Clause 23.—(SURTAX TO BE CHARGED ON CONSIDERATION FOR CERTAIN RESTRICTIVE COVENANTS, ETC.)

HC Deb 04 July 1950 vol 477 cc337-403

Sir D. Maxwell Fyfe

I beg to move, in page 18, line 33, at the end, to insert: (c) the Commissioners of Inland Revenue having valued the said undertaking decide that the whole or part of the sum paid is or was or will be paid not as the appropriate capital value of the said undertaking but as remuneration or additional remuneration to the said individual; and.

Mr. Speaker

There are three Amendments on the Paper and they go together, if I am right in my understanding of them. They can therefore be conveniently discussed at the same time. I would also suggest that the Amendment in the name of the hon. Member for Bath (Mr. Pitman), in page 20, line 12, at the end, to insert a new subsection (6) might also come into a general discussion. If the Amendment in the name of the Chancellor of the Exchequer, in page 19, line 21, after "that" to insert a new paragraph (a) is carried, then the Amendment in the name of the hon. Member for Bath would be out of order, because the point would already be covered.

Sir D. Maxwell Fyfe

It would be more convenient, and make for the clarity of the discussion, if we discussed together the three Amendments standing in my name which all proceed upon one basis, and then we discussed the Chancellor's Amendment later on. I am not sure how my hon. Friend the Member for Bath (Mr. Pitman) feels about his Amendment, but I am sure that he would like to move it, as at present advised. We have considered very carefully the procedure which you, Sir, suggest and there are two approaches to the problem.

Mr. Speaker

I quite agree and I quite understand. Let us take these three together. Then we will discuss the Chancellor's Amendment. If it is carried, I cannot call the Amendment of the hon. Member for Bath. In its proper place, it should be before the Chancellor's Amendment and it will be only right if it were discussed with the Chancellor's Amendment.

Mr. I. J. Pitman (Bath)

If I am right, we may discuss my Amendment before the Chancellor's Amendment, after the first three have been taken.

Mr. Speaker

We shall discuss it together with the Chancellor's Amendment. I cannot put it out of its place on the Order Paper.

Sir D. Maxwell Fyfe

We now come to the much-discussed question of the taxation of payments in respect of restrictive covenants. We are trying to find a method of approach which does justice and equity in this difficult field. Perhaps I may first say a word or two about what the three Amendments do. The first Amendment, which I am moving, makes it a condition of tax attaching that the Commissioners of Inland Revenue, who are, in fact, the taxing authorities of the Crown, should have first valued the undertaking, that is valued the restrictive covenant, and decided that the whole or part of the sum paid in respect of the said undertaking was paid not for its capital value but as remuneration.

The second Amendment, in page 18, line 41, after "follow." to insert: in respect of such part of the said sum as the Commissioners shall decide represents remuneration or additional remuneration. attaches the tax to the amount, whether the whole or part of the amount paid, which is paid as remuneration, that is, the balance of the amount paid for the value of the restrictive covenant.

The third Amendment is in page 19, line 9, at the end, to insert: Provided also that any individual who is aggrieved by a decision of the said Commissioners under paragraph (c) of this subsection may by notice in writing to that effect given to the said Commissioners within twenty-one days from the date on which the notice of the decision is given to him make an application to have the matter determined by the Special Commissioners. Where any such application as aforesaid is made, the Special Commissioners shall hear and determine the application in like manner as an appeal against an assessment to surtax, and all the provisions of the Income Tax Acts relating to such an appeal (including the provisions relating to the statement of a case for the opinion of the High Court on a point of law) shall apply accordingly with any necessary modifications. This gives to the taxpayer the usual right of appeal against the decision of the Revenue authorities in their first fixing, that is, an appeal to the Special Commissioners and from the Special Commissioners to the courts. The Amendment merely attaches the ordinary procedure of Income Tax which is used in getting a decision on a question of tax and thereafter taking it to the courts on a question of law.

With those three points in mind, I would ask the House to come to the statement of the Chancellor of the Exchequer of two years ago merely to see what was the evil at which the Chancellor was aiming. His words were: to dress up what really is remuneration in a non-taxable capital form for instance, as compensation for loss of office, or as payment in consideration of a restrictive covenant on an individual's employment."—(OFFICIAL REPORT. 6th April, 1948; Vol. 449, c. 70.] There is absolutely no difference among the different quarters of the House on the point that everyone wants to tax remuneration. It is one of the things which ought to be taxed. No one wants to tax a genuine payment for a capital asset. We say that the obvious thing to do is to get at the value of the restrictive covenant. The question that arises, and which we must face is: Can this be done?

The problem is to arrive at the value to a company of, to take an easy example, the fact that A. B. should not go off to an American competitor of the company. A. B. naturally takes a high view of the covenant restricting his future employment because, human nature being what it is, he takes a high view of his own indispensability, and the company agree on the basis that they do not want to run the risk of losing A. B. The factors which would be taken into account in valuing that restrictive covenant would be the trade carried on by the company, the experience and the potentialities of A. B. in his particular job, the length of his service and the results of the trading during the time that he has been with the company. There would be other factors which hon. Gentleman might suggest, but, clearly, these would be the main ones.

Obviously, it would not be fair to mention names, but on a cursory examination of the problem I could give at least a dozen names of accountants in London who would not have the slightest difficulty in making that valuation, and I am sure that anyone who has had to consider similar points must have heard practically all the gentlemen I have in mind making valuations on far more difficult subjects with far less material. I ask the House to consider this as a practical problem. I know that at first sight valuation appears to be difficult, but, after all, most of us have had experience of valuation in practically every field of human affairs and I think that when one has had that experience one comes to the conclusion that it is possible, with a reasonable margin of error, to get the valuation extraordinarily accurately done.

This is what is in my mind. First of all, the Commissioners of Inland Revenue can rely upon their own accountants, who are very experienced and knowledgeable persons, or they can consult one of the great firms of accountants for which London is so famous, and in that way they make their valuation. Then, if the taxpayer disagrees with their apportionment of the sum, he appeals to the Special Commissioners who will then decide the matter as a question of fact. The Special Commissioners would have the advantage of the Inland Revenue's case in the matter and of hearing the accountants that they have consulted, they would also hear the taxpayer's accountant, and, of course, they would have before them the whole history of the company and the history of the employment of the man in question.

Mr. Douglas Houghton (Sowerby)

The right hon. and learned Gentleman talks of valuation. Does he mean valuation of some capital asset in a person, valuation of his enlarged earning capacity or valuation of a sum paid to him for the sacrifice of that enlarged earning capacity?

Sir D. Maxwell Fyfe

The hon. Gentleman was right first time, and that was what I said. It was the valuation of the capital asset which is the restriction on the future employment of that man—the value of that to the company. The hon. Member will appreciate that that is what the company purport to be paying for. What we want to know is if they have paid the right sum. If they have paid more than the right sum, then we say that should be treated as concealed or dressed up remuneration. I have tried to point out the procedure by which it could be done and I say that there is no difficulty at all in valuing what the effect on the company would be if A. B. left it and went to a competitor or if A. B. was restricted in so doing.

7.45 p.m.

The hon. Member for Sowerby (Mr. Douglas Houghton) has experience in these matters from a certain angle, I believe, and he must know, just as well as I do, that one of the problems which the Special Commissioners have constantly before them is distinguishing between remuneration and expenses of a peculiar and a difficult kind. A case which comes to my mind is when somebody takes either a flat in London or a house in the country and says that it is something which is used for the purpose of the company in order to deal with customers or intending customers. Quite often, as the hon. Member knows, one has had the flat question of fact that these are not expenses at all but are concealed remuneration, and that has been decided. It is not a difficult question and, having seen valuation in a variety of forms, I believe that a great deal of nonsense is talked about the difficulty of valuation. It is amazing how one gets to the truth of the matter and how easily that can be done.

As I understand that the practicality of this matter is an issue between us, we ought to consider what it is of which the Government are really afraid. I mean what sort of dodge—I want to put it quite bluntly—they are afraid of in this matter.

Mr. Houghton

"Jiggery-pokery."

Sir D. Maxwell Fyfe

If the hon. Member receives the compliment of catching your eye, Mr. Deputy-Speaker, he will then be able to explain to us what is "jiggery" and what is "pokery," but that pleasure must be reserved. At the moment, I want to consider what the fears are.

