HC Deb 22 June 1948 vol 452 cc1285-305
Mr. O. Poole

I beg to move, in page 84, line 6, after "director," to insert "or employee."

On two previous occasions we began debating the Tenth Schedule at a very late hour, or perhaps it might be better to say at a very early hour, in the morning. On the last occasion when we came to this Schedule, the Chancellor of the Exchequer suggested that we should postpone discussion on it until we got to the Report stage. We did so in the hope that we might be able to reach it at a reasonably convenient hour, so that we could have a detailed discussion on this rather technical matter, and one which is of great interest to a large number of people. I am afraid, therefore, that it will be necessary to apply ourselves fairly closely to the Schedule, and I would remind the House that if we do so at this time of night, it is because we have had no previous opportunity of discussing it.

This Amendment is really paving the way for other Amendments. I do not think it necessary to dilate very long upon it, but the Chancellor of the Exchequer, realising the unfairness that would have fallen upon a certain class of people, has inserted this Schedule in the Bill to make special provision for working directors. We have now had considerable time to examine it, and to see how it will work, and we cannot see any reason why it should not equally apply to employees who also receive a proportion of their salaries because of their shareholdings. The right hon. and learned Gentleman will know of many family businesses where the whole interest of the family, whether small industrial undertakings or brokerage houses is concerned, and where not necessarily all of the members of the family are directors. Certain cases have been brought to our notice where one member of the family is a secretary of the company, another is a manager of a certain branch of the concern, and the other members are directors, but all of them take remuneration in the form of holdings of shares. I hope the Chancellor will agree that this provision should apply to them as well as to working directors.

Mr. Eccles

I beg to second the Amendment.

The Solicitor-General

We do not feel there is any justification for this proposal. It is suggested that employees of these private companies should virtually be assimilated to the position of directors responsible for the policy of the company. It is difficult to see exactly what kind of situation the hon. Member for Oswestry (Mr. O. Poole) really has in mind. The object of the Tenth Schedule is to provide for relief from this particular tax, where a partnership existed before and the partners for good reason or bad, decided to form the partnership into a private limited company, themselves becoming directors of this private limited company. It was said that it was unreasonable that, if they took emoluments from the company in the form of salary, they should escape the Special Contribution but that if they decided to take part of the emolument as dividends from shares, those dividends from shares were caught by the Special Contribution provisions. That was the case when the proposal was mooted that there should be a special provision for private companies run by private directors. That case was accepted on the basis that those persons who had previously been partners,—and after the company was formed had it in their power to say whether they would take their remuneration in the form of dividends or salary—should not be disadvantaged by the chance that they had taken part of their emoluments in share dividends.

This consideration did not apply to employees of the company. Why should an employee have the same privilege? An employee, whether a secretary or in whatever capacity he is engaged, has no responsibility for the policy of the company and it is not his decision whether he is paid by salary or share. He enters into a contract with the company and his remuneration is laid down by that contract. If he agrees with the company to take part of his remuneration in the form of shares and not as salary, that is a matter of arm's length negotiation between him and the company. Once the contract is entered into, he cannot alter it. But the directors of a company, in the case of a director-controlled company, can alter it. Before 1947–48 they could at any time, had they known of the possibility of a tax of this sort, have said that they would convert all their income into earned income. An employee could not. It is difficult to see what case can be brought for the member of a family who in the partnership was a partner, and is subsequently demoted into the position of a secretary or an employee of the company after the company is formed.

If one accepts the position that a person who is not responsible for the direction of the company shall be entitled to this privilege which Schedule 10 offers, one must accept that it equally applies to the employee of any other company, and that he shall be treated the same. If he is an employee, whether he is secretary or whatever he is, it follows as a matter of reasonable probability, at any rate, that when the partnership existed he was regarded as a person not suitable to be entrusted with the responsibility incumbent upon a partner. He presumably would have been an employee of the partnership, and it is because of that that he is taken into the company and employed as a secretary, or in some other capacity, when the company is formed. We do not see any justification for extending the Schedule in this way. Once one extends it to persons who serve the company otherwise than in the capacity of whole-time service directors, it is difficult to draw the line and to know how far we are going to be led in extending the privilege. For these reasons, I hope the House will not agree to this Amendment.

Mr. O. Poole

I must say that, unlike many previous speakers in the long deliberations we have had on this Bill, I am not surprised at the answer which the Solicitor-General has given; and after the answer he gave to some hon. Members on the previous Amendment, nothing which the Solicitor-General says will surprise me again. But the fact is that many of these companies were converted from partnership to limited liability companies after the first world war. That is some 30 years ago. Many of the people who are now in these family businesses of the type which I have in mind, who get their salaries or remuneration from these companies, are the sons or relatives of people who were then in the businesses, and were themselves never partners at all. So there can be no question of their ever being "demoted" from partners to employees.

