HC Deb 21 June 1948 vol 452 cc958-87

(1) Where—

  1. (a) on a claim against a trustee for the recovery of contribution, not being contribution in respect of which the trustee could have given notice under subsection (4) of section fifty-five of this Act, or
  2. (b) on a claim against a tenant for life for the recovery of contribution,
the trustee or tenant for life shows to the satisfaction of the Special Commissioners that his rights of indemnification out of the trust estate are, otherwise than by negligence or default on his part, insufficient to provide for his reimbursement, the Special Commissioners may give such directions for the limitation or release of his liability as appear just and equitable

(2) Where a person who has paid any contribution proves to the satisfaction of the Special Commissioners that by reason of directions under the last foregoing subsection he is deprived of the right to recover any amount in respect thereof, the Special Commissioners shall repay that amount to him—[The Solicitor-General.]

Brought up, and read the First time.

3.40 p.m.

The Solicitor - General (Sir Frank Soskice)

I beg to move, "That the Clause be read a Second time."

This Clause is designed to meet a point that was put during the Committee stage by the hon. Member for Chippenham (Mr. Eccles) with regard to the liability of trustees. Trustees who are made liable to pay a proportion of the Contribution when the contributor has recourse to them, require protection in the event of their not being able to reimburse themselves out of the estate which is under their control, provided always that their failure so to do is not attributable to their own neglect or default. This proposed new Clause provides, if they can show there are insufficient assets owing to no fault of their own, that they are excused from payment of a proportionate amount of the Contribution which the contributor has called upon them to recoup. Subsection (2) provides that when the contributor himself has paid the Contribution and cannot recoup himself by having recourse against the trustees, because the trustee's liability has been limited under the first part of the Clause, he can ask to be recouped a proportionate amount of the Contribution which he pays himself. The new Clause does provide the necessary protection for trustees.

Mr. I. J. Pitman (Bath)

I am grateful for this new Clause so far as I understand it, but I do not understand whether or not it includes—and I mentioned a case recently in the Committee stage—a trust in which there may be literally no capital whatever. That might not be through the fault, or lack of fault, of the trustees. It might be the last year of copyrights under the will of an author who leaves his royalties which were thus expiring. The Solicitor-General will appreciate that on the last year there would be absolutely no capital in that trust, although there might be a very considerable income indeed. I should like to know whether this new Clause covers the case in which there is, in truth, income, but not any capital?

3.45 p.m.

Secondly, I wish to speak to the Amendment which is down in my name, which, I understand, is not selected, after "reimbursement," to insert: or a diminution of rights to capital in the trust not of the beneficiary assessed to contribution on the income from the trust but only of some other individual. I wish to ask the Solicitor-General to go a little further in this respect and cover those cases in which the incidence of this tax falls neither on the rich tenant for life nor on the rich residuary of a trust. As the result of a letter that I wrote to "The Times," I have had a specific instance of a case in which the tax is likely to fall on those on whom the Minister certainly would not have intended that the tax should fall. The case is of a man who is earning a very considerable income at the Bar, and who married a widow who had four sons. The widow has a life interest in the estate of her late husband, and the residuary interest of that trust passes on her death to the children. The second husband has a considerable earned income, in fact I believe he is doing extremely well, but he has very little if any investment income. The effect of the Clause, as I understand it, will be that he will be assessed for the Contribution on his wife's investment income, which is the payment of a life interest to her under her late husband's trust.

The next step is for the present husband to require the trustees to pay that Contribution, rather than pay it himself. If that happens, those who will, in point of fact, pay the Contribution will not be the wife, because she will continue to draw her life interest under her late husband's will, and certainly not the present husband, but the four children of the first husband. That is a specific case in point, and it raises a fundamental issue. I take it that the Minister and hon. Members opposite intend that the Special Contribution shall fall in relation to the ability to pay. For the purposes of convenience the ability of payment is assumed to lie with the enjoyment of income rather than the holding of capital. What we really want to know is whether that administrative method is to be based on ability to pay in terms of income, or ability to pay in terms of capital?

In this case, under a trust, the ability to pay is based on the income of the widow from that trust but, in point of fact, the ability to pay any capital has nothing whatever to do with the present husband or the widow who has since married that husband, but to do with those four children. The purpose of my Amendment was to make it quite clear that the Contribution should fall on those who have (a) the ability to pay, and (b) the capital ability to pay, and not on anybody else. I should like the Solicitor-General to devote himself to that point. It is a point of great fundamental principle in this Bill. We ask him to make clear, not only the full scope of his Clause, but whether he can meet us, at any rate in principle.

Mr. Oliver Stanley (Bristol, West)

It is a measure of the depths to which we have been reduced by this particular part of the Budget that I gather that we are expected to express gratitude to the Government for this proposed new Clause. What, in fact, does it effect? It effects this, as I understand it. If I, as a trustee, have served upon me a notice by my cestui qui trust that I am to pay the Contribution out of the trust fund, and if there is not enough money in the trust fund to pay the Contribution, then the Treasury, very kindly, will consider whether or not they will let me off paying out of my money the Contribution which is not levied on me, in which I have no interest whatsoever, and under which, in ordinary circumstances, I would have no legal liability at all. I do not know if that is the position—it is put, I am afraid, in very crude and almost unintelligible terms—but if so, what is the justification for leaving this to the discretion of the Treasury?

What possible justification is there for not laying down by statute that, in those circumstances, I, as a trustee, should not be liable for any more than is available out of trust funds for which I am responsible? Why should it be left to the Treasury to decide in their goodness, in so far as they possess any, whether or not I should have to pay out of my own pocket in order to make good the Contribution due from my cestui qui trust when my trust fund is not competent for it? I might have been prepared to express a modified form of gratitude at least to the Government for putting right a wrong which ought never to have been included in the Bill if this new Clause had taken the definite form of exclusion from liability. I cannot see any reason—it certainly has not been given by the Solicitor-General—why a matter which, in equity, is so clear, should be left to the goodwill and discretion of the Treasury. Before we accept this new Clause I should like from the right hon. and learned Gentleman some explanation of what appears to me to be a quite inexplicable mistake.

Mr. Charles Williams (Torquay)

I should like a little information on a point which we raised earlier. Does this Clause do anything to prevent any burden falling on charitable trusts? Originally, charitable trusts had to pay in the event of the levy falling on an individual who, when he died, arranged that his capital should go to a charitable trust. I instanced the case of Bristol Orphanage, because I hoped that that might appeal to the Chancellor of the Exchequer as it is somewhere in the neighbourhood which he represents. We did not get any further with that point at that stage of the Bill. Do I understand that it is possible, and in some cases inevitable, that charitable institutions will have to bear a considerable weight of taxation?