Let us take the two examples which may be in the minds of the Government. In the first case, let us say that we have a company, which may be a private company. Suppose the fear is that they are going to use such profits as they have been able to accumulate to make a payment to one of the main shareholders. Let us just see the difficulties which, if our Amendment is accepted, lie in their way. In the first place, there is the fact that the agreement by which it is agreed to pay a capital sum to one shareholder has to be examined and valued, which means that it will be impossible to put forward a shareholder who has not at any rate the ability to stand up to cross-examination before the Special Commissioners as to whether he is really necessary to the company or not. That is essential through our Amendment.

I should be quite prepared to accept the view of the Government that this should be permissible on a person leaving the company, because the payment that I have in mind in this case is the payment that is made in order to prevent him going elsewhere when he leaves. However, let us take the next step which would be necessary if the profits are to be directed to this man. There would have to be, on the basis that it was being used wrongly, a winding-up of the company in order to make the accumulated profits capital in the hands of the company and a payment in this way. That is completely fantastic because it postulates not only that the recipient—who is of necessity someone with knowledge and experience and expertise—is to give up his job, but that the company will give up their line of action. That is a fantastically absurd suggestion of abuse.

Let us take a simpler case, which I am sure hon. Members are considering, where we get someone who receives a job from a company at £x a year and, at the same time, there is a provision that if he will undertake, after serving the company for a number of years, that he will not go to a competitor he will get £y as a capital sum. It might be suggested that this is open to abuse in that he is getting disguised remuneration in the £y under the guise of a capital sum. But look again at the safeguards under our Amendment. Again it has to be valued as to whether £y is a proper valuation for the restriction on his services.

On that basis the man who goes into the agreement, whose asset—and the whole hypothesis is that he has this asset—is a knowledge of this business or this trade which makes it useful to restrict his future movements, will have his future movements restricted. He is barring himself from performance and further activity in the matter in which he has skill and expertise and "know-how." I am quite prepared to accept the position, implicit in the Amendment of the Government, that he has to leave the company. Again it seems to me that abuse is remote and fantastic. Here we have a man giving up his own skilled occupation, and we are prepared to submit to a very experienced tribunal of fact—because I do not think anyone who has experience would say that the Special Commissioners are not experienced and knowledgeable in these matters—deciding whether it is a fair amount for the restriction.

I put these examples because I should not like hon. Members opposite to think that we have not considered the difficulties and the possible abuses in these matters. What we have tried to do—and after all this is a duty of the House—is to attach the taxation to what is dressed-up remuneration and not to what is a fair payment for the capital asset of restricting a man's future employment. One great advantage is that it extricates the House from a position which none of us relish, as the Solicitor General said, of indulging in retrospective legislation. Because you will see, Mr. Deputy-Speaker, that the effect of this is to distinguish between the payment under the restrictive covenant and the remuneration and, therefore, we are taxing remuneration.

Of course, we must tax remuneration. We can always tax additional remuneration. We can always go back six years under the Inland Revenue Acts and do it. We are saying that we should tax what is truly remuneration and, therefore, there is not really the retrospective element in the taxation. What there is, and what we are all prepared to advocate as being the fair and equitable way of dealing with it is: here is a fair procedure, a workable procedure, for distinguishing between a true payment and the bogus dressing-up of remuneration under another name.

As I have said, we have considered this as carefully as we can. We are bringing before the House our united experience in this matter. We have no tenderness whatsoever for dressed-up remuneration but we have discovered the way of finding out where it exists, and when we find out that it exists, we are prepared to say that it should be taxed as, of course, it ought to be taxed. I am sorry on the Report stage to have taken a little time to develop this matter, but these three Amendments hang together and constitute our solution of this problem. We believe it is a just solution and it is in that spirit that I move the Amendment.

Mr. Marlowe

The great attraction of the three Amendments dealt with by my right hon. and learned Friend is that they will help the Solicitor-General to carry out the pledge he gave on the previous occasion when this matter was discussed. I would remind the right hon. and learned Gentleman of what he said on that occasion when he gave this undertaking: We shall try, if we can, in respect of the retrospective effect of this legislation, to find words between now and the Report stage which will except what I have broadly described as innocent transactions, that is to say transactions which were not entered into with a view to tax evasion."—[OFFICIAL REPORT, 19th June, 1950; Vol. 476, c. 881.] That is exactly what this Amendment seeks to do and, as I suggest, does it effectively.

As my right hon. and learned Friend has said, we are all hostile to anything in the nature of tax evasion, but there is no better way of determining whether there is tax evasion or not than by submitting the case to the Commissioners and thence by appeal to the Special Commissioners, with the protection of the court beyond that. Although every one of these cases must turn on a question of fact, as to whether it is really disguised remuneration or not, if a man has endeavoured to defeat the tax laws of the country by avoiding payment on an income on which he should be paying tax, it is not retrospective if we then take him before the courts and determine whether he has defeated the law or not. As hon. Gentlemen know, I feel strongly on the question of retrospective legislation, and I do not at all abandon my views on that. Here, instead of creating a new tax on something that has passed, we leave it to the court to decide whether there has been tax evasion or not, as has always been the law.

It is necessary to find out what it is we really want to achieve in this legislation. The hon. Member for Sowerby (Mr. Houghton) put it in what I suppose is Parliamentary, if somewhat inelegant, language, in saying that he wanted to avoid jiggery-pokery. What better way is there of doing that than by submitting the matter to the court? There could be no better way of giving it a fair trial than before those best qualified to judge as to whether there has been jiggery-pokery or not. I take it, from what the hon. Member said, that he would be satisfied with that because it would achieve the object which he says he wants to achieve.

The second test we always want to consider in matters of this kind is: Do we want to adhere to the usual principle of taxing income or do we want to introduce a new principle of taxing a capital payment made in respect of a covenant? Here, again, these Amendments provide the answer. We have always understood—indeed, it is a fundamental principle of the Finance Acts so far as they relate to tax upon income—that they deal with tax upon income and do not create some new kind of tax upon capital.

8.0 p.m.

What the Clause does as it stands is to create an entirely new tax upon some capital payment. By the suggested method proposed by my right hon. and learned Friend, we would avoid that anomaly and adhere to the true principle of taxing income. Although there may be difficulties in determining how much of a sum was really in respect of income and how much was disguised remuneration, those difficulties are certainly not insuperable; they could be overcome and then the tax would be paid upon the appropriate amount.

The difficulty into which the Government have got in this matter from the start is that instead of adhering to principles, they were actuated by political considerations. It was because there was some antipathy with regard to two particular cases that the Clause ever came into being at all. It is rather lamentable that the Solicitor-General narrowed down that issue by admitting that that had been the case, because, having said the words to which I have drawn attention, he went on to say that the Government would see that although their Clause excepted genuine cases they would make quite sure that it did not except those two particular cases. The right hon. and learned Gentleman was saying, therefore, that those two particular cases were offences and that they were disguised remuneration. Quite apart from those two par- ticular cases, we are much more concerned with the general principle of whether an opportunity shall be given for an appropriate authority to determine whether the case is a genuine one or not.

Mr. Eric Fletcher (Islington, East)

Am I right in thinking that the hon. and learned Gentleman has now conceded that there have been some cases, not necessarily these two, in which payments made by way of covenant and, therefore, hitherto treated as capital, have, in fact, formed additional remuneration?

Mr. Marlowe

I know nothing about that. It is not my business to investigate who has evaded the tax law. I have not the remotest idea whether there have been such cases. Very likely there have been, but I certainly do not know of any. I should think that the hon. Member, in his capacity as a solicitor, could give more information on that matter than I can. It has not come within the range of my practice to deal with such cases.

I am really much more concerned with the general issue as to whether it is right that we should alter the law to tax capital payments and to ante-date the law to that effect. I will not again go over the argument on something which I find offensive. The method we propose obviates that altogether, because it does not tax something that was not taxable. If a certain payment was genuine income and should have been subject to tax, then, of course, the law remains the same throughout and a proper tax is levied upon what was, in fact, income.

I withdraw nothing of my abhorrence to retrospective legislation, although I was not able to convince hon. Members in the majority, of its offensiveness. I know, of course, the extent to which hon. Gentlemen opposite are actuated by certain political motives in this matter. [HON. MEMBERS: "Oh."] I do not think that they really accept the principle to which they pretend they adhere.

Let me give an illustration. Hon. Members opposite may know that when salaries of Members of Parliament were increased by the House in 1945, there were a number of people on this side who took exception to and did not approve of the change which was being made. Suppose that there was a change of Government and a Conservative majority adhered to that view and said, "We are now going to cancel the £1,000 a year for Members of Parliament and date the change back to 1945, because we think that that is a proper thing to do." Would hon. Gentlemen opposite approve of that or not? I think that all those who were called upon to pay back £5,000 would feel a little uncomfortable about it, and I doubt whether then they would support the principle which they supported last time. They would have second thoughts about it. It is rather different, of course, when the matter affects one's own pocket. Hon. Members opposite have not the least compunction about acting contrary to these principles when somebody else's pocket is affected, but they would be fairly vociferous if it began to touch their own pocket.