The second point is that the Solicitor-General says that if anyone had considered the possibility of this tax, he could, have altered his position from director prior to 1947; but I would remind the right hon. and learned Gentleman that not only did no one think of this, or anticipate this particular Contribution, but it has also been made quite clear by many Government speakers—although it has been denied by the Chancellor of the Duchy of Lancaster—that this Special Contribution will never take place again. Therefore, there can be no reason why they should have adjusted their firms prior to 1947 in order to make themselves particularly suitable for legislation brought in unexpectedly once and for all in 1948.

11.30 p.m.

What I have in mind is a small family business, or a reasonably-sized family business, where one member of the family owns a considerable block of shares and gets his remuneration from those shares rather than through a direct salary. It has nothing whatever to do with responsibility. It is a purely technical fact of how he gets his remuneration. The responsibility which he carries has nothing to do with this Schedule at all. This Schedule, quite rightly, is intended only to deal with matters of fact and the question of the responsibility of a director, except in so far as it is reflected in the extent of the remuneration, does not arise. There is also the question of employees, and we are later going to move an Amendment on management shares. I hope the right hon. and learned Gentleman is going to make a statement on the whole matter of management shares, because these will make a difference to employees rather than to directors. The same applies to employees of public companies, and I suggest that the right hon. and learned Gentleman has not applied himself to the point at all. There are many cases such as that in which the member of a family becomes the secretary of the company, rather than a director, and I hope that the Government are going to reconsider this particular point.

Amendment negatived.

Sir P. Bennett

I beg to move, in page 84, line 7, to leave out "private company," and to insert: company the directors whereof have a controlling interest therein. I shall be as brief as I can. This new Schedule, dealing with working directors, refers only to those who have a controlling interest in private companies. If the directors are in control of the company it is immaterial whether the profits of the company are distributed by way of remuneration or dividend, and to meet this point, the Chancellor has introduced this Schedule. But the argument is just as obvious for the directors controlling a public company. There are many companies which are public in law, because they have issues of debenture and preference shares, but they are private companies in effect, because they have their ordinary shares all privately held. They are, therefore, director-controlled, and if these are wholly controlled through the ordinary shares, we feel that they should have the same benefits as the private company. It is a technical difference, but a point which is just. The existing legislation for Profits Tax purposes restricts the remuneration of directors with a controlling interest, and there is no distinction as to whether a company is private or public. By this Amendment, we want to follow that procedure and to make it quite clear that a company is controlled through its ordinary shares and is only controlled from outside because of debentures.

Mr. Walter Fletcher (Bury)

I beg to second the Amendment.

There are companies which, in appearance, are public, but which, in fact, are private companies, and I feel certain that the Chancellor does not want to perpetuate an injustice to them.

The Solicitor-General

I am sorry we cannot accept this Amendment. We have got to draw a clear line between what is within the scope of the Schedule and what is not. We are taking the case of the small private firm which has assumed corporate status. In the vast majority of cases there may be exceptions, but I personally know of none—it is undoubtedly true to say that those private firms, when they do assume corporate status, are converted into private limited companies. If we introduce public companies which are controlled by directors, we are going quite outside the ambit intended to be covered by this Schedule. We should be including ordinary companies in cases where the directors held 51 per cent. and outside members of the public held the other 49 per cent. of the shares.

That is not the sort of company which is intended to be within the provision. That is not the sort of company formation which we would find when we have a small private firm carried on by two, three or four partners which in due course is converted into a company. Almost invariably, I would say, when you have that sort of company, the resulting company is a private one. In the case where 51 per cent. of the holding is in the hands of the directors, we cannot envisage that as other than an ordinary investment by these directors. They have invested in 51 per cent. of the shares. If we accept this Amendment, we are entirely changing the character of the Schedule. It would cover ground not intended to be covered. It would go outside the converted private firm and bring in all sorts of other cases which we cannot really define beforehand, because we do not know what may or may not be included. We feel it is not practicable to go further than we have gone, and we feel that in what we have done we have met the purpose we had in mind.

Mr. Eccles

I cannot say that I am satisfied with what the right hon. and learned Gentleman has said, because the real intention of including the Schedule was surely not simply to exempt dividends derived from shares in private companies. The purpose of putting in the Schedule was to meet the case where dividends of any sort could be shown to be part of a man's earned income and therefore proper to be excluded from his investment income. Surely, in justice, it does not matter what sort of shares a man holds, whether in a private or a public company. The whole point of the Schedule is to bring within its ambit all those dividends that can be shown to be taken by the recipient instead of a salary.