Mr. McKie (Galloway)

I very much hope that the Financial Secretary will respond to the appeal made by my right hon. Friend the Member for West Bristol (Mr. Stanley). I do not think that it would be at all right to add this Clause to the Bill without some further light being shed upon many of the points of detail already raised. If we on this side of the House so desired, we could prolong the Debate for a considerable period by raising many other points which no doubt my hon. Friends have in mind. I join with my right hon. Friend in expressing our thanks—I presume that is the right word—to the right hon. and learned Gentleman for having been good enough to include this new Clause on Report owing to our diligent efforts when the Bill was in Committee in pointing out the many traps into which trustees would fall and the difficult problems which they would face if the Bill was not amended. Despite the fact that we are thankful for that, in my opinion, and in the opinion of many of my hon. Friends who are particularly well able to speak on financial matters, this new Clause does not go far enough. So far we have not had a sufficient explanation from the Solicitor-General. I join with what was said by my hon. Friend the Member for Torquay (Mr. C. Williams). We ought to have a reply on that point. No doubt my hon. Friend has many specific cases in mind.

The reason why I rose was to point out the great hardships which may arise in the cases of trustees responsible for the administration of estates which are almost entirely composed of landed settlements. I feel sure that on further reflection the right hon. and learned Gentleman will agree that we should have more details of how this Clause will affect trustees of estates where the money comes almost entirely from landed sources of revenue. There is no doubt that even before the iniquitous financial legislation—the word "iniquitous" is not too strong—introduced by the present Socialist administration, trustees were continually being made to suffer. I always like to be fair, and I would say that in the period between the two wars impositions were made upon trustees—I am glad to see the hon. Member for Forest of Dean (Mr. Philips Price) paying attention—of landed estates, and trust funds which dated back perhaps 50, 60 or 70 years, were continually being confronted with the problem of how to carry on, especially owing to the changing values of money and, indeed, the inflationary process which we had even after the first world war. I suggest, Mr. Speaker—and no doubt you will agree with me—that on many occasions they have had to make advances. Many estates in land are now almost insolvent owing to the increased burdens put upon them—

Mr. Speaker

Perhaps the hon. Gentleman will not talk of taxation generally, but will now proceed to address himself to the new Clause.

Mr. McKie

With great respect, Sir, I was not going to presume further upon your patience by discussing taxation generally. I was merely pointing out the great hardships which may rest on trustees of landed estates in spite of this new Clause. We ought to have further information about how they will be affected. I do not think that the right hon. and learned Gentleman has satisfied us, and I hope that he will see fit to respond to the appeal of my right hon. Friend.

Mr. Hollis (Devizes)

There is one point on which we must have some clarification. Suppose that there was a husband who had an earned income and a wife who enjoyed an investment income through a trust. Neither would have to pay if they were not husband and wife, but their joint income would be sufficient to make a payment necessary. In that event, the payment would be made not by the wife who, by definition, possesses no capital nor by the husband, but by the children. They would be the beneficiaries of the trust. Let us suppose that there were four children. It might be that the income they hoped to receive would be nowhere sufficient to make them liable if they were receiving that income at the moment. Those unfortunate children would be taxed in an arbitrary way because of a fortuitous combination of circumstances and parents.

A constituent of mine wrote to me in some distress because his position was that he had enjoyed an earned income and his wife enjoyed a certain investment income. Unfortunately, his wife died in January of this year and her capital was left to their children. He was afraid that under this Bill as it stood then, though he possessed no capital worth talking about, he would have to pay the levy on the capital which, through his wife, he had enjoyed during a portion of the year. Fortunately, I was able to reassure him that by Clause 57 (6) that was not the case. Subsection (6) says: Where of a husband and wife one died during the year 1947–48, the provisions of this Part of this Act shall apply to the survivor as if during that year they had not been married. Suppose, however, that the situation had not been precisely as it was in that case, but had been that his wife enjoyed an investment income in trust and did not die. In that case, he would certainly have been liable to pay a capital levy despite the fact that he did not possess any capital. That would be bad enough if this was a case of "once for all," as the Chancellor has said, but, if it is merely the first stage of greater things to come, as clearly must be the case from the recent calamitous appointment of the new Chancellor of the Duchy of Lancaster, we are entitled to know where we are.

4.0 p.m.

Sir H. Lucas-Tooth (Hendon, South)

I should like to know whether the words "rights of indemnification out of the trust estate" are sufficient to cover a case where the trustee estate is, in fact, a foreign trust, and where it is insufficient by reason of the fact that the foreign law forbids the trustees to sell the estate. Are those words wide enough to cover that case?

The Solicitor-General

If I may, I will take the points which have been put, as I remember them, seriatim. The hon. Member for Bath (Mr. Pitman) raised the question of a widow who had a life interest in the income of a trust the corpus of which went to her children on her death. That instance does not arise under this Clause at all. The Clause is intended to limit the liability of trustees, and the question which the hon. Gentleman has raised is how far it would be right that liability for the Contribution should ultimately fall upon the corpus which goes to the children. Although it does not arise on this Clause, I would say to the hon. Gentleman that the Contribution being, in effect, a charge on capital via income, it is not unreasonable that the children who will ultimately inherit the corpus and enjoy the capital should bear the burden of the tax. That does not arise on this Clause, which deals with the liability of trustees.

Mr. Hollis

The right hon. and learned Gentleman is missing the whole point. Suppose the wife was going to leave the money to one child, it would be fair that the child should pay what the wife pays, but, supposing there were four children, none of them might have sufficient investment income to pay the liability.

The Solicitor-General

The answer to that is in Clause 56, which applies different rules as to the equitable distribution as between the persons interested in the corpus of the estate and the burden of the tax. The ordinary Chancery rules, which have been worked out to provide for fair distribution as between various persons interested in the corpus of the estate, will be applicable and, in the case just instanced, there will be fair distribution, having regard to the point I have just mentioned.

Mr. Pitman

rose—

The Solicitor-General

This does not arise on this point at all. It arises on an Amendment which has not been called, and on which the argument which has been adduced would arise. I gave a brief answer to an argument which is irrelevant to the new Clause, and perhaps I should not have done so, but, having done that, there is no reason now for my being drawn into a long discussion of the matter.

Mr. Pitman

On a point of Order. I inquired at the Table, and I understood that the Amendment was not being called but that it would be in Order to discuss the matter on this new Clause. I hope I have not been guilty of raising a point which is out of Order, and I should have thought that, if I was in Order in raising it, the Solicitor-General would be in Order in replying and that I would also be in Order in attempting to follow up that reply.

Mr. Speaker

I think that is the normal procedure. If the matter had been out of Order in my opinion, I would have stopped the hon. Gentleman, but, the matter having been raised, he is entitled to receive a reply.

The Solicitor-General

I have replied.

Mr. Pitman

Would the right hon. and learned Gentleman give way to me? What we have been arguing is the case of four people, each with £200 a year, who are to be taxed, regardless of the fact that they will be relatively poor. This is not a case of people with big capital or big incomes; but of four children who have not got either big income or big capital investment.