This Amendment is by no means difficult. We are all agreed that we do not like tax evasion. The Solicitor-General has endeavoured to meet particular circumstances by introducing a rather complicated Clause, which we shall come to discuss later and to which I shall not refer now. He has given a classic example of the difficulties which can be encountered once the Government embark on ad hoc legislation, and once they try to hit particular persons without any idea of the general principle of the law for the country as a whole. Once the Government begin to select particular classes or persons for the penalty of the law, they immediately begin to get into difficulties; this case illustrates that very clearly. The Solicitor-General should be very grateful to my right hon. and learned Friend for endeavouring to extricate him from the difficulties into which the Government have got themselves.

The three Amendments achieve that purpose and do so with something which we should do our best to support—they do it with justice; they give the subject the opportunity of having his case considered on its merits, of having it taken before skilled persons accustomed to determining these questions and deciding whether there has been a tax evasion or not and deciding that the true principle of Income Tax law shall be applied if there has been evasion. That is to say, that that part of the payment which was income shall be decided and taxed in accordance with the true principles of Income Tax law, and that so much of the payment as was a genuine capital payment should not be subject to Income Tax. The three Amendments, taken to-gether, resolve all the existing difficulties, and I hope that the Solicitor-General will accept them.

Mr. H. Strauss

The right hon. and learned Solicitor-General will remember that on the Committee stage I withdrew an Amendment which I had moved, on his undertaking that he would in revised wording give full effect to it, and in his speech he also made it clear that he was going to meet to some extent the next Amendment on the Order Paper, which actually never fell to be discussed, but stood in the name of my right hon. and learned Friend the Member for West Derby (Sir D. Maxwell Fyfe).

Before I withdrew my Amendment I thought it fair to the Government to make it clear that the new words which the Government proposed to bring forward could not satisfy the points of principle for which we stood unless they satisfied two conditions. The right hon. and learned Gentleman had made it clear that he proposed to protect innocent transactions. I ventured to point out that by "innocent transactions" I understood transactions which would be perfectly legitimate on the principles enunciated by the Chancellor of the Exchequer himself when he gave the warning which has been so often quoted. The second point which I ventured to make clear before I withdrew my Amendment was that the Government must lay down the principle which they considered just and that the question whether any particular persons fell within that principle or not must be determined by the Commissioners and the courts.

In supporting the Amendment so ably moved by my right hon. and learned Friend the Member for West Derby I hope to satisfy hon. Members in all part of the House that, unless this Amendment is adopted, there will be no attempt whatever to carry out the principle enunciated by the Chancellor of the Exchequer in his original warning. The original warning, which has been so often quoted, was against remuneration being dressed up as something else. The Chancellor made it clear that he would not hesitate to hit at what was, in fact, in the words of the hon. Member for Sowerby (Mr. Houghton), jiggery-pokery. I was grateful for that intervention of the hon. Member. I think he was right.

I think what this Clause ought to try to do is to hit jiggery-pokery, and it is precisely because I believe that to be right that I am satisfied that we can convince him that, unless this Amendment, or something like it, is introduced, the Clause will not be limiting itself to jiggery-pokery at all, but will be hitting at perfectly innocent transactions against which no warning of any kind has ever at any time been given. If no such Amendment as is now proposed is introduced, what happens? With the exception of certain transactions mentioned in the Amendment in the name of the Government, to be considered later, which it would be out of order to discuss in detail now, all payments made for restrictive covenants will be hit.

If the Chancellor had intended anything of that kind there were two previous Budgets in which he could have done it. There was nothing to stop the Chancellor, either in 1948, or 1949, saying that if anybody entered into a restrictive covenant and received a sum of money for it he was going to treat that sum of money as income or remuneration. The Chancellor of the Exchequer did not do so, for, among other reasons, I suppose, the obvious reason that it would be an incredibly silly thing to do, as I shall show that this Clause as it stands is incredibly silly without this Amendment. The Chancellor did not do that. What he warned people against was, if I might again adopt the words of the hon. Member for Sowerby, jiggery-pokery. I quoted the words of the Chancellor on 15th June and the essential thing is that he warned people against the device of wrapping up remuneration as capital payments and the rest of it. The warning has so often been quoted in full that I will not weary the House with it now.

But the Clause as it stands, without our Amendment, has not a word about dressing up transactions as something else. It hits every transaction in the way of a restrictive covenant—all transactions in the nature of restrictive covenants when the man remains in the business. That has no relevance whatever to the warning of the Chancellor of the Exchequer.

A great deal has been said about the retrospective effect of this Clause. That is one of the matters which has attracted most attention. Even as regards the retrospective effect and the two cases which have been so often quoted, I wish to make my position absolutely clear. The Amendments in favour of which I have spoken, and in favour of which I speak tonight, will not prevent the Government from treating as remuneration the sums received in respect of the restrictive covenants by the two persons whose cases have been so often quoted if, but only if, they can prove in a court of law that those transactions fall within the warning of the Chancellor, that they constitute, in fact, concealed remuneration and not bona fide payment for a restrictive covenant.

8.15 p.m.

I have no objection whatever to words—that is to say I certainly should not oppose the Government putting forward a Clause—which, in terms, enabled them to get the tax they seek to get from these two persons, if they can prove their contentions in a court of law. But I say that those two persons, just as much as anybody else, are entitled to be heard. They are entitled to say What we received was bona fide payment for a restrictive covenant against which no Chancellor of the Exchequer, or anybody else, has ever issued any warning whatsoever." If the Amendment to which I have put my name is adopted, or any similar Amendment, in a slightly different form, which the Government might prefer, it would still be possible for them to obtain the tax they seek if they are right, but the individuals will at least be entitled to have their case heard by the courts of the land and to prove that they were not guilty of jiggery-pokery, but that what they received was a bona fide valuation of that which they were giving up, namely, their right to work for other concerns.

So far, I have dealt with the retrospective effect of the Clause in connection with the two named persons. But suppose for a moment that the House should take the view, "We know so much about those particular cases that we do not mind if words are adopted which will certainly hit them without any doubt." I hope hon. Members in all parts of the House would reject any such step, because I think it important that we should do justice. and appear to be doing justice.

I think hon. Members in all quarters of the House prefer that, even if their suspicions about these two cases are correct, the correctness of those suspicions should be tested in a court of law. But of course this Clause, as it will stand if the Amendment is not adopted, is not confined to those two cases of which we at least know something. It will hit innumerable cases of which, at the moment, we know nothing at all. It will hit every case where a gentleman has given a restrictive convenant for a payment of money, or money's worth. restricting him from entering into other employment. A man may have refused a genuine offer, perhaps from the dollar area, to work for a rival and he may have received no more than the due amount that that covenant was worth to those who paid him for it. He will be hit, and hit although no warning has ever been given against the sort of transaction into which he has entered and although there is nothing morally or legally wrong about it.

I hope hon. Members in all parts of the House realise that the retrospective effect of this Clause, although the most serious from the point of view of any lover of justice, is not the only objection to the Clause as it will stand if no such Amendment as is proposed is adopted. Are hon. Members on the Government side quite certain that they desire it to be impossible for any English company to make it worth while for a man to enter into a restrictive covenant of this kind? If payment for a restrictive covenant, notwithstanding the fact that it is in reality capital, has to be treated as income and taxed at the present level of taxation, the effect will be that no payment can be offered for such restrictive covenants which will make it worth while for the recipient to accept. That might be no great evil, if that is the result desired.

But are the Government sure that that is their desire? Are they sure they wish our rivals in hard currency areas to pay for the services of any inventive genius at present working in this country, and for it to be impossible for any British company to offer any payment which gives the man concerned the incentive to refuse that offer? I suggest that as regards the future that is a result they will not desire. I say that it is foolish and contrary to the public interest, even if we were to confine it to the future. The matter becomes much more serious, of course, when we realise that what we are doing also has a retrospective effect.

The Government, by their Amendment, have fully met the proposal I put forward and subsequently withdrew as to the date of the agreements after which alone they can fall within the provisions of this Clause. But the other matter has not been dealt with at all. The Chancellor, in his warning, quoted the case of dressing up remuneration in a capital form. He said that if there is a specious undertaking, or merely a colourable legal transaction, he will disregard the form and look at the substance. I think that the Chancellor has a good defence, or a defence which has often been thought good in this House, for such an attitude, and, if he adopted that attitude in this Clause, I should not think it necessary to go into the Lobby against the Government.

