HC Deb 11 June 1947 vol 438 cc1120-47
Colonel Clarke (East Grinstead)

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 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- 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 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, 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 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 that these payments should be treated quite exceptionally, and I hope the Government will reconsider this matter.

6.30 p.m.

Mr. Assheton (City of London)

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 (Stockport)

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 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 (Holderness)

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.
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.)
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 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.

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- 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 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


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 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 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- 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, 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, 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 (Leeds, North)

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 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 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.