such conditions shall in any case be attached as, having regard to the proper
    1312
    provision of suitable premises and good management, the justices think best adapted for securing to the public any monopoly value …"
    Question put, and agreed to.
    Clause, as amended, ordered to stand part of the Bill.
    Clause 63 ordered to stand part of the Bill.
    To report Progress: and ask leave to sit again.—[Mr. Hannan.]
    Committee report Progress; to sit again upon Monday next.

  ADJOURNMENT.
  Resolved, "That this House do now adjourn" —[Mr. Hannan.]
  Adjourned accordingly at Twenty-eight minutes to Six o'Clock a.m.