The fact is that the Clause as it stands has no provisions of any kind about transactions that are colourable or specious, or dressed up in some form other than the true one. He has dealt with what the hon. Member calls "jiggery-pokery" in the same way as he has dealt with genuine transactions, which is contrary to the interests of the country, of the House and of justice. My right hon. and learned Friend the Member for West Derby has put forward what I believe to be a solution to this difficulty. It may be that the Government, with all their resources of skilled draftsmanship, can think of some better words, but the main point I put to the House is that they must try to meet the intentions behind our proposal, even if they do not approve of the exact wording.

I understood, when I withdrew my Amendment on the last occasion and stated my two conditions, first about a transaction being innocent if it fell outside the warning of the Chancellor and secondly, about the Government laying down the general principle in the Clause and leaving it to the courts to determine whether any particular transactions fell within it, that Ministers on the Government Front Bench nodded and showed their acquiescence. Therefore, I waited to see their Clause on the Order Paper, which, of course, does not meet those points at all. For all these reasons, I strongly support the Amendment that has been moved, and hope that, if the Government do not accept it, the House will.

Mr. Houghton

Several Members opposite have referred to me, and, not unexpectedly, more attention has been paid to my intervention than to the questions I addressed to the right hon. and learned Gentleman the Member for West Derby (Sir D. Maxwell Fyfe). I have been asked what is jiggery-pokery." I would say that when an unscrupulous taxpayer and an astute lawyer put their heads together to defeat taxation, there we have jiggery-pokery. There has been a plentiful supply of it during the 100 years that we have had Income Tax. The purpose of Income Tax is obviously to tax income, but it is a quest that the legislator and the Revenue authorities have been pursuing for 100 years without being certain whether they have even yet succeeded.

We have to consider here what is income, in the general sense of the term, by reference to considerations of equity as well as legal and technical distinctions and definitions. For instance, if an employer were to say to a worker, "If you will agree to work for me for three years without drawing any wages, at the end of three years I will pay you a capital sum," that, we should all agree, would be income. It would be a substitute for income. What the legislature is constantly seeking to check is the use of substitutes for income to escape the taxation levied on income.

We are at one in trying to stop "jiggery-pokery," which means that we are out to check specious restrictive covenants and out to stop bogus ones. If a managing director, a chairman of directors, or anyone in an influential or controlling position in an undertaking, sees a way of escaping tax by coming to an agreement, almost with himself, in return for a promise that he will remain in his present position, receiving a large capital sum for doing so, when all the time there has been no real risk that he would leave, or any desire on his part to leave, but merely the determination to use this device to avoid paying his proper share of taxation, we are all agreed that that is something we want to stop.

8.30 p.m.

Very well, then, although I am not a lawyer, I am going to apply this simple test. The test of what is income is whether or not the money is a profit arising from a contract of employment. That seems to me to be a fairly good test of what is income. It is not original; it was, in fact, part of a judgment by the Master of the Rolls in an interesting case reported in "The Times" this morning about a certain Colonel de Soissons, in which certain payments of a capital nature at the conclusion of service were challenged by the Inland Revenue and regarded as income, a contention which was upheld by the Master of the Rolls in his judgment yesterday.

Mr. Selwyn Lloyd

But the hon. Gentleman will note that the existing machinery of the law is perfectly adequate to deal with such sums.

Mr. Houghton

Yes, and I am coming to the suggestion that the existing machinery of the law, if the Amendment which my right hon. and learned Friend proposes to include in the Finance Bill is carried, will be capable of looking after the distinction between the genuine and the specious.

I want to come now to the genuine case, and here I wonder whether Members opposite really are in accord with what we want to do on this side of the House. I do not agree with the hon. and learned Member for Norwich, South (Mr. H. Strauss) that, as regards the future, my right hon. Friend the Chancellor is confined to the specific terms of the warning given two years ago.

Mr. H. Strauss

I quite agree. For the future, the right hon. and learned Gentleman is only bound by what is wise and is only affected from the point of view of wisdom, but, following the interesting argument which the hon. Gentleman has put forward, I hope he realises that, unless he says that no restrictive covenant of a capital nature is proper for a man who remains in a business, he is bound to admit that the Clause as it stands attacks what he called "jiggery-pokery" and genuine transactions equally.

Mr. Houghton

Not only is it the intention of the Chancellor to attack "jiggery-pokery," but it is his intention also to check the use, albeit in a less objectionable form, of capital payments as a substitute for income. What I think I detected in the speech of the hon. and learned Gentleman was the suggestion that the Chancellor is bound by the strict terms of his warning of two years ago in framing his proposals now. I do not accept that view, if it is held by the hon. and learned Gentleman.

Mr. H. Strauss

I thank the hon. Gentleman for giving way again. If what I said could be understood in that way I must have expressed myself very badly. The Chancellor, as regards the future, is not in the least bound by the terms of the warning which he gave two years ago, because the House can do what it is wise to do, but, regarding the retrospective proposal, it is quite wrong to go outside the terms of his warning.

Mr. Houghton

The hon. and learned Gentleman will agree that the substance of the objections to the retrospective proposal have now been largely removed, and, at all events, the Bill is proposing to check the use of capital payments in substitution for income, when, otherwise. it would be income liable to taxation in the ordinary way.

For the sake of illustration, let us take the so-called genuine case of an executive or director who has received an offer to transfer his services elsewhere—an attractive offer, let us say—and his present employer or board of directors desire to retain his services. They make a proposal to him that, in return for an undertaking to remain, they will pay him a lump sum. That is a restrictive covenant, and, so far as I can judge from what hon. Gentlemen opposite have said, they would regard that as a genuine case and would say that such a lump sum payable in those circumstances should quite legitimately escape taxation.

Mr. H. Strauss rose—

Mr. Houghton

Let me finish. I feel that already I am rather usurping, with great humility, the functions of my right hon. and learned Friend the Solicitor-General, and I am not qualified to do that. By their interruptions, hon. Gentlemen opposite are drawing me into a much longer argument than it was my purpose to make.

I suggest that if an offer of a lump sum to remain is payable in those circumstances, it is really a substitute for higher remuneration—a payment in return for a promise to remain—whereas, otherwise. the man could go elsewhere and earn more money. It is really a substitute for income, and that is why I asked the right hon. and learned Gentleman who moved the Amendment what was the valuation which he was seeking to have made in the first of the proposals on the Paper. A valuation of what? A capital asset, he said. A capital asset to whom? To the firm? If so, is it to be shown in the balance sheet? It is surely a capital asset in no different sense from that of an employee who has become an experienced and skilled man in the service of his employer, and who says to his employer, "I have the offer of a better job at more money," and when the employer, who wishes to keep him, says, "Whatever you have been offered elsewhere I will pay you here."

He pays wages or salary, and does not pay a lump sum. If he did, then I think we should have a widespread growth of this alternative method of retaining the services of workers whose value to their present firms was increased by their experience, their skill and their length of service with their employers. That would be a widespread device, and it would be tax evasion. It is one of the things which the Chancellor seeks to check. The right hon. and learned Gentleman who moved the Amendment seemed to assume that there are cases of that kind which should be protected, and which would be protected under his Amendment. Nobody opposite has given us an illustration of what they would regard as a genuine restrictive covenant which should escape the net that my right hon. and learned Friend desires to throw round the whole area of these transactions.

Mr. Pitman

I shall gladly take up the request and challenge of the hon. Member for Sowerby (Mr. Houghton) to give specific instances in this case, but, first of all, I think he must get a little of his Income Tax law right. If I am the manager of the milk department of a Co-operative store and I have a rounds-man, I understand that if I wish to sack him, or if he becomes redundant in any way, I have got to pay him his wages under whatever are the terms of contract, and that that part of any payment that I make to him is income. On the other hand, if I have a soft heart and wish to be a good employer and pay more than the amount under the agreement, I can give him compensation for loss of office, and that is, as at present under the law of this country, not income for taxation purposes, but capital. I maintain that the Clause that we are discussing, whether amended by this Amendment or not, in no way alters that situation.

If I may now be allowed to talk as an ordinary business man—and this may help the Solicitor-General as well as the hon. Member for Sowerby and the House—who has paid compensation of more than the amount due under such agreement, and who feels that he has got a certain value for money in return for that payment, I will explain why I think that. What possibly is dividing the House at this moment and worrying the Government is that they cannot conceive that, in any circumstances, a restrictive covenant can be any good at all. We would all be in general agreement that any restrictive practice on employment, whether by a trade union or by an employer, is subject to suspicion. It has to prove its worth.