The Solicitor-General

I still do not think that this point arises under this Clause, and I said earlier, when we were discussing questions of this sort, that Clause 56 applies to the case which has just been put. Where we have various interests, an elaborate code based upon the provisions of the Finance Act, 1894, designed to bring about a fair distribution of the burdens of tax, will be brought into play. That code of rules, which has been formulated as the result of a great many Chancery decisions, will be brought into operation. It would be a long business to indicate its precise application in any particular set of circumstances, because the rules vary according to the interests concerned.

Mr. Pitman

The Solicitor-General has still not seen the point. These are provisions to equalise the burden of payment amongst people who have to pay. We raise the point that these people ought not to be paying at all.

The Solicitor-General

I answered that by saying that, ultimately, the charge should fall upon the capital via the income, and I have explained that there are rules to see that it shall be apportioned out equitably between the various interests concerned.

The point raised by the right hon. Member for West Bristol (Mr. Stanley) was that this should not be a matter of discretion. The term used is "may give such directions." The different sets of circumstances which would have to come into consideration make it very difficult to operate a Clause like this unless we leave some measure of discretion. There is a right of appeal against an order made by the Special Commissioners, and we think that is the best way to deal with the matter, when considering all sorts of different circumstances which might be alleged as being the reason why the estates are insufficient, and we think it wise to leave a certain amount of discretion in the hands of the Special Commissioners to enable them to do justice in each case. If the trustees feel aggrieved by the order, there is a right of appeal, and we think that is the most effective way of bringing about a fair result.

What has to be considered is whether the deficiency of the estate, if there is a deficiency, is due or is not due to any neglect on the part of the trustees. That being ascertained, the question arises whether directions should be given or not. If directions are given, this Bill provides that there shall be a right of appeal on points of law to the High Court ultimately, and we feel that that is the best way of dealing with a problem which can be difficult to solve in particular circumstances. That is my answer to the question which the right hon. Gentleman asked.

Mr. Stanley

I do not understand the answer of the learned Solicitor-General, because as I read the new Clause if it is proved that this has arisen by negligence or default, the discretion of the Special Commissioners does not come into it at all. If there has been negligence, they cannot exercise their discretion; they can only do it where there has been no negligence, and, if there has been no negligence of the estate, there should be no discretion, but a plain duty to exempt.

The Solicitor-General

If there is a case made that there is insufficient to meet the liability, unless there has been neglect on the part of the trustees there is discretion as to the precise form of the order to be made in particular circumstances in order to do justice. That is what the Clause provides, and, in the event of a trustee feeling that he is aggrieved, there is a right of appeal. We think that is the best way of making sure that the trustees are safeguarded and in order to prevent them having to pay out of their pockets any amount in respect of the deficiency.

With regard to the question raised by the hon. Member for Torquay (Mr. C. Williams), the charitable trustees are not individuals within the meaning of Clause 46. Therefore, they would not be persons who are liable to pay Contribution at all. Charitable trustees are not liable for Contribution, for the reason that they do not come within the meaning of the word used in Clause 46—"individuals."

Mr. C. Williams

rose—

The Solicitor-General

I really cannot keep on giving way. I gave a specific answer to the question.

Mr. C. Williams

But that was not the question. The point was not that they were liable to the original tax. It was that if the person who is drawing the income is liable to the tax, that tax has to be paid out of the fund and if ultimately that fund goes to the charity, there will be less money. I want to know whether such people are covered. I have never for a minute put the point which the right hon. and learned Gentleman suggested—that they would be liable to tax—because that was obvious to me weeks ago. I want to know whether ultimately the funds which should accrue to them will be diminished by a certain amount?

The Solicitor-General

May I revert from what I have just been saying to the answer which I gave to the right hon. Member for West Bristol? He made the point about discretion. My answer was that there was discretion to make an appropriate order in the event of the necessary conditions being disclosed. If, after my answer has been considered, it is felt that that is unsatisfactory from the point of view of trustees, and if you would be prepared to accept it, Mr. Speaker, we would willingly move a manuscript Amendment to substitute the word "shall" for the word "may" if that would meet the point which the right hon. Gentleman has in mind. I think it would entirely meet the point.

Mr. Stanley

I am in a difficulty. Of course, we on this side of the House are grateful to the right hon. and learned Gentleman for his suggestion, but it is very difficult to decide straightaway. I am sure the suggestion goes some of the way, but I doubt if it goes all of the way, because it still keeps the discretion as appear just and equitable. I wonder whether the best thing would be to move to postpone the discussion of this Clause until the end of the Bill, which would give us an opportunity of having a talk with the right hon. and learned Gentleman.

The Solicitor-General

I see the right hon. Gentleman's point, but I really do not think it would be necessary to alter the succeeding words. If one substitutes the word "shall" for "may," then once the necessary conditions are shown to exist it is obligatory upon the Special Comissioners to make a direction. They have got to do so. What is the obligation which is placed upon them? They are bound to make a direction which is just and equitable in the circumstances. If they do that, and if the trustee still feels aggrieved, there is a right of appeal. I suggest that once they are bound to make an order, they are bound to bring their minds to the problem and make such an order as they think just and equitable in the circumstances. I think my proposal would meet the point if Mr. Speaker would accept a manuscript Amendment in the terms which I have suggested.

Mr. Assheton (City of London)

We are naturally grateful to the right hon. and learned Gentleman for his suggestion, but we are not quite satisfied that it would fully meet the point. I should have thought that it would be a great advantage to postpone discussion of this Clause, at any rate until the end of the Clauses, so that we could be sure that we shall get the matter right. This is a rather hurried suggestion. It had occurred to me that the word "shall" might have been substituted for the word "may." I whispered it to my right hon. Friend the Member for West Bristol (Mr. Stanley) after he had spoken, and he pointed out to me that even if that were done it would not, in his opinion, give complete exemption to the trustees from any possible liability in any circumstances. We want to ensure that no personal liability shall fall upon any trustee if he has not got the funds to meet it. That seems a fairly easy sort of thing to put into legal phraseology, and I should have thought that if between now and the end of the Clauses the right hon. and learned Gentleman really tried, he would have been able to get a very short Clause to give effect to that point.

We are not quite certain that the words as they would appear if the Solicitor-General's suggestion were adopted, shall give such directions for the limitation or release of his liability as appear just and equitable, go far enough. We want to make quite certain that no liability can fall upon a trustee if he has not got the money to meet it. I am sure the Government want to give that effect if they possibly can, and I think it would be convenient if we had a little more time to consider the exact wording. I was requested by my right hon. Friend the Member for West Bristol to ask what appeal there is to be. To whom is the appeal to be made?

4.15 p.m.

Perhaps I may say a few words on the points raised by a number of my hon. Friends. The hon. Member for Torquay (Mr. C. Williams) made the point that this Contribution would fall upon a charity which had a reversionary interest to a trust fund, and I think he was trying to protect a charity from losing part of the reversionary interest. The reply which the right hon. and learned Gentleman gave did not entirely meet that point. We want to know if a charitable fund may, through the effect of this Special Contribution, ultimately suffer in its capital value. As we read the Bill now, it will so suffer. I want to be sure that the Government do not intend that, and that they will put in some words to meet the situation.