If there is a public company—and surely there must be many—where the directors hold all the ordinary capital, have small salaries and take their remuneration through ordinary or deferred shares of that company, they are on all fours with other persons doing exactly the same thing in private companies. I do not think there is any justice in what the Solicitor-General said. It is one more case of the Government saying that because they do not think it would be right to exempt everybody, they will not exempt a few. Is there any reason why the general run of director-controlled companies should be excluded? When a company is controlled by the directors, when they do own the equities of the business, it is a very long shot that they are going to remunerate themselves from the dividends. I found the answer quite unsatisfactory because I do not think that there is any justice in drawing a line between one kind of dividend drawn from one sort of share, and another kind.

Amendment negatived.

Mr. O. Poole

I beg to move, in page 84, leave out lines 13 to 34.

When the Amendment was moved to Clause 48 which actually introduced this Schedule, I took the opportunity of making certain remarks which related to the Schedule as a whole. It was then agreed that the discussion would be postponed until a later date. I therefore hope that the Solicitor-General will take this opportunity of replying to some of the points which I made then. I do not wish to repeat at any length the points I made on that occasion, but I hope we shall get a detailed answer to some of them. All I will do now is refer briefly to this particular Amendment which does in fact sum up and meet the objection to the Schedule. We welcome the fact that the right hon. and learned Gentleman has moved this Schedule in relation to the anomalies which must arise under the Special Contribution, to which attention has been drawn throughout our deliberations and which will do reasonable, if rough justice to a limited number of the people who get their remuneration by way of shares rather than by a direct income. As the Solicitor-General said on the last Amendment, it does to some extent take care of that.

Our main objection to this Schedule is that it takes one particular kind of income, derived from shares, which is, in fact, earned income—and which the Schedule decidedly admits is a legitimate type of income by excluding it from the Special Contribution—and then, having admitted that, it says that it will divide that income into two and if you have less than so much, you will be excluded, but if you have more, it will not be treated as earned income at all. There can be no possible argument to justify saying that, if a certain type of income is to be treated as earned income for purposes of this Special Contribution, the higher portion of it in certain circumstances ceases to be earned income.

As we have pointed out on many occasions it is a matter of pure accident. It is a matter of pure chance, having regard to the way in which companies are organised, what proportion the directors get of their remuneration by way of shares and by way of salary; and I would repeat what I said on the last Amendment, that many of these companies, probably the majority of them, are old firms, partnerships turned into limited liability companies for reasons totally unconnected with modern taxation.

11.45 p.m.

What the Government have done has been to put a limit of £2,000, or a share of 15 per cent. of the company's profits up to £15,000, as the maximum remuneration for any working director, including his salary, and anything over this is to be treated as unearned income. That seems to us to be absolutely and wholly wrong. One can argue whether people should have high incomes or not, and taxation is devised on an increasing scale, with Surtax, to take care of that; but in this case there is no possible justification for making that distinction. If this Amendment were accepted, it would cut out this absolutely objectionable qualification which, for some reason that I think cannot be explained, the right hon. and learned Gentleman has seen fit to put into the Schedule.

There are certain other points on which I should like to get a definite answer, but whatever the arguments may be for the distinctions with regard to shareholdings in companies, they cannot possibly apply to management shares—and when I say "management shares" I mean shares in companies which are issued to people in lieu as part of their remuneration. There is no capital value in those shares which can be held for anybody else except a director or employee of the company. When the person concerned leaves the company, the shares have to be handed over automatically: they cannot be taken away. I very much hope that it will be possible for the right hon. and learned Gentleman to say that that type of share is specifically excluded from the incidence of this tax, and that is why I was so disappointed that our last Amendment relating to employees was not accepted, because there are many hundreds of firms which remunerate not only their directors but also their employees in this way. I would also like the Chancellor of the Exchequer to say exactly what "management shares" are, because there are many different sorts of management shares.

I wish to draw attention to an Amendment on the Order Paper—which I do not believe will be called but which, I should hope, is acceptable to the Government—dealing with the question of men not employed whole-time who could not be called "substantially employed."

Mr. Deputy-Speaker

That Amendment is out of Order and the hon. Member cannot speak on it.

Mr. Poole

I appreciate that, but this is rather a difficult position because I understood it was entirely acceptable to the Government and I thought they would make a statement that could clear up the point.

Mr. Deputy-Speaker

I am afraid that we cannot discuss it at all.

Mr. Poole

I apologise, Sir. I will not refer to it again. It is our object, in moving this Amendment, to express our complete objection to the qualification which the right hon. and learned Gentleman has put into the Schedule.