I maintain that in this particular field, however, we have an enormous safeguard in the courts of the land, because the courts are most careful that no employer shall improperly restrict any of his employees on leaving his service. Suppose that I was a dairyman and there was a new dairyman going up and down the same road that my milk roundsman served. I might say to my roundsman, "I will give you three or six months wages, in addition to the amount you are entitled to under your agreement, provided that you agree with me that you will not go away and immediately, or within the next six weeks, go and work for that one particular competitor who is selling milk down that particular street." I think the courts would say that was a proper restrictive covenant. In every case under the Amendment as now proposed, the valuers would take into account whether the restriction paid for had been a legal and properly enforceable restrictive covenant. Therefore, I maintain there is no possibility of any jiggery-pokery if the valuation Clause with the Amendment proposed by my right hon. and learned Friend the Member for Liverpool, West Derby (Sir D. Maxwell Fyfe) is accepted by this House.

In what circumstances is a restrictive covenant desirable in the public interest? Obviously, although I have picked a case of wages and a milk roundsman, restric- tive covenants occur more frequently in cases where there are long-term agreements for salary rather than weekly wages. In other words, they apply to salaried people, and chiefly to people of very great skill and personal ability—cases where it is the person concerned that is the important factor.

I maintain that, initially, when making or renewing a service agreement a restrictive covenant is proper and right. Where a chairman or the board of directors of a company engage a man, who is a good man, for a long period of office, it is a good thing to keep him from looking over the hedge. If he knows he has in his agreement a restrictive covenant, into which he has entered entirely freely, he settles down to do a job well and honestly and is not constantly worrying and being worried by other people who come along and say, "Why don't you think of working for us instead of those people?" In other words, it tends to make and keep a person happy in his job.

Secondly and initially, when entering into a long-term agreement with such a man, it very often happens that one is not in a position to give an agreement of sufficiently long term to satisfy him. He might very well say, "I want a five or 10-year agreement"; and the employer might say, "We cannot guarantee that this venture is going on for more than two or three years." In that case they put in a counter proposal that if, at the end of two or three years, the business is going to fold up or they are not going to be able to employ the man for any reason, they will pay him a lump sum of —x in addition to what he was entitled to as salary under his agreement. It is surely wise and right that there should be that payment and that there should be a quid pro quo in the form of restriction.

The mere fact that the Government, in the employment of their own Civil Service, have specially passed an Official Secrets Act, shows that they are well aware of the fact that in the transfer of employment, at a high level, one transfers something beyond the skill and the muscular effort of a pair of hands. There is a great deal of knowledge taken away in the memory and experience of the employee; and I have found that the Civil Service are most restrictive in every way in regard to what happens after a person has left their service. Therefore, there cannot be any objection by the Government to the principle of restrictions.

8.45 p.m.

There is also great value finally as well as initially in such a payment when parting company with an employee. One can, for instance, part company on the ground of redundancy, and should not the party opposite be very sympathetic in matters of redundancy? Should not people who are made redundant in any circumstances be entitled to a little consideration? In that case it is often right and proper to pay more than the legal time minimum written into the agreement. If one pays it and if there is a cause for restriction which the courts would uphold, surely it is only right and the correct conduct of business that in return for such a payment one should get something. Unless this Amendment is passed one will indeed continue to be able to make the payment, but one will not be able to insert into the transaction what is a very reasonable restriction on the future employment of the employee in question.

This applies equally when an employer and employee part company on bad terms. My father early in my life told me that in employment, as in matrimony, there was no certainty of continual harmonious relations. They have got to be worked for on both sides. When an employer takes on a man for five or 10 years under a contract the employer's side of the bargain is laid down in black and white. He has to pay the man so much money on certain days and he has to give him so many days holiday, and so forth. In return the employee should really put his spirit into the job. My father said that the employer is always at a great disadvantage because inherently the first part of the agreement is ponderable and can be enforced by a court of law, whereas the second part is spiritual and imponderable and the employer just does not know where on earth he is.

My father gave me a piece of advice which I have consistently followed throughout my business life, namely, "Whenever you enter into any real longterm employment of this kind, for goodness sake put in a clause under which it can be brought to an end." If that is done and if there is an element in which the Official Secrets Act or anything else of the sort might arise, and where a restriction is within the public interest, then surely one is right in getting in return for such a payment that reasonable quid pro quo.

I fully support the Amendment. I think the hon. Member for Sowerby has failed to appreciate that every case of "jiggery-pokery" is covered by Clause 23 as we hope it will be amended, and we trust that the remarks of the Solicitor-General will be favourable to our case.

Mr. Higgs (Bromsgrove)

It is with some diffidence that I take up the challenge of the hon. Member for Sowerby (Mr. Douglas Houghton) who invited us to name some innocent transactions which might be caught by the Chancellor's Clause if it were not amended in the way we suggest. Quite clearly the right hon. and learned Gentleman himself has in mind that there are innocent transactions which might be caught, for has he not provided that in retrospect some of these transactions are to be exempt? I should have thought, with my limited experience of this House, that it would have been for the Treasury Bench to tell us what are these innocent transactions which will be caught in what is, after all, their device and not ours. I should have thought they would have told the House not only that, quite obviously, we are seeking here to name the individuals; I should have thought, that with all the resources, experience and statistics at their command, they would have been able to tell us—" and incidentally we catch this sort of case and that sort of case."

Unless some sort of filter is introduced through which the innocent may pass but which the guilty cannot pass, I believe that the Clause as it stands will ultimately catch a very wide variety of cases none of which has so far occurred to hon. Members. After all, it is the duty of the Revenue, once a Clause is in a Finance Act, to exploit it to the full. If the Revenue can conceive that this Clause, once on the Statute Book, will catch new kinds of case which we in this House have not considered, then it is the duty of the Revenue to catch such cases.

I will suggest one or two instances which occur to me, with my limited resources, and I hope we shall be told whether these cases will be caught. I do not think it matters what the answer is in respect of these individual cases, but I hope to be able to give some idea of the types of case which might be caught. Of late, somewhat regrettably, professional footballers have been in the minds of some of us. It happens that from time to time a professional footballer is transferred, by arrangement, from one club to another. When he joins his new club he signs a contract which contains a clause and I have in mind the wording the Clause as it stands—which restricts him as to his future conduct and activities. In consideration of that, or as part of the bargain which he seals when he seals the contract, £20,000 may pass from his new club to his old club. I suggest that the Clause as drawn imposes upon him the obligation to pay Surtax on the sum which is represented by £20,000 when Income Tax is deducted from it. Surtax is not payable by either of the clubs, but it is payable by the player, because the Clause says that the same consequences shall flow as if the payment had been made to the player. I do not know whether it is the intention of the Government that such transactions should be taxed, but hon. Members on either side must ultimately justify their conduct to their constituents. We should, therefore, be interested to know whether that is the intention, and, if not, why not. Quite clearly, if the Amendment we are discussing were incorporated in the Clause it would not operate in that way, because nobody could say, whatever else they may say about the transfer system, that the transfer fee forms part of the income of the player.

Perhaps I may mention one other instance which occurs to me and, again, perhaps, we may be told whether the Government intend to catch such a case. I know of people, professional clients of mine, who are proprietors of businesses, shops, in a town of moderate size. They own the freehold of the premises. Perhaps they are partners or perhaps they have a private limited company. They carry a considerable stock. They may be ironmongers or clothiers, but it is quite a modest business in one way or another which will stand on the balance sheet at £30,000 to £40,000, including the freehold.

I know of cases where people like that employ a manager at £8 or £10 a week with, perhaps, a bonus. It may be that after some years of service they will say to him, in round terms, "We would like to make you a partner with us. We will, therefore, take you into partnership." If it takes the form of a private firm, then it will be a partnership fee, but if it is a private limited company the manager will be given some shares. The result of that transaction is to give to that manager a third of the business. As I say, it may be of moderate size, and the sum may be £10,000—a third of £30,000. The manager will, of course, sign an agreement, whether by way of subscribing to the memorandum and articles of association, which will restrict his future conduct and activities, or by signing a partnership deed, and that will be part of the consideration for which he acquires the £10,000.

Is he then to pay Surtax on £17,000 or £18,000 which is the gross sum represented? If so, I think we ought to know, because I do not think it is in the minds of hon. Members that a transaction such as that would be caught. I cannot see where it is excluded from the very wording of the Clause as it stands, even allowing for the Amendment which the Chancellor of the Exchequer intends to propose as to the future.