My hon. Friends the Members for Bath (Mr. Pitman) and Devizes (Mr. Hollis) raised a point which is very important, that the result of the working of this Contribution will be that certain persons will have to pay a Contribution when, in fact, they may have a very small income indeed. Although the Solicitor-General pointed out that this was not wholly relevant to the Clause, a certain amount of discussion was allowed on it. Therefore, it is right that we should press the point. It seems grossly unfair that owing to the way in which a fund comes to be distributed, a very substantial tax may be made upon an income which may be only £100 or £200 a year. The Solicitor-General pointed to the elaborate code which had been built up in assessing these matters with regard to Estate Duty. Of course, there is a most elaborate code, but is it a just or satisfactory code? There are many circumstances in which it works grossly inequitably.

Take the case, for example, of a man who has a very small capital. Say he has a capital of £5,000, and happens to become the tenant for life, even for a few months, of a large capital fund, the whole of that £5,000 has to bear a very heavy rate of Estate Duty. Perhaps all he has to leave to his wife and children may be the £5,000 less Estate Duty of 50 per cent. or 60 per cent., whereas the Estate Duty on the 5,000 would be a very small percentage. There are numerous cases where the rules work most inequitably. To import this code into this legislation is no defence to what the right hon. and learned Gentleman is doing.

Mr. Selwyn Lloyd (Wirral)

I would like to appeal to the Government to reconsider this matter. The words otherwise than by negligence or default on his part seem to be extremely wide. They mean that if there is a scintilla of evidence of negligence in the matter, or the slightest default, then the Commissioners have no discretion whatsoever over the release of any liability. I suggest that it would be very much better if those words were omitted so that the Clause reads: … the Special Commissioners shall give such directions for the limitation or release of his liability as appear just and equitable, taking into account any negligence or default. The Clause is not properly drawn, and that is an additional reason for taking back the Clause and reconsidering it.

Lieut.-Commander Gurney Braithwaite (Holderness)

The right hon. and learned Gentleman, when he was moving the Clause at the commencement of the Debate, said it was designed to meet points of difficulty raised by my hon. Friend the Member for Chippenham (Mr. Eccles) during the Committee stage. I think the discussions, as they have gone so far, show that, however excellent the Government's intentions may have been, the drafting of the Clause does not achieve the object which I think they themselves, and certainly those of us on this side, had in view. I would, therefore, suggest in all good temper to the right hon. Gentleman that he is still making very heavy weather of what is a fairly simple matter.

We have established, I think effectively, in the speeches which preceded mine, that where there is no capacity to pay, this Contribution should not be levied. The right hon. Gentleman, in meeting us, rested himself with considerable confidence on the machinery of appeal. We still feel that the main objection has not been met. What is required is not an appeal to the Commission, but an appeal from the Commission. I do not feel the right hon. Gentleman dealt effectively with that point. My hon. Friends still feel in some difficulty as to what he meant. Is there, in fact, apparatus by which these trustees can appeal from the decision of the Commission? It does not appear in Clause 59, to which the right hon. and learned Gentleman refers, nor can we find in the Bill any such machinery. We feel it should be inserted before we part from this Clause.

May I deal with one further point? In the Chancellor's words, this Special Contribution was levied upon those who would have the capacity to pay. He used that phrase more than once. This Debate has shown that it will be levied on people who have not the capacity to pay. The Chancellor inferred that it was a crime to be rich. It is now to be a crime to be poor, under this apparatus. I would suggest too that although the machinery of appeal may be provided, the machinery of appeal is not something which can easily be achieved by people of all circumstances. Appeals are apt to be expensive. Honourable, learned and distinguished counsel very often have to be employed, opinions have to be obtained and all the rest of it, and those entrusted with slender resources will thus have a very unfair additional burden imposed upon them. I add my voice, for what it is worth, to those of my hon. Friends who have suggested that this Clause should be taken back and looked at again. We could take it later in the Report stage, when these difficulties have been smoothed out to the satisfaction of all.

The Solicitor-General

On the question of appeal, there is an Amendment on the Order Paper which I hope will be selected, in page 47, line 1, after "Act," to insert or section (Limitation of liability of trustees) or section (Relief where capital subject to death duties) thereof. It provides for an appeal, as in the case of Surtax and other taxes, to the Special Commissioners and through them to the courts on a point of law. This is provided by this Amendment put down later to Clause 59, and in due course it will be moved by the Government. It gives a right of appeal against an order made by the Special Commissioners in respect of which the trustees feel they have a grievance under the new Clause and it incorporates the provisions which provide that if an appeal goes to the Special Commissioners, and it is desired to go further on a point of law, that further appeal lies to the courts on a point of law and on a point of law only. That is the normal course of appeal under the Income Tax Act.

With regard to the general plea that the Clause should be taken back, that is one to which I feel we should not be asked to accede. We have said, if "otherwise than by negligence or default" the trustees find themselves with insufficient funds in their hands, they can ask for this measure of relief which the Commissioners shall give them. The hon. and gallant Member for Holderness (Lieut.-Commander Braithwaite) said it might be very hard in the case of small estates, and that the trustees should not be burdened with the business of appealing to the courts. It is for that reason that we have left in the Clause this slight measure of elasticity in the words: as appear just and equitable. We have provided that there must be an order made—there being that obligation which cannot be removed, provided the necessary conditions are shown to exist to make an order—and that the Special Commissioners shall make one which is fair and reasonable in the circumstances. In this endeavour to try to reach finality in the matter, we think these words assist the position rather than the reverse. We feel we have adequately met the position. It can be said, of course, that questions arise where there is the slightest possible degree of negligence, but these things must be construed by the courts reasonably and I do not think any difficulty should arise. We feel we have adequately protected the position of trustees.

Mr. Stanley

I have looked at the Amendment to which the Solicitor-General referred, and it is quite clearly an appeal to the Special Commissioners. How can one appeal to the Special Commissioners from the decision of the Special Commissioners?

The Solicitor-General

If the right hon. Gentleman will turn to page 47 of the Bill he will see, in the first place, that under Subsection (4), when the Amendment has been made, there will be an appeal to the Special Commissioners.

Mr. Stanley

What of an appeal from the Special Commissioners?

The Solicitor-General

If the right hon. Gentleman looks at Subsection (7) of the same page he will see that the provisions of Section 149 of the Income Tax Act of 1918 apply, with the necessary modifications in the case of any appeal to the Special Commissioners, and Section 149 provides that an appeal lies from the Special Commissioners to the courts on a point of law.

Mr. Assheton

By leave of the House, may I rise to point out that this does not meet the position where there is not a point of law at all? What we find here is that the Special Commissioners will make a determination which they think is just or equitable. It may be that no question of law will arise at all, and in that case there will be no appeal from them whatever.

