CLAUSE 49.—(Charge of duty on bonus issues of securities, etc.)

HC Deb 11 June 1947 vol 438 cc1243-89

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 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 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. 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- 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 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 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 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 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 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 (Bournemouth)

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 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 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 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 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 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 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 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 (Enfield)

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 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 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 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 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 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 rose—

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 (Skipton)

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 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 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 (Harrow, West)

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. 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 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 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 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 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- 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- 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 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 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 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 (Glasgow, Pollok)

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 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 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.

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 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 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 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 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 £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.