There are many other cases of a similar kind which we can imagine. I will mention only one more. It happens that in the part of the world which I know, in the Black Country, firms of manufacturers have in their employ men of experience in their businesses, and one of these firms, for example, may say to the manager, "We make buckets. We will establish you in a little place of your own to make the handles for us. We will give you the necessary money to set yourself up in that business, but we shall expect you to enter into an agreement in turn by which you will continue to serve us with your business." Quite a substantial sum may pass under an arrangement of that sort to enable the manager to set up the business in exchange for a covenant restricting his activities to serve his employer in that way.

Now, the money which passes is in no sense income; it is in no sense spending money, which is, after all, what is at the back of the minds of hon. and right hon. Gentlemen opposite. Nevertheless, as I read this Clause as it stands, unless our Amendment be incorporated in it, that money will be caught, and the money which has passed to the man for the purpose of starting a business will. in fact, be subject to Surtax.

We must always remember when we are considering this Clause that the sum which passes has to be very nearly doubled before we see upon what sum we are going to impose Surtax. These are practical considerations—the practical way in which I approach this Clause. It is not only a question of what right hon. Gentlemen on the Treasury Bench want to do, or of what the House as a whole wants to do. What we have to ask ourselves is, What does this Clause do?

The Solicitor-General

We have had an interesting Debate upon the proposal which the right hon. and learned Gentleman the Member for the West Derby (Sir D. Maxwell Fyfe) has put forward in his Amendment. The Amendment itself merely raises a comparatively narrow issue, namely, whether the method suggested is one which would adequately differentiate cases in which it could be said that the motive was primarily a tax evasion motive, and cases in which the motive could be described as a commercial motive. The Amendment does not go beyond that. Further, issues of a wider character have, however, been introduced into the Debate, and I should, I think, in deference to what has been said, express my own view, quite shortly. of some of the topics that have been raised.

To begin with, this Amendment does not raise directly the question as to whether the Government's proposal is open to criticism on the ground that it is too retrospective in effect. This proposal not only would affect past transactions but future transactions, and I would propose, as I think it would probably meet the convenience of the House, to speak rather more fully on the retrospective aspect of this legislation when I move the next Amendment which appears in the name of the Chancellor of the Exchequer.

9.0 p.m.

Disregarding the question of retrospection or non-retrospection, I would simply say this in general. No doubt cases can be broadly distinguished between, on the one side, those where the person who pays and the person who receives payment are actuated by the motive of evading tax which they know they ought to pay, and, on the other side, cases where what really actuates them is something which can be described as a genuine commercial motive, and the kind of cases referred to by the hon. Member for Bromsgrove (Mr. Higgs) and others can be brought to mind. There are, I suppose, a very large number of cases —possibly the majority, although it is impossible to form any accurate estimate —where the motive is twofold, where there is a commercial motive, but where it has also prominently to be borne in mind that the payment made to the person who leaves the employment in question is one which he will get free of tax, whereas he could not by any other method obtain that particular sum without having to pay tax.

I should like to make this general observation. After all, if all these payments are made subject to tax, as this Clause in its unamended form would do, it is not really so unreasonable. Clearly, it is perfectly reasonable—and I think all those who have spoken desire it—that tax evasion payments should be made subject to tax. Even if the Clause remains as it is and brings within its scope those payments where the motive is purely or wholly a commercial motive, I would suggest to the House that that really is not so unreasonable. [HON. MEMBERS: "Oh!"] Yes, may I say why? What are these payments that are made in return for a restrictive covenant? They are payments which are paid in lieu and which take the place of the remuneration the person who receives the payment could otherwise have earned by doing the very work which he is to be precluded from doing. That is what they are in essence. That being so, inasmuch as the recipient of the payment says, in effect, to his ex-employer, "I will not earn my living as I would otherwise have done if I had not given up this employment, but I will, instead, take from you a sum of money for not earning my living, and draw income by so doing," it is not unreasonable, I suggest, if one looks at it in the general context of tax legislation that that sum should be treated as really and truly in essence what it is, namely, income.

Mr. Lyttelton

In the year in which it was received?

The Solicitor-General

Yes, in the year in which it was received.

Mr. Lyttelton

But that entirely demolishes the case.

The Solicitor-General

May I just complete my argument? Some of these payments are received in one year; but many of these payments are made by instalments over a period of years —instalments the continued payment of which is conditional upon the continued observance of the covenant. Although it is again difficult to form any arithmetical estimate, perhaps even more cases of restrictive covenants are those in which no lump sum payment is made at all, but where the restrictive covenant is given in return for an annuity or pension; and frequently the annuity, as in the case of periodic payments, is itself made conditional upon the continued observance of the covenant.

In all those cases—and there are very many of them in which what the employee gets is an annuity or a pension—under the existing law he has to pay tax; it is an ordinary annuity or pension which is taxable under Case III of Schedule D. That is the law as it stands, and what we are doing is bringing into the same category as the annuities and pensions which are at present paid for these restrictive payments, lump sums or payments which are paid not in one lump sum but in, say, three, four, five or six instalments. That is what we are doing, and I would suggest that we are not doing anything which is very violently in contradiction with what has been done by the current flow of legislation.

Mr. Pitman

This is a fundamental point, on which I think the right hon. and learned Gentleman is wrong when he says that the payment is to recompense income which the man would not receive during the next period for his work. For instance, in the case of my milk rounds-man, it may be said to him, "You can work for any other milkman in the world except this particular one. You can even work for a butcher in the same street," and the probability is that in a period of full employment that fellow will get a job tomorrow. He is paid that remuneration not to disturb that particular business, and it is a capital sum.

The Solicitor-General

I do not think that I ought to alter what I said. I think that what I said was right. In the case which the hon. Member mentioned, what that person is getting is something which stands in the place of the remuneration he could have earned by doing the work which he undertakes not to do. [HON. MEMBERS: "No."] I think that is the case.

May I continue the argument that I was embarking upon? My argument had been that, after all, we were not doing anything which was violently revolutionary from the tax point of view, and we were following the current trend. There is, in addition, this circumstance to be considered: this method of payment, as, unfortunately, has been shown to be the case, has been used—and no doubt will be used again once it has become apparent, supposing we do not pass this Clause, that it is a means by which one can get payment without having to pay tax upon it—as a pure tax evasion method.

I am sure that both Houses, quite irrespective of any personal feeling about it, would like to stop that and would be determined to stop that. The right hon. and learned Gentleman says, in effect, "Let all that be conceded. I propose a method by which we can distinguish those cases in which the motive is a genuine commercial motive, such as two businessmen might enter into who have no thought of trying to evade payment of their fair share of the country's taxation —I can distinguish those cases from the tax evasion cases." It is with that in mind that he has put down his Amendment.

What is the Amendment? It is that the Special Commissioners should be asked to look at the sum which is paid in return for one of these restrictive covenants and evaluate the value to the company of the restrictive covenant or any parts or part of it, but only impose the tax on any amount in excess. If that proposal is to work, it seems that it is, in fact, practically impossible to call upon the Commissioners to make a valuation of that sort. We all agree on that. I earnestly submit to the right hon. and learned Gentleman and to other hon. Gentlemen who have spoken in support of his proposal that that really is practically quite impossible.

The right hon. and learned Gentleman who held the position which I hold longer, I think, than I have held it, and with far more distinction, will remember the experience we had with Section 35 of the Finance Act, 1941. That was the Section which imposes upon the Special Commissioners the task of trying to discern, in the case of a particular transaction, whether it was really brought about by an Excess Profits Tax evasion motive. It was found by experience that it was putting on the Special Commissioners an almost intolerable burden, and this would be doing exactly the same thing. I will say why.

Will hon. Members put themselves in the position of Special Commissioners who have one of these cases coming before them? They have the evidence of persons in the company who are closely associated with the company and who know the company far better than they do. They know the value of the person far better than the Commissioners could ever hope to know it, and they are called upon to judge on that evidence. They are, I submit, almost powerless in the face of that evidence. They may be suspicious, but how can the Special Commissioners be asked to evaluate the value to a particular company of a robust' and vigorous personality; of a person whose judgment has been relied upon for many years: how can they evaluate what the value to the company is of the wisdom of a particular director? How can they say, as may be alleged by particular witnesses, that if such and such a person leaves a company, who has for many years guided the counsels of the board of directors and whose counsel has always turned out to be wise, it is a very serious loss to the company to be deprived of his services and a serious threat to the company if he enters into competing service?