Mr. Selwyn Lloyd

I beg to second the Amendment.

I think the Schedule as it stands is completely illogical. I would remind the Solicitor-General of the words he used on 3rd June: I think on the general principle the two sides of the Committee are not far apart. It is the case of the partnership which, notwithstanding the fact that a company has been formed, really continues in a sense to be a partnership, so that the dividends paid to the directors should to a certain extent, at any rate, be regarded as income and, therefore, not within the investment capital.—[OFFICIAL REPORT, 3rd June, 1948; Vol. 451, c. 1368.] That is an admirable statement except for that one qualification "to a certain extent." What is the logical justification for the qualification? If there is a partnership, the partner may receive a salary, interest on his capital, and a share of the profits. That is the way in which his remuneration may come. All these things are treated as income for the purpose of the Income Tax Acts. Why, if it has been changed to a limited company, should there be any difference in dealing with the matter? If it is a partnership, he can treat the whole of that income as earned income. Why should there not be exactly the same situation appertaining in the case of a partnership that has been turned into a limited company?

The Solicitor-General

It seems to me that both hon. Gentlemen who have spoken in support of this Amendment are labouring under a misconception. We start off imposing this tax on investment income. Where there is a partnership which has been converted into a company, and the partners take shares in the company, that is prima facie investment income; it is income they draw from shares in a corporate body in which they are shareholders. There is no sort of differentiation between that kind of investment income and any other sort. That is the starting point, and when these provisions were first framed, they contained no sort of exclusion for the purpose of assisting persons who had been partners in a partnership.

Having started from the standpoint that this is a tax on investment income, an exception is made to the general principle on which the tax is based, which is illogical, if you like, in the sense that it treats what is really investment income as earned income. We make an exception because we feel that the principle of treat- ing investment income as it should be treated, as investment income, in all cases, may work hardship in particular cases. What both sides have in mind is where one has a small private firm conducted by partners who accept corporate status. It is no good pretending that converting a partnership into a company means nothing. It means that the reserves are not liable to Surtax. A number of changes take place. The partners or directors are no longer liable to the extent of an unlimited liability, but receive the protection of the Companies Acts, and the reserves of the company escape liability to Surtax. That is a substantial change. By conversion they procure the advantages of limited liability which the Companies Acts confer.

That being so, we were confronted with the question whether, in spite of that change, and in spite of the fact that the partners each put an end to their partnership status and acquire the advantages which limited liability confers, some further exception should not be made in regard to contribution on investment income in their case. We thought, considering the case and bearing in mind that they continue to work and to control the partnership, which has now been converted into a company, some relaxation—but I repeat, some relaxation only—should be made in their case. When I used the words which the hon. and learned Member for Wirral (Mr. Selwyn Lloyd) quoted, I did use the words "to a certain extent," and I meant those words to form an integral part of the language which I used. We grant the exemption to a certain extent in order to mitigate the hardship which would result in the case of ex-partners if we treated the income which working directors draw—who were previously partners—as it should be treated really, that is, as investment income.

The question is whether we have gone far enough in the relaxation which we have felt able to concede. After all, we have selected the higher of two standards—£2,000 per director or the standard provided in sub-paragraph (b), which might be considerably more in the case of a company which has a very substantial undertaking. We feel that that should really—and I believe it is conceded—meet all ordinary cases. There may be some cases in which the partners by way of shares and salary or other emoluments have more than £2,000. No doubt, there are; and the excess will attract liability to the Special Contribution. However, we feel that that would not be very much of a hardship. In fixing upon the figure of £2,000 or, where it is appropriate, the higher standard provided in sub-paragraph (b) we feel we have really fixed upon the right limit.

In approaching this problem we must look at it in its true light, namely, that we are agreeing to a certain measure of relief—only a certain measure of relief—from the general incidence of this tax upon investment income in order to assist a particular category of undertaking, namely, a small private firm which has become a private company. With regard to that we say, notwithstanding that the ex-partners have the advantages which limited liability gives them, nevertheless, we will, to a certain extent, assist them by allowing them to treat their emoluments from the company as earned instead of unearned income. We feel we have acted justly in the matter, and that we ought not to be asked to go further.

Mr. O. Poole

Will the right hon. and learned Gentleman not say what the position would be in regard to management shares?

The Solicitor-General

I am sorry; I meant to deal with management shares. There is already in the Income Tax Acts a Section which deals with certain classes of management shares—Section 14 (3, b) of the Act of 1918, which enables earned income to cover income from property which is attached to or forms part of the emoluments of any office or employment held by an individual. The question is what is the interpretation to be placed on those words as applied to management shares. They are applied strictly. Generally speaking, and without going into all the niceties of the thing, if one can show that the management shares are held solely by virtue of the employment—that they have to be given up, and that they have not been paid for, and so on—they would then be within the scope of that Section.