Captain Crookshank (Gainsborough)

We seem to be getting a little confused. I am sure the right hon. and learned Gentleman did not intend to mislead us, but in his argument he was not addressing himself to the real point which we have in mind. It is a question of where there is no money, not where an argument as to a point of law arises. I understood from him earlier, quite distinctly, that there was a right of appeal, but as we look at this Clause we see that appeals are either to the Special Commissioners or, in this particular case, to the High Court on a point of law.

The right hon. and learned Gentleman is prepared to move an Amendment, but I think it really would be very much more convenient if the Government were prepared to accept a Motion, which I think is in Order, as we have not yet taken any decisions on the Second Reading of this Clause, that further consideration of this Clause be postponed until just before the discussions on the Schedule of the Bill—that is to say, in all likelihood, sometime tomorrow. That would give time for the right hon. and learned Gentleman to put down his Amendment so we could see it on the Order Paper tomorrow, and it might be that if we had some suggestions to make we could also put them on the Order Paper tomorrow in the form of the relevant Amendment. I understand it is perfectly in Order to make that Motion and I hope, therefore, the Government will accede to our request.

I beg to move, "That further consideration of the Clause be postponed until the consideration of the Clauses in the Bill has been completed."

4.30 p.m.

The Solicitor-General

I do not want to be obstinate about the matter, but I think that hon. Gentlemen opposite are making rather heavy weather about it. Let me deal first with the matter of appeals. The ordinary procedure will apply which applies now in the case of Income Tax appeals. There is an appeal from the Special Commissioners who, when making the direction, are, in effect, revenue officers. An appeal lies from them as it does in all these Income Tax matters. May I have the attention of the right hon. Gentleman?

Mr. Stanley

On a point of Order. I do not in the least want to curtail the argument of the right hon. and learned Gentleman, who is making an interesting argument, provided that we are entitled ourselves to follow him. However, I understand that on this Motion nothing is in Order except discussion of the question of postponement.

Mr. Speaker

I am afraid we cannot go into the merits of the new Clause or an Amendment of it, on this Motion. This is a question whether we do or do not postpone discussion.

The Solicitor-General

With respect, I would say we should not postpone the discussion, and in support of that, although I do not want to go into the merits of the new Clause, I do submit that the points which have been made by hon. Gentlemen opposite are already covered by the Clause as it stands. Without dealing with the matter in detail, I can say there is an answer to the question of appeals. The rest of the Clause does what we think is necessary for the purpose adequately of safeguarding trustees. For that reason I would respectfully

submit that the Motion should not be carried, because there is no point in further discussing the Clause, which has already been discussed to some considerable extent and because the Clause does, in point of fact, achieve the object we have set out to reach. For these reasons I would respectfully submit that the House should come to a decision now.

Mr. Stanley

I hope that even now, the Government will accept the Motion to postpone. It cannot make any difference to them if we pass the Clause now or some time tomorrow. I would point out that the right hon. and learned Gentleman himself—and I am grateful to him for it—says he will propose an alteration of the Clause in the form of a manuscrip Amendment. We have not really had time to consider whether that does meet the point we are making. My own feeling at the moment is that it does not meet that point. However, I think our point can be met easily and within the desire of the Government, by some further minor alteration. In these circumstances, and if, as I believe, both sides of the House are anxious to get just the same thing, and if we are merely differing about the wording which will obtain what we all desire, it would seem to be convenient to postpone the discussion until tomorrow. That would give opportunity for thinking the matter over, and possibly for discussing it between ourselves, and that may easily result tomorrow in the putting down of an agreed Amendment.

Question put, "That further consideration of the proposed Clause be postponed until the consideration on the Clauses of the Bill has been completed."

The House divided: Ayes, 102; Noes, 204.