One hon. Member said, "You might get a person who was offered a post with an American company and he was leaving the services of the British company. In that case surely it should be possible to evaluate his services?" What would the Special Commissioners have to consider? They would have to see how far the offer was a serious and genuine one. Secondly, if it were still in the negotiation stage, they would have to try to form an estimate of the likelihood of it reaching fruition and a final contract. They would have to try to estimate how much harm the ex-employee or director would do to the company he would be leaving in this country if he entered the service of a company in the United States. That would have to be estimated by a rough calculation over a period of years.

I quite realise that accountants and juries in courts of law have to do their best to try to make estimates of that kind. Judges and juries have to evaluate the loss the person suffers through serious injury, and so on. All these things are very difficult to estimate, and experience has shown how difficult it is. It would be throwing a great burden upon the special commissioners to expect them to try to tackle this kind of task.

Sir D. Maxwell Fyfe

The right hon. and learned Gentleman has mentioned the question of motive, and has referred to a case where one had to find out the purpose. I am sure he has in mind that in the original Amendment which we drafted for the Committee stage, and which we did not move in view of what happened there, we suggested that the test should be the purpose for which the sum was paid. We withdrew that approach and substituted something objective in order to get out of the difficulty which the right hon. and learned Gentleman has mentioned. I am sure he appreciates that we had that difficulty in mind, and sought to meet it.

The Solicitor-General

I am very much obliged to the right hon. and learned Gentleman. When I was addressing the Committee when we were discussing the retrospective action of the Clause, I said we would not in any event be able to accept the motive test. I accept that he has done his best to avoid that difficulty, but I think he has not successfully got round it, because when Special Commissioners are asked to judge upon a company and upon an individual's service to that company, they are being asked to undertake something which is very difficult. Those are the reasons wihich actuated the Government in forming the view that the advice that they ought to give the House is not to accept this Amendment.

These three Amendments hang together, and I earnestly urge upon the House the view that the fatal difficulty about the proposal is that it would be a burden upon the Special Commissioners which it is not fair to call upon them to try to discharge. For these reasons I hope the House will agree with me that this attempt, which is accepted at once as a very genuine attempt to get over a difficulty, is not one which in practice. if it were tried out, would work.

Mr. Bell (Buckinghamshire, South)

I followed the Solicitor-General when he pointed out that the test of motive is not the only test and that there is another and perhaps truer test, the true nature of the payments. The Solicitor-General will agree with me that when a man sells his assets the proceeds are not subject to tax, and one of the most important assets with which a man starts his business life is almost complete freedom of contract. When he sells some part of that freedom, he is, in fact, realising his capital assets. Once it has been established that the transaction is of that nature, then the test of motive, which is provided by my right hon. and learned Friend's Amendment, is an appropriate test on every logical principle.

9.15 p.m.

When the right hon. and learned Gentleman was speaking of the difficulty of evaluating the various elements in those payments, I wondered if he had read subsection (2) of this Clause. When listening to the speech of the hon. Member for Sowerby (Mr. Houghton) I felt convinced that both he and other hon. Members opposite had no idea what this Clause, unamended, strikes at. Let hon. Members get clear about this matter. The Clause strikes at every enforceable restrictive covenant. I understand that a restrictive covenant is not legally enforceable, even if It is made under seal, unless it is supported by valuable consideration. Therefore, every enforceable covenant is attacked by this Clause.

I invited the Solicitor-General just now to examine subsection (2) of the Clause, and I invite the hon. Member for Sowerby to do the same. That subsection makes it clear that we are concerned not only with covenants where a sum of money is paid as consideration but with every covenant which is legally enforceable because it is supported by valuable consideration. The Solicitor-General knows that "valuable consideration" is a legal term of art which means any consideration at all, including a sum of money. The Commissioners have imposed upon them precisely that duty which the Solicitor-General spent half his speech saying that it was most unreason• able to expect them to discharge.

The Solicitor-General

indicated dissent.

Mr. Bell

The Solicitor-General shakes his head, but it is a fact that they have imposed upon them the duty of examining any consideration which supports a restrictive covenant and of evaluating it in money. Many restrictive covenants are supported by other considerations. For example, a man is given a seven years' contract of service in return for entering into a restrictive covenant. It becomes the duty of the Commission to value the long period of the contract and to attach a money value to it. The hon. Member for Sowerby who, I am glad to see, is busily engaged in reading subsection (2), then said that the whole idea of the Clause which the Front Bench were putting forward was to treat such payments as income and that they ought to be income. The Solicitor-General said the same thing. If they are to be treated as income, why are they not made subject to Income Tax. They are grossed up and made liable to Surtax.

It is obvious that the Government know quite well that there are meritorious restrictive covenants, and therefore they have said that the only people who shall be attacked by the Clause are rich men. The distinction is not made between covenants which are good and covenants which are bad but, by this Clause, between covenants entered into by men who are liable for Surtax on their incomes and restrictive covenants entered into by men who have incomes of less than £2,000 a year.

As to the effect of this, let us suppose that the consideration supporting a restrictive covenant is valued at £1,000. That is then treated as a net payment and grossed up to about £1,800, and Surtax is then paid on £1,800. That £1,800 is, of course, added to the current income of the person charged. In so far as it makes him liable to Surtax he pays. If it does not make him liable to Surtax no payment is due.

I should like the Solicitor-General or one of his colleagues to explain why, if the desirable principle is that these payments should be treated as income, they are only made subject to Surtax and not to Income Tax. It is a very remarkable thing indeed that this distinction should be made and that the tax should be levied in this way by grossing up the sum paid as though it had been liable to Income Tax and then, having more or less doubled it, to charge Surtax. The object of the peculiar provision in line 41 on page 18 is to make sure that the person who is not liable to Surtax gets right away with any restrictive covenant while at the same time ensuring that a person who is liable to Surtax does not save any money on that account but has his own payment grossed up and more or less doubled first.

The very fact that the Clause is drafted in that way shows conclusively that the Government know that there is a distinction between convenants which are meritorious and others which are not. There is the classic example of such covenants described as relating to the kind of employment in which there is a confidential element in the employment or in which the employee has to be initiated into trade secrets. Such restrictive covenants are clearly defensible upon every commercial principle. They have been defended in the courts, and I have never heard them impugned until this Debate.

If the Government recognise that such meritorious covenants exist and go out of their way by using a curious form of words to save most of them by making the payment only liable to Surtax, why do they not do the job properly and so draft the Clause that all meritorious covenants are exempted and not only those meritorious covenants which are entered into by people who are not liable to Surtax?

Mr. Lyttelton

I hope that it will not be thought unseemly if someone who cannot call himself "right hon. and learned" takes part in this Debate. I intend to make as objective a contribution as I can without those legal advantages of which I was deprived by the First World War. We do not approach this subject at all from a partisan or party point of view and I want to leave some of the legal niceties behind me and try to make some contribution to the subject from a practical point of view.

We may feel that the tax is too heavy and we may feel that it falls with undue harshness on certain individuals, but the characteristic of our country is that, on the whole, people pay their taxes, and any action against taxation must be political and through the Parliamentary processes and not by means of what I might call a sit-down strike of the taxpayer or by "jiggery-pokery" which, according to the hon. Member for Sowerby (Mr. Houghton) is the result of the marriage between acute legal minds and unscrupulous taxpayers.

Our objection to the Government's original intentions about this matter fall under two headings. First of all—I believe that this is shared by hon. Members in all parts of the House—we have a profound distrust and dislike of retrospective legislation by which a man may be caught and, in effect, punished for doing something which was perfectly legal at the time at which he did it. We can perhaps think of exceptions where this principle of retrospection may become blurred but, nevertheless, I suggest that no legislative body can be otherwise than extremely apprehensive about the effects of retrospective legislation, not only upon the individual particularly hit but upon the general body of citizens who may for one thing be left in great uncertainty and doubt as to their day to day actions. Nor can it be denied that retrospective legislation, if carried too far and applied too frequently, would undermine the respect for the law. And if we have made one contribution more than any other to civilisation, it is the application of our common law.

There is another feature of retrospective legislation which has not been referred to today but which I must touch upon, that is equally distasteful to us and to hon. Members opposite, and which deepens our feeling of distrust, namely, that warnings by Ministers should subsequently be taken as having an almost constitutional validity. I do not want to over-state the case but, for example, during the Steel Bill we objected to a general pronouncement by the Prime Minister on the subject being afterwards written into the Statute Book. The Prime Minister said: … it is the intention of His Majesty's Government in the present Parliament to nationalise the relevant portions of the iron and steel industry."—[OFFICIAL REPORT, 21st October, 1947; Vol. 443, c. 33.] Now the date was the 21st October, and when we looked at the Bill, we found that any transactions of a certain kind which took place after that date were subject to a number of distraints laid down in the Statute.