The Section has been applied rigidly, and it has to be applied rigidly; but providing that can be said with regard to management shares—that they do fall within the description of property within that Subsection—then the dividends which accrue from them would be earned income. There is, therefore, already provision in the Income Tax Acts to deal with management shares of a particular class. They are held on all sorts of terms; but if they are not paid for, and if they are held solely by virtue of the employment of the shareholder, it may well be—it depends upon the exact circumstances of the case—that this particular Subsection would cover them; and in that case the dividends which accrue from them would be earned income.

12 m.

Mr. Eccles

We are not trying to get exemption from the capital levy of income which is properly described as invested income. All we are concerned with is those cases where, instead of taking a salary, someone receives remuneration by way of dividend. I want to point out to the Solicitor-General that if he does not accept our Amendment, the effect on the companies concerned must be that they will say to themselves that they had better pay salaries and lower dividends, because it is open to them to decide which method of remuneration it shall be, and that is not in the best interests of British business or its employees. It is in the true interests of business that the rewards should come out of profits earned, and the fewer fixed charges there are on a business the better, in order that when times are not so good there are not so many fixed charges to pay. I seriously suggest to the Government that they ought not to bring in taxes which have the effect of making people give up equity earnings and in return take salaries in respect of which they will no doubt have contracts. That is really a retrograde step in the arrangements of our business.

Of course, the answer will be that this is a once-for-all levy. If we could really believe that, it would be a good thing, but we know that business does not believe it, and that they are going to say that from now onwards the taking of remuneration only after profits have been earned is not such a safe way to escape taxation as to take it by way of salaries. I do not think that is a good thing. I think that the Chancellor ought to take these things into consideration. It is exactly the same sort of case as we had with the Profits Tax.

To come to the particular point of the Amendment, I agree entirely with my hon. Friends that income is either earned or it is not, and that if it is earned income, it ought not to attract the capital levy. This is purely an arbitrary figure. The Chancellor says that £2,500, or whatever the sum is, is the limit of what a man may earn by way of shares. One could give him many cases of small firms of skilled partners who have no fixed assets at all, but which make very large sums every year, who have converted their business into a company and take the whole of their remuneration by way of dividends according to what they have earned in the preceding year. It is purely by chance that they are remunerated in this way, whereas if they had taken their profits under a partnership they would attract no taxation. If they make exactly the same sum over the year, but they happen to be remunerated by this arrangement, they attract taxation, but if they had remained a partnership they would not attract taxation. I consider it is extremely unfair and that we ought to press the Amendment.

Mr. Howard (Westminster, St. George's)

I tried to raise a point on this in the early hours of the morning during the Committee stage, and on that occasion it was indicated to me that there might be a further opportunity of raising the matter. I am entirely dissatisfied with the explanation the Solicitor-General has given in reply to this Amendment. If I might, without being offensive, use the words which he employed in regard to a previous Amendment, I would say that the explanation he gave was "unsubstantial in terms of quantifiable value." The point I want to raise is that the Solicitor-General made perfectly clear that it is the desire of the Government to grant a measure of exemption or mitigation to working directors of companies who were, in fact, in partnership beforehand. My hon. and learned Friend the Member for Wirral (Mr. Selwyn Lloyd) has reminded the House of what the Solicitor-General himself said on this subject in Committee.

I wish to give a specific example which seems to me to come clearly within the definition given by the Solicitor-General and what I understand to be the desire of the Government and the whole House, but which yet, I understand, will be- come subject to this Special Contribution. This concerns a firm, which, if I quoted its name, would be known to probably 99 per cent. of the Members of this House. It was in existence as a private partnership for nearly 200 years, and it became an unlimited company approximately 20 years ago. In the agreement drawn up between the directors of that company, they are all referred to as partners. It is, of necessity, a qualification of their becoming directors that they acquire shares in that company. No one else can hold shares except those directors who are partners. It is perfectly clear that this is a partnership, although legally it is a fact that it is a company. Nevertheless the term "partnership" is still used in the legal documents making the arrangements between the individuals concerned. Yet these individuals are going to be subject to this levy. That is clearly unjust, and it is contrary to the Government's intentions, that they should become subject to this levy.

The second point is how those individuals are to pay the levy? This is surely a matter of interest to the Chancellor of the Exchequer, even if the point of justice is not. I happen to know one of the partners or directors personally, and I asked him as a matter of confidence if he could give me some indication whether there would be any difficulty in the partners meeting their liabilities under the levy. There are now five partners or

directors in this firm or company. The advice he gave me, quite privately, was that of those five one had some other investment assets, from which he obtained what is normally called investment income, and, therefore, he would financially be able to meet his commitments if he were assessed for this tax. The only assets that another of the five partners or directors had was his investments in the company, his house and his personal belongings. Theoretically, he could meet the levy by raising a mortgage on his house or private possessions. The other three had no other outside investments whatsoever apart from the remuneration which they received by way of directors fees and salary and by way of interest on their shares. So far as they could see, they would be unable to meet the levy.

I apologise to hon. Members for keeping them rather longer than they wanted, but the purpose of this Schedule is to mitigate the hardships which existed before the Schedule was introduced. The fact is that hardships are being created by the proposals in this Schedule, and it is in an attempt to mitigate some of those hardships which will be created if this Schedule passes in its present form, that the Opposition are now proposing this Amendment.

Question put, "That the words proposed to be left out stand part of the Bill."

The House divided: Ayes, 188; Noes, 63.

Division No. 242.] AYES. [12.12 a.m.
Acland, Sir R. Cove, W. G. Foot, M. M.
Adams, Richard (Balham) Crawley, A. Forman, J. C.
Adams, W. T. (Hammersmith, South) Cripps, Rt. Hon. Sir S. Fraser, T. (Hamilton)
Alexander, Rt. Hon. A. V. Crossman, R. H. S. Freeman, John (Watford)
Ayles, W. H. Dalton, Rt. Hon. H. Gibson, C. W.
Bacon, Miss A. Davies, Edward (Burslem) Gilzean, A.
Barton, C. Davies, Ernest (Enfield) Glanville, J. E. (Consett)
Bechervaise, A. E. Davies, Harold (Leek) Gordon-Walker, P. C.
Benson, G. Deer, G. Greenwood, A. W. J. (Heywood)
Beswick, F. Delargy, H. J. Griffiths, D. (Rother Valley)
Bing, G. H. C. Diamond, J. Griffiths, Rt. Hon. J. (Llanelly)
Blackburn, A. R. Driberg, T. E. N. Guest, Dr. L. Haden
Blyton, W. R. Dugdale, J. (W. Bromwich) Gunter, R. J.
Bowles, F. G. (Nuneaton) Ede, Rt. Hon. J. C. Guy, W. H.
Braddock, Mrs. E. M. (L'pl. Exch'ge) Edwards, John (Blackburn) Hale, Leslie
Brown, T. J. (Ince) Edwards, W. J. (Whitechapel) Hall, Rt. Hon. Glenvil
Burke, W. A. Evans, A. (Islington, W.) Hamilton, Lt. Col. R.
Callaghan, James Evans, S. N. (Wednesbury) Hannan, W. (Maryhill)
Chamberlain, R. A. Ewart, R. Henderson, Joseph (Ardwick)
Champion, A. J. Fairhurst, F. Herbison, Miss M.
Collindridge, F. Farthing, W. J. Hobson, C. R.
Collins, V. J. Fernyhough, E. Holman, P.
Comyns, Dr. L. Field, Captain W. J. House, G.
Cook, T. F. Fletcher, E. G. M. (Islington, E.) Hubbard, T.
Corbet, Mrs. F. K. (Camb'well, N.W.) Follick, M. Hudson, J. H. (Ealing, W.)
Hughes, Hector (Aberdeen, N.) Moody, A. S. Soskice, Sir Frank
Hughes, H. D. (Wolverhampton, W.) Morris, Lt.-Col. H. (Sheffield, C.) Steele, T.
Hynd, H. (Hackney, C.) Nally, W. Stewart, Michael (Fulham, E.)
Hynd, J. B. (Attercliffe) Neal, H. (Claycross) Stokes, R. R.
Janner, B. Nichol, Mrs. M. E. (Bradford, N.) Swingler, S.
Jay, D. P. T. Nicholls, H. R. (Stratford) Sylvester, G. O.
Jeger, G. (Winchester) Noel-Baker, Capt. F. E. (Brentford) Taylor, R. J. (Morpeth)
Jenkins, R. H. Noel-Baker, Rt. Hon. P. J. (Derby) Thomas, George (Cardiff)
Jones, D. T. (Hartlepools) O'Brien, T. Thomas, I. O. (Wrekin)
Jones, Elwyn (Plaistow) Oliver, G. H. Thorneycroft, Harry (Clayton)
Jones, P. Asterley (Hitchin) Orbach, M. Tiffany, S.
Keenan, W. Pargiter, G. A. Timmons, J.
Kenyon, C. Paton, Mrs. F. (Rushclifte) Titterington, M. F.
King, E. M. Paton, J. (Norwich) Wadsworth, G.
Kinghorn, Sqn.-Ldr. E. Pearson, A. Wallace, G. D. (Chislehurst)
Kinley, J. Peart, Thomas F. Warbey, W. N.
Lee, F. (Hulme) Popplewell, E. Watkins, T. E.
Lee, Miss J. (Cannock) Porter, G. (Leeds) Watson, W. M.
Levy, B. W. Price, M. Philips Weitzman, D.
Lewis, J. (Bolton) Pritt, D. N. Wells, P. L. (Faversham)
Lindgren, G. S. Pryde, D. J. Wells, W. T. (Walsall)
Longden, F. Randall, H. E. Wheatley, Rt. Hn. J. T. (Edinb'gh, E.)
McAllister, G. Ranger, J. White, C. F. (Derbyshire, W.)
McGhee, H. G. Rankin, J. Whiteley, Rt. Hon. W.
Mack, J. D. Reid, T. (Swindon) Wigg, George
McKinlay, A. S. Robens A. Wilkes, L.
McLeavy, F. Roberts, Goronwy (Caernarvonshire) Willey, F. T. (Sunderland)
Mallalieu, E. L. (Brigg) Ross, William (Kilmarnock) Willey, O. G. (Cleveland)
Mallalieu, J. P. W. (Huddersfield) Royle, C. Williams, J. L. (Kelvingrove)
Mann, Mrs. J. Scollan, T. Williams, R. W. (Wigan)
Manning, Mrs. L. (Epping) Shackleton, E. A. A. Williams, W. R. (Heston)
Marquand, H. A. Sharp, Granville Willis, E.
Mathers, Rt. Hon. G. Shawcross, Rt. Hon. Sir H. (St Helens) Wyatt, W.
Mellish R. J. Silverman, J. (Erdington) Yates, V. F.
Messer, F. Skeffington, A. M. Zilliacus, K.
Middleton, Mrs. L. Skinnard, F. W.
Millington, Wing-Comdr E. H. Smith, C. (Colchester) TELLERS FOR THE AYES:
Mitchison, G. R. Snow, J. W. Mr. Simmons and Mr. Wilkin?.
Monslow, W. Sorensen, R. W.
Amory, D. Heathcoat Henderson, John (Cathcart) Pitman, I. J.
Assheton, Rt. Hon. R. Hogg, Hon. Q. Poole, O. B. S. (Oswestry)
Baldwin, A. E. Hollis, M. C. Prior-Palmer, Brig. O.
Beamish, Maj. T. V. H. Howard, Hon. A. Raikes, H. V.
Bennett, Sir P. Hutchison, Col. J. R. (Glasgow, C.) Ramsay, Major S.
Birch, Nigel Jarvis, Sir J. Rayner, Brig. R.
Braithwaite, Lt-Comdr. J. G. Langford-Holt, J. Ropner, Col. L.
Buchan-Hepburn, P. G. T. Law, Rt. Hon. R. K. Scott, Lord W.
Channon, H. Legge-Bourke, Maj. E. A. H. Smith, E. P. (Ashford)
Clarke, Col. R. S. Linstead, H. N. Spearman, A. C. M.
Conant, Maj. R. J. E. Lloyd, Selwyn (Wirral) Spence, H. R.
Corbett, Lieut.-Col. U. (Ludlow) Lucas-Tooth, Sir H. Stanley, Rt. Hon. O.
Crookshank, Capt. Rt. Hon. H. F. C. MacAndrew, Col. Sir C. Thomas, J. P. L. (Hereford)
Crowder, Capt John E. McCorquodale, Rt. Hon. M. S. Thornton-Kemsley, C. N.
Dodds-Parker, A. D. Mackeson, Brig. H. R. Wheatley, Col. M. J. (Dorset, E.)
Drewe, C. Manningham-Buller, R. E. White, J. B. (Canterbury)
Eccles, D. M. Marshall, D. (Bodmin) Williams, C. (Torquay)
Fletcher, W. (Bury) Molson, A. H. E. Willoughby de Eresby, Lord
Fraser, Sir I. (Lonsdale) Neven-Spence, Sir B. York, C.
Gomme-Duncan, Col. A. Nicholson, G.
Hare, Hon. J. H. (Woodbridge) Osborne, C. TELLERS FOR THE NOES:
Harris, F. W. (Croydon, N.) Peto, Brig. C. H. M. Commander Agnew and
Mr. Studholme.

Question put, and agreed to.

12.15 a.m.

The Solicitor-General

I beg to move, in page 85, line 27, at the end, to insert: (2) Where during a period being or comprised in the year 1947–48 an individual was a director of two or more private companies which, within the meaning of section eighteen of the Companies Act, 1947, either were a holding company and one or more subsidiary companies thereof or were subsidiary companies of the same holding company, and during that period he worked full time in the actual management or conduct of the trades or businesses of the companies taken together, he shall be treated as a working director of such one of the companies as he selects and the provisions of this Schedule shall apply accordingly but subject to the following modifications:—

  1. (a) the aggregate of his emoluments from all the companies as a director for the said period, being emoluments which fall to be included in his total income for the year 1947–48, shall be treated for the purposes of sub-paragraph (1) of paragraph two of this Schedule as if they were emoluments from the company of which he is to be treated as a working director,
  2. (b) he may require that investment income from share capital of all the companies shall be treated as if it were investment income from share capital of the said company:
Provided that nothing in this sub-paragraph shall affect the operation of this Schedule in relation to a director who would be a working director apart from this sub-paragraph. This is a manuscript Amendment. This is not the simplest of all the proposals in this Bill, although I hope that it is not too difficult to understand. The object of the Amendment is, first, to provide that a private company, for the purpose of the Tenth Schedule, shall include a group of companies. That is to say that where there is a holding company and a subsidiary company, or subsidiary companies, which form a group of companies, that group shall be treated as a company for the purpose of the Tenth Schedule. The result is that a person who can be said to work whole-time as a director of the companies in the group—that is to say, of the various companies within the group altogether—shall be treated as a working director entitled to the advantages given to him by the Tenth Schedule.

Mr. Eccles

I thank-the right hon. and learned Gentleman for bringing forward this Amendment which, I think, was prompted by an Amendment which I put on the Order Paper this morning and which, I regret, was not put there earlier. I have only two comments to make. First, it includes the words, "he worked full time," and we have a later Amendment by which we seek to put in the word "substantially." I do not think it fair that if a man does some small job outside this group of companies he should attract the tax, and I hope that the words "full time" will be modified. Secondly, we do not like this applied only to private companies, but as our previous Amendment on that point has fallen, I cannot proceed farther on that point.

Mr. Selwyn Lloyd

I gather from what the right hon. and learned Gentleman has said that this is to deal with directors of associated companies. Does it also apply to directors concerned with companies which are not associated? To illustrate my point, I would refer to a director of a toll company, which operates largely during the summer season; he is then the director of a garage during the winter. The two companies are not associated. Why is this man not treated as a full-time director? He works full-time in the capacity of a director, although is director of companies which are separate entities during their respective seasons.

Mr. O. Poole

In regard to the last few words of the Amendment, am I to take it that if a man is director of a company in which he is employed whole-time and draws the remainder of his remuneration either in salary or shares, because he is associated as director with one or two other companies and attends a casual board meeting, these companies not being in a group—that such a man is precluded from saying he is substantially a director of one?

The Solicitor-General

I should have acknowledged that the Amendment down in the name of the hon. Member for Chippenham (Mr. Eccles) brought the point to our minds and that that is why it is presented in the form of a manuscript Amendment. In reply to the hon. Member for Oswestry (Mr. O. Poole), the word "substantial" is not in the wording of this Amendment. So tar as we can do so legitimately, we will interpret this generously, in the sense that we will endeavour to be reasonable where we find in substance that the individual concerned gives the whole of his time to a company. Where there are two companies wholly unconnected and a director gives half his time to each, this Amendment would not apply, because it deals with groups of companies within the meaning of the Companies Act, 1947.

Mr. Selwyn Lloyd

Is the right hon. and learned Gentleman going to cover that case?

The Solicitor-General

Though we are bound by the terms of the statute, of their nature they allow a certain amount of latitude. Where we find a person in a group of companies who gives substantially the whole of his time to the service of the group or of an individual company, if this Amendment does not apply to his case, we will endeavour to give him the relief which the Schedule affords.

Mr. E. P. Smith

Will membership of this House preclude anyone from being considered as a full-time director?

Mr. Howard

The Solicitor-General has still not covered the point of the working director who does work full-time, but for companies which are not a group. He has said that he will try so far as possible to interpret the Act, so that that point can be covered. If he did not mean to give that impression to the House, I apologise, but the impression he gave to me was that it was the intention of the Government to endeavour to interpret these provisions very widely so that an individual working full-time, but for more than one company and those companies not in one group, would get relief. If that was not the intention, what is the intention of the Government?

The Solicitor-General

I will repeat what I said in order to avoid ambiguity in the matter. Where a director is working substantially whole-time for a company or group of companies, we will do our level best, even if some of his time is devoted to some outside business, to bring him within the scope of the Schedule. I did not say, that where he has whole-time employment under different companies which do not form a group he is entitled to be treated as a whole-time director.

Amendment agreed to.