Division No. 229.] AYES. [4.34 p.m.
Agnew, Cmdr. P. G. Crookshank, Capt. Rt. Hon. H. F. C. Hare, Hon. J. H. (Woodbridge)
Amory, D. Heathcoat Cuthbert, W. N. Harvey, Air-Comdre. A. V.
Anderson, Rt. Hn. Sir J. (Scot. Univ.) Darling, Sir W. Y. Headlam, Lieut.-Col. Rt. Hon. Sir C.
Assheton, Rt. Hon. R. Davies, Rt. Hn. Clement (Montgomery) Hinchingbrooke, Viscount
Baldwin, A. E. Dodds-Parker, A. D. Hollis, M. C.
Beamish, Maj. T. V. H. Donner, P. W. Holmes, Sir J. Stanley (Harwich)
Bennett, Sir P. Drayson, G. B. Howard, Hon. A.
Birch, Nigel Drewe, C. Jeffreys, General Sir G.
Boles, Lt.-Col. D. C. (Wells) Duthie, W. S. Keeling, E. H.
Bowen, R. Eccles, D. M. Kendall, W. D.
Boyd-Carpenter, J. A. Eden, Rt. Hon. A. Kingsmill, Lt.-Col. W. H.
Braithwaite, Lt.-Comdr. J. G. Elliot, Lieut.-Col. Rt. Hon. Walter Lambert, Hon. G.
Buchan-Hepburn, P. G. T. Fletcher, W. (Bury) Lancaster, Col. C. G.
Butcher, H. W. Fraser H. C. P. (Stone) Legge-Bourke, Maj. E. A. H.
Byers, Frank Fraser, Sir I. (Lonsdale) Linstead, H. N.
Challen, C. Galbraith, Cmdr. T. D. Lloyd, Selwyn (Wirral)
Clarke, Col. R. S. Gammans, L. D. Lucas-Tooth, Sir H.
Conant, Maj. R. J. E. Grimston, R. V. Macdonald, Sir P. (I. of Wight)
McKie, J. H. (Galloway) Pitman, I. J. Stewart, J. Henderson (Fife E.)
Maclay, Hon. J. S. Poole, O. B. S. (Oswestry) Strauss, H. G. (English Universities)
Macpherson, N. (Dumfries) Price-White, Lt.-Col. D. Studholme, H. G.
Maitland, Comdr. J. W. Prior-Palmer, Brig. O. Taylor, Vice-Adm. E. A. (P'dd't'n, S.)
Marlowe, A. A. H. Ramsay, Maj. S. Thorneycroft, G. E. P. (Monmouth)
Marsden, Capt. A. Rayner, Brig. R. Thornton-Kemsley, C. N.
Marshall, D. (Bodmin) Reed, Sir S. (Aylesbury) Turton, R. H.
Mellor, Sir J. Reid, Rt. Hon. J. S. C. (Hillhead) Vane, W. M. F.
Molson, A. H. E. Roberts, P. G. (Ecclesall) Ward, Hon. G. R.
Morris, Hopkin (Carmarthen) Ropner, Col. L. Watt, Sir G. S. Harvie
Morrison, Rt. Hon. W. S. (Cir'cester) Ross, Sir R. D. (Londonderry) Webbe, Sir H. (Abbey)
Neven-Spence, Sir B. Sanderson, Sir F. Wheatley, Colonel M. J. (Dorset, E.)
Nicholson, G. Savory, Prof. D. L. Williams, C. (Torquay)
Noble, Comdr. A. H. P. Smith, E. P. (Ashford) Winterton, Rt. Hon. Earl
O'Neill, Rt. Hon. Sir H. Smithers, Sir W.
Orr-Ewing, I. L. Spearman, A. C. M. TELLERS FOR THE AYES:
Pickthorn, K. Stanley, Rt. Hon. O. Sir Arthur Young and
Brigadier Makeson.
NOES.
Adams, W. T. (Hammersmith, South) Fraser, T. (Hamilton) Murray J. D.
Allen, A. C. (Bosworth) Ganley, Mrs. C. S. Neal, H. (Clay Cross)
Alpass, J. H. Glanville, J. E. (Consett) Nichol, Mrs. M. E. (Bradford, N.)
Austin, H. Lewis Goodrich, H. E. Noel-Baker, Capt. F. E. (Brentford)
Ayles, W. H. Gordon-Walker, P. C. Noel-Buxton, Lady
Ayrton Gould, Mrs. B. Greenwood, A. W. J. (Heywood) Oliver, G. H.
Bacon, Miss A. Grenfell, D. R. Orbach, M.
Balfour, A. Grey, C. F. Parkin, B. T.
Barstow, P. G. Griffiths, D. (Rother Valley) Paton, Mrs. F. (Rushcliffe)
Barton, C. Griffiths, W. D. (Moss Side) Peart, T. F.
Battley, J. R. Gunter, R. J. Piratin, P.
Bechervaise, A. E. Guy, W. H. Poole, Cecil (Lichfield)
Belcher, J. W. Hall, Rt. Hon. Glenvil Popplewell, E.
Benson, G. Hamilton, Lieut.-Col. R. Porter, E. (Warrington)
Berry, H. Hannan, W. (Maryhill) Porter, G. (Leeds)
Beswick, F. Hardy, E. A. Price, M. Philips
Bing, G. H. C. Harrison, J. Proctor, W. T.
Binns, J. Henderson, Joseph (Ardwick) Pursey, Comdr H.
Blackburn, A. R. Herbison, Miss M. Randall, H. E.
Bottomley, A. G. Holman, P. Ranger, J.
Bowles, F. G. (Nuneaton) Holmes, H. E. (Hemsworth) Reeves, J.
Braddock, T. (Mitcham) Horabin, T. L. Reid, T. (Swindon)
Bramall, E. A. House, G. Rhodes, H.
Brooks, T. J. (Rothwell) Hoy, J. Ridealgh, Mrs. M.
Brown, T. J. (Ince) Hudson, J. H. (Ealing, W.) Roberts, Goronwy (Caernarvonshire)
Bruce, Maj. D. W. T. Hughes, Emrys (S. Ayr) Rogers, G. H. R.
Burden, T. W. Hughes, Hector (Aberdeen, N.) Ross, William (Kilmarnock)
Castle, Mrs. B. A. Hughes, H. D. (W'lverh'pton, W.) Scott-Elliott, W.
Chamberlain, R. A. Hynd, H. (Hackney, C.) Segal, Dr. S.
Champion, A. J. Hynd, J. B. (Attercliffe) Shackleton, E. A. A.
Chater, D. Irvine, A. J. (Liverpool) Sharp, Granville
Chetwynd, G. R. Irving, W. J. (Tottenham, N.) Shurmer, P.
Cluse, W. S. Jay, D. P. T. Silverman, J. (Erdington)
Cobb, F. A. Jeger, G. (Winchester) Silverman, S. S. (Nelson)
Cocks, F. S. Jeger, Dr. S. W. (St. Pancras, S.E.) Simmons, C. J.
Collins, V. J. Jones, D. T. (Hartlepools) Skinnard, F. W.
Colman, Miss G. M. Jones, Elwyn (Plaistow) Snow, J. W.
Comyns, Dr. L. Keenan, W. Sorensen, R. W.
Cooper, Wing-Comdr. G. Key, Rt. Hon. C. W. Soskice, Rt. Hon. Sir Frank
Cove, W. G. Kinley, J. Sparks, J. A.
Cripps, Rt. Hon. Sir S. Kirby, B. V. Steele, T.
Daggar, G. Lang, G. Stross, Dr. B.
Daines, P. Lawson, Rt. Hon. J. J. Stubbs, A. E.
Davies, Ernest (Enfield) Leonard, W. Summerskill, Dr Edith
Davies, Harold (Leek) Levy, B. W. Sylvester, G. O.
Davies, Haydn (St. Pancras, S.W.) Lipton, Lt.-Col. M. Symonds, A. L.
Deer, G. Longden, F. Taylor, H. B. (Mansfield)
de Freitas, Geoffrey Lyne, A. W. Taylor, R. J. (Morpeth)
Dodds, N. N. McEntee, V. La T. Taylor, Dr. S. (Barnet)
Donovan, T. McGhee, H. G. Thomas, D. E. (Aberdare)
Driberg, T. E. N. McGovern, J. Thomas, George (Cardiff)
Dugdale, J. (W. Bromwich) Mack, J. D. Thorneycroft, Harry (Clayton)
Dumpleton, C. W. McKay, J. (Wallsend) Thurtle, Ernest
Dye, S. McLeavy, F. Tolley, L.
Ede, Rt. Hon. J. C. Mallalieu, E. L. (Brigg) Tomlinson, Rt. Hon. G.
Edelman, M. Mallalieu, J. P. W. (Huddersfield) Vernon, Maj. W. F.
Edwards, John (Blackburn) Mann, Mrs. J. Viant, S. P.
Evans, Albert (Islington, W.) Manning, C. (Camberwell, N.) Walker, G. H.
Evans, E. (Lowestoft) Manning, Mrs. L. (Epping) Wallace, G. D. (Chislehurst)
Evans, S. N. (Wednesbury) Marquand, H. A. Warbey, W. N.
Ewart, R. Mathers, Rt. Hon. George Wells, P. L. (Faversham)
Fernyhough, E. Middleton, Mrs. L. West, D. G.
Field, Capt. W. J. Moody, A. S. White, C. F. (Derbyshire, W.)
Foot, M. M. Moyle, A. Whiteley, Rt. Hon. W.
Wilkins, W. A. Wills, Mrs. E. A. Younger, Hon. Kenneth
Willey, F. T. (Sunderland) Woodburn, Rt. Hon. A. Zilliacus, K.
Williams, J. L. (Kelvingrove) Woods, G. S.
Williams, R. W. (Wigan) Wyatt, W. TELLERS FOR THE NOES:
Williams, W. R. (Heston) Yates, V. F. Mr. Pearson and
Mr. Richard Adams.

Question put, and agreed to.

Mr. Speaker

I am afraid that this is a rather unusual procedure. Possibly, I am to blame for not putting the Question in another form and in such a way that the Government would have voted "Aye" and the Opposition "No." As it is, I have to declare that the Clause has been read a Second time.

The Solicitor-General

I beg to move, as an Amendment to the proposed Clause, in Subsection (1, b) to leave out "may" and to insert "shall."

Viscount Hinchingbrooke (Dorset, Southern)

I think that we should have another go at the Solicitor-General on this matter. On the question of appeal he says that there is appeal from the Special Commissioners to the Courts on a point of law, and that that is safeguarded by the Amendment which is later to be moved by the Government—in Clause 59, page 47, line 1, after "Act," insert: or section (Limitation of liability of trustees) or section (Relief where capital subject to death duties) thereof. I think that there is no ambiguity on that point. We understand the machinery by which the Solicitor-General hopes to engage the courts on this question on points of law, but that does not satisfy hon. Members on this side. We are not only interested in a point of law, but in the interpretation of the Clause under discussion, and the kind of question likely to arise may not deal exclusively with a point of law. For example, where The trustee or tenant for life shows to the satisfaction of the Special Commissioners that his rights of indemnification out of the trust estate are, … insufficient to provide for his reimbursement … there is the qualification: otherwise than by negligence or default on his part. Some interpretation may be required of that part of the Clause. In the Clause if amended the special Commissioners shall give such directions for the limitation of release of his liability as appear just and equitable. That is a question of what they determine is just and equitable, and we feel strongly that the right hon. Gentleman should amend his proposed Amendment in page 47, line 1, so that the points in which we are interested shall be fully safeguarded.

4.45 p.m.

Sir H. Lucas-Tooth

I am not certain that the Government have not gone quite a long way to meet us. I think, however, that there are matters which need to be cleared up in regard to the new Clause. If we alter the word "may" to "shall," we make it mandatory on the Commissioners to make an order. On the other hand, that is again qualified by the word "appear" later in the Subsection. An order has to be such as appears just and equitable. If it so appears to the Commissioners, we have not got any further, because they are to make the order, and they are to have complete discretion as the order will only require to go to the length that appears to them to be just and equitable. If the word "appear" means appears generally—that is to say, that the order is in fact to be just and equitable—I think that the Government have met us. I would like to see a further consequential Amendment moved to the one which the Government have now moved, not only to substitute the word "shall" for "may," but to substitute the word "are" for "appear." That means that the Commissioners shall be required to give such directions for limitation or release of his liability as are just and equitable. If the Government would go to that length, that would meet our point.

There is another point in connection with the appeal to which the Solicitor-General has referred. The appeal may be under one of two heads. It may be in respect of the question of negligence or default on the part of the trustees, or it may be on the question of whether the directions given by the Commissioners are just and equitable. I think there can be an appeal under both of those heads, but I am not certain whether that is so, as the Clause is now drafted. It would go some way to allay our fears, if the Government would give an assurance that there would be a right of appeal in both of those matters.

Mr. E. P. Smith (Ashford)

I endorse what has been said by the hon. Member for South Hendon (Sir H. Lucas-Tooth). It seems to me that the word "may" is of necessity a vague word, and that it is right that it should be followed by the equally vague word "appear." If we put in a definite word, like "shall," I have no doubt that the word which follows it should be "are" instead of "appear."

The Solicitor-General

I hope that I can satisfy hon. Members opposite with regard to the point which they have raised. This procedure by way of appeal is the common procedure adopted in the Income Tax Acts. It is procedure to which recourse is had for deciding all matters on questions relating to Income Tax and Surtax. The procedure is as follows. In the first place, we have a special appeal to the Special Commissioners, sitting as an appellate body—the Appeal Commissioners. That is the ordinary procedure which any person aggrieved against Surtax assessment follows. From the Special Commissioners, he has an appeal under Section 149 of the Income Tax Act, 1918, to the High Court.

As I have pointed out, that has been adopted for the purpose of this appeal also, so that it is on all fours with the normal procedure by way of appeals. How then, does it work? The noble Lord the Member for Dorset, Southern (Viscount Hinchingbrooke) said that we might want to raise, by way of appeal, the interpretation to be put upon a certain part of the Clause. Now, that is a point of law. The question what the Clause means is a point of law, and is a matter which could be litigated right up to the High Court on appeal on a point of law. One could not litigate purely on a question of fact on an appeal of that sort. That, again, is common form. The reason that cannot be done is because this form of procedure has been devised in order to deal particularly with these finance and Income Tax matters. The Special Commissioners have great experience in hearing appeals relating to this kind of matter, and the policy of the legislature, therefore, has been to leave questions of fact to them so that, in the interests of the Income Tax payer, there can be some kind of finality to their decision. That is what we have done.

With regard to what the hon. and gallant Member for Holderness (Lieut.-Commander Braithwaite) said, the particular object of doing that is so that the taxpayer should not—unless the matter is of very great importance and he wants to litigate it in the High Court, or even higher—be harassed with perpetual appeals. The legislature already does in regard to Surtax what we are doing in this new Clause. The Special Commissioners, sitting in their appellate capacity—a tribunal possessing the necessary special experience to deal with this class of appeal—will deal with appeals under this new Clause.

Then it has been said: "You really have not given us anything by substituting the word 'shall' for the word 'may,' since you have left in the words as appear just and equitable.'" It is perfectly true that those words give the Special Commissioners a discretion; but the discretion must be a discretion which is judicially exercised; it cannot be capriciously exercised. If it is exercised capriciously, and not on judicial principles—that is to say, upon a fair consideration of all relevant circumstances it can be appealed against. There is frequently an appeal in the event of it being said that discretion has not been judicially exercised. That again is common form, and, as a result of experience of this class of litigation over a great many years, it has been found by those responsible that that is the most convenient and effective way of deciding this particular kind of case.

It has been thought—I submit rightly—that when dealing with these financial matters it is in the interests of the taxpayer, who does not want to be harassed with endless expensive appeals, that it should be left, generally speaking, to the wisdom and discretion of a tribunal specially qualified to deal with that class of case. I do submit that, in choosing that kind of procedure to dispose of the sort of points that will arise under this new Clause, we have safeguarded in the best possible way the interest of the taxpayer and the trustee himself: we have given him a tribunal specially qualified to deal with this class of question; we have given him a right of appeal on a point of law from the Special Commissioners sitting in their appellate capacity; we have not confronted him with the vista of endless appeals, but given him the sort of procedure likely to produce a just result, and a result which will not bring in its train endless further proceedings. I hope the House will agree that that is the best way of going about it.

The hon. Member for South Hendon (Sir H. Lucas-Tooth) asked whether there would be an appeal to the Special Commissioners, not only on the question whether the order was just and equitable, and whether they had judicially exercised their discretion, and so on, but also on the question whether there was negligence or default. Well, there would be an appeal on both; both matters would be subject to appeal to the Special Commissioners, and then, if any question of law arose, it would go to the High Court. I hope the House will agree that we have adequately safeguarded the position of trustees.

Mr. Stanley

The right hon. and learned Gentleman has now convinced me that the manuscript Amendment which he has proposed does not meet my point, because he has made it quite clear that, although it is mandatory to make the order, the form which the order will take is to be left to the discretion of the Special Commissioners, although they are to exercise their discretion, as he says, judicially. Frankly, I cannot see, nor I think can my hon. Friends, why in this matter there should be any discretion at all. The simple case is this. The trustee is called upon to pay £5,000; there is available in the trust £5,000; all we want to see is that the trustee, who has no personal interest in this whatsoever, shall not himself, unless negligence or default be shown, be made liable for more money than there is in the trust. That seems to be a simple and a right decision.

Why is there any need for the use of discretion by the Special Commissioners, even if that discretion is used with wisdom, judicially and judiciously, and subject to any number of appeals on questions of law or of fact? Why cannot we lay down definitely what I am sure both sides of the House would agree is right?—namely, that a trustee cannot be made responsible for more money than there is in the trust out of which this contribution may be paid. Because the manuscript Amendment which the right hon. and learned Gentleman proposes does not lay down that simple and just proposition, I cannot regard it as any satisfactory solution to the difficulties in which we find ourselves this afternoon.

Amendment to the proposed Clause agreed to.

Motion made, and Question proposed, "That the Clause, as amended, be added to the Bill."

Mr. Pitman

I should like to press the Solicitor-General for an answer to the question where the point I made is to be met if it is not to be met in this new Clause. To a certain extent I think he did not give complete attention to the point, because it was in his mind that the Amendment standing in my name and that of my hon. Friend the Member for Devizes (Mr. Hollis)—in line 8, after "reimbursement" to insert: or a diminution of rights to capital in the trust not of the beneficiary assessed to contribution on the income from the trust but only of some other individual, which although not called was to be spoken on—was out of Order. The point I want to make is this. Hon. Members opposite, and the Chancellor of the Exchequer himself, have made it clear to the nation at large that this Special Contribution is payable under only two conditions: first, where there is considerable income, of at least £2,000; and secondly, where there is considerable capital.

In the case, not only of the tour children which I have mentioned, but also that mentioned by my hon. Friend the Member for Torquay (Mr. C. Williams), of the residuary interest to the Bristol Infirmary, the incidence of the levy will not be on people who have either big incomes or capital, but on somebody completely different. In the case of the children that is because of a completely irrelevant consideration, the remarriage of their mother. Let us suppose the income in that trust was £500 a year. There is a widow with £500 a year life interest, the estate to pass to the children of the first husband who left that money. Now, merely because of the double accident of a second marriage by the widow and because the man to whom she is secondly married happens to have a large earned income, the levy will be levied on four children who between them have a divided interest in £500 a year, which is a very small sum indeed.

Hon. Members opposite can have it only one way or the other. Either they are taxing in accordance with the principle of large income and large capital, which is what they purport to have said, in which case they must at some time introduce an Amendment to cover the specific cases which have been put from our side of the House; or they must admit that what they have told the nation is a complete falsification of their true aims and objectives. I prefer to believe that they intend to stick to their principles, and if so, I hope they will tell me at what time and how they are going to meet this particular anomaly of principle.

5.0 p.m.

The Solicitor-General

The case which has been put is where a barrister with a large income marries a widow with a life interest of £500 a year. I take it that the total income of the ménage is as to £500, investment income, the remainder being the earned income of the barrister. The result of that would be that the first £250 goes free and the next £250, making up the total of £500, will be charged at 2s. in the £, working out at The corpus which produces the £500 will go to the four children, and the £25 will be paid out of that corpus. I really do not think it can be said to produce a very harsh result if that very modest sum has to be paid by way of contribution. I really do not think that the hon. Member for Bath (Mr. Pitman) has made out a case of any real hardship, having regard to the incidence of this tax. It is a charge on capital via income, and if the sum is payable by the husband and he exercises his recourse against the trustees, all he asks for is this very modest sum by way of contribution, which can be raised out of the capital that goes to the four children.

Mr. Pitman

The Solicitor-General has to some extent misinterpreted me. The point applies equally to the residuary legatee, which may be a charity. The tax falls not on the person who enjoys the big income and theoretically has the enjoyment of the capital, but on the residuary legatees. I might just as well have chosen a figure of £5,000. This is a question of principle, and the Solicitor-General cannot slide out of it merely by saying that this is a very small baby. If he is violating the canons and general principles of taxation in a small way, he is also violating them in a big way. It is up to him to tell us what he really intends to do; whether he intends to tax the Bristol Infirmary and all residuary legatees, or whether he intends to tax only the people with big incomes and big capital.

The Solicitor-General

I do not think I can add very much more to what I have said. It is a tax which ultimately will be a charge on capital through the income in respect of which the contribution is first imposed. The £25 will have to be paid in all probability out of the corpus. It might be that the wife or the husband in that case would not have recourse against the trustees—it is a smallish sum. If a charity did pay—and it is an unlikely situation [HON. MEMBERS: "No."]—a sum in respect of a person possessing more than £2,000 by way of income which brought his investment income above £250, then the contributor could have recourse against the trustees for recoupment of the payment.

Mr. C. Williams

The Solicitor-General has now admitted that this tax might well fall on the capital which goes to the Bristol Orphanage or to a church. It means that if a person leaves a life interest in a large capital sum, the income of which is subject to this tax, and the amount cannot be paid out of the income, the trustees have to pay. The trust fund may have been entirely and absolutely for some charitable institution, or for some uncharitable institution like Socialist Party funds, and this tax will have to be paid at the full rate. It means that by deliberate mishandling of this tax, charities are to be taxed, and the Chancellor of the Exchequer knows it, which is probably the reason why he has been away from this Debate.

Captain Crookshank

I think we shall have to agree to this Clause, as amended, in so far as it is some mitigation of the previous position. I suppose that the Solicitor-General realises, like everyone else, that it is not too easy to get trustees to act at all, and that every time we put something in legislation which makes it more difficult for trustees, it makes it even more difficult to get trustees to act. In this case, even with the Amendment, trustees are being put to a personal risk. The Solicitor-General has not answered the point put to him by my right hon. Friend the Member for West Bristol (Mr. Stanley), that under this Clause it is possible for a claim of £5,000 to be made on a trust possessing only £4,000, the trustees therefore being liable for the balance of £1,000. The Solicitor-General has not denied that possibility. It is obvious he has had instructions from the Chancellor of the Exchequer to refuse our request and that he has not been told the reasons why.

I hope that by the time we reach the Third Reading of this Bill someone in the Treasury will be able to tell us why this is being done, and why it has not been possible to make it clear in the Bill that trustees shall not be called upon to make up any deficiencies where the required amount of money to be raised is not in the trust fund. I hope that even now, the Solicitor-General will be able to give us some explanation for this most extraordinary course. Let him bear in mind that every time he does something of this nature he is making it more and more difficult to get trustees to undertake the work of trusteeship. He will agree that if that sort of voluntary assistance were to dry up, it will make it a most complicated and difficult matter to administer every kind of undertaking and estate. I hope that he will think again before he does anything like this in the future—that, is should he be in the position to do so.

Clause, as amended, added to the Bill.