The objections to these warnings have, I admit, less force—I want to be strictly fair—when the warnings are particularised in the most careful way upon some small definable point of the Income Tax law, but we should never let ourselves slip into the error of thinking that because one Minister said, perhaps not even in this House, "If there are any more strikes of meat porters or meat drivers we shall have to introduce legislation, the effect of which will be to impose severer penalties upon those meat porters who have been engaged in these activities in the past," it would have constitutional validity.

My hon. and learned Friend the Member for Hove (Mr. Marlowe), put the case in another way when he talked about salaries of Members of Parliament. We should regard it as intolerable if the Government introduced legislation to knock £100 a year retrospectively off the salaries of hon. Members. That would be intolerable to our idea of how a law should be made or applied. I hope I carry the House with me when I say that the principle of retrospective legislation is distasteful to all hon. Members and that they will apply it only with the utmost reluctance if forced to do so and then only on the narrowest front.

I conclude this part of my argument by saying that if the Amendment we have put on the Paper were accepted, very little of this principle—or lack of principle—of retrospective legislation would remain. I think it necessary to state once more that no retrospective legislation would be necessary to catch payments which are in effect disguised remuneration. The ordinary. processes of the law would work, and these payments would attract tax in the hands of the recipient. I say again that we on this side of the House have no wish to see disguised remuneration escape the tax which it would have attracted if it had been open and obvious.

9.30 p.m.

Our second main objection is a general one which must always concern this House when legislating about anything, namely, that the desire to prevent abuse may at the same time lead us to catch and impede many bona fide transactions which may well be necessary for the smooth conduct of trade and industry.

For example, it is the kind of dilemma which faced the Government when they introduced the Companies Act. Although I do not agree with every provision in the new Companies Act, I believe that we have steered a reasonable course and have done much to stop abuse and fraud in the joint stock companies system without at the same time unduly hampering the management of joint stock companies as a whole. That Act has meant that much useful information is now available to shareholders which previously depended upon the outlook, or the whim, rather than upon the legal obligation, of those who managed the companies. Here again, when we come to legislate concerning capital payments under restrictive covenants and the like, we must so far as lies in our power prevent bona fide transactions from being caught by a net which is thrown too wide.

The Solicitor-General mentioned the subject of commuted contracts of service and said that if a man left an employment his contract of service was terminated by some reason, perhaps, outside his control, but that then it was right to say that the sum which he received was not capital but income. When I intervened, the right hon. and learned Gentleman told me that that sum would attract Income Tax and Surtax in the year in which it was received. That, again, shows how extremely thin is the whole argument. because if a man had, for instance, a contract at £500 a year with five years to run and he received a payment of £2,500, it would be quite wrong to treat that, not only as income, but also as attracting Income Tax and Surtax in the year in which it was received.

The two illustrations which I want to give which seem to me to be bona fide transactions are, first, what I might call commutations of terms of service. My hon. Friend the Member for Bath (Mr. Pitman) produced some very wise and experienced arguments to support the general idea that at times it is right and proper that a contract of service should be terminated and that certain sums which are given to people whose contracts are terminated by mutual agreement should not attract tax but should be commuted in the terms of restrictive covenants of this kind.

My other illustration is where in industry, for instance, a new process or product is developed by a brilliant person and this product or process obviously has wider application. The time comes when it has passed the experimental or laboratory stage and when its wholesale production becomes necessary. The inventor, in other words, requires to be put in touch with a large productive enterprise. This kind of thing happens almost daily, and hon. Members will think of new products of the plastic group, for instance, as an example of what I say.

The inventor, the man with the technical knowledge, frequently wishes to sell his business to the producer. It seems to me only natural that when he sells the business he should also receive a capital sum, which would not attract tax, for what the Americans call "know-how"; in other words, that the producing company should say, "We will give you this sum so that your know-how and the developments which may still be germinating in your brain should not be given to competitors who may arise in this business."

It is even simpler to see what happens over some of the distributive processes. I have an instance in my constituency where the Ministry of Food refused to allow another fish and chip shop to be put up in a certain road because, they said, there was not custom enough to carry two shops. I think they were quite wrong, but that is what happened. If that shop had been bought by some fish and chip magnate, it would be only natural for him to say that the man from whom he bought it must not set up in business just across the road and that he would make him a payment to prevent his doing so. That, I think, ought not to attract tax.

I only mention these things because as far as I can see the most pertinent questions were addressed to the Solicitor-General by my hon. Friend the Member for Bromsgrove (Mr. Higgs) to which he received no answer, a habit which is becoming uncomfortably common with Ministers, even with those who take such great trouble as the Solicitor-General to meet our points. He did not answer the direct question of whether those particu- lar transactions would be caught by this Clause, and I think someone ought to do so.

The only arguments the Government have produced against the Amendments is that they are too difficult to carry out and that the Special Commissioners are being asked to look into the matters which the Solicitor-General made look almost metaphysical. Yet these are all things which have to be summed up every day. When one engages a technical expert, one has to consider if he has the personality or power of leadership which will enable him to carry out the job because, if he has not, he is worth a third or a half of what he would be worth otherwise.

The Solicitor-General raised a cloudy barrier against the operation of a very ordinary piece of human judgment exercised every day and said, also, that the Commissioners and then the Special Commissioners would find it impossible to weigh the evidence of men who only came from the company concerning which the restrictive covenant was in force. That argument has very little validity as a very large body of professional opinion, the great firms of chartered accountants, are available to give evidence before the Commissioners. They have been accustomed to do it for years and very much more complicated provisions come before the purview of the Commissioners and, as far as I know, it has never been suggested that their duties have not been satisfactorily discharged. I do not think there is very much force in the argument that this is an impossible thing to do. The only way in which we can get a satisfactory Clause is by adopting the Amendments put down by my right hon. and learned Friend.

I would sum up by saying that no one wishes to see remuneration, or disguised remuneration, escape tax. On the other hand, we wish to draw the net only over disguised remuneration and do not want to tax, if we can avoid it, the bona fide transactions I have mentioned. The hon. Member for Sowerby (Mr. Houghton) said that if I engaged a skilled craftsman for three years, and paid him no salary on the undertaking that I should pay him at the end of three years a sum equivalent to the salary he would have received, that would be disguised remuneration. I agree with him, but that is not the kind of trans- action we have in mind. The kind of transaction I have in mind is where the man gets, in addition to what he would have received in salary, a capital payment for not terminating the contract within a particular period and not working for someone else. Those are two different things and I agree with the hon. Member's main contention that we want to catch disguised remuneration.

If abuses are to be avoided on the one hand and hardships to be avoided on the other it is natural and proper to bring them to the Commissioners, who are quite competent, in my opinion, to distinguish what part of a particular payment should attract tax as disguised remuneration and what part may be regarded as undisguised remuneration. I would point out, once again, that by accepting these Amendments we would get away from what we all intensely dislike, the evil of retrospective legislation, because they require no back dating legislation to make liable sums which have been found by an impartial body to represent disguised remuneration.

I have listened carefully to the Debate and—I think we may perhaps attribute

this to the Solicitor-General—no speech I have heard has attempted to raise any prejudice on these matters. It is very easy as a taxpayer to feel aggrieved if someone is to get away with anything which simply means that the total burden of taxation falling on the rest of us is going to be heavier than otherwise it would have been. We have to look at these things and I think we have done so without prejudice at all. We must be sure that in the attempt to remove some abuses bona fide contracts necessary for the healthy expansion of our trade are not caught.

It is for these reasons that I hope—and I reiterate that this is not a party matter—that the Government will accept our Amendments and incorporate them in the Bill. If they do so, I think we shall once again have done something very difficult, which is to curb illegitimate evasion, while, at the same time, preserving those transactions which may be of benefit to trade and industry in future.

Question put, "That those words be there inserted in the Bill."

The House divided: Ayes, 258; Noes, 284.

Division No. 57.]	AYES	[9.42 p.m
Amery, J. (Preston, N.)	Conant, Maj. R. J. E.	Garner-Evans, E. H. (Denbigh)
Amory, D. Heathcoat (Tiverton)	Cooper, A. E. (Ilford, S.)	Gates, Maj. E. E.
Arbuthnot, John	Cooper-Key, E. M.	Glyn, Sir R.
Ashton, H. (Chelmsford)	Craddock, G. B. (Spelthorne)	Gomme-Duncan, Col. A.
Assheton, Rt. Hon. R. (Blackburn, W)	Cranborne, