§ 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 (Stockport)
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 (Oswestry)
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 (Manchester, Blackley)
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 (Combined English Universities)
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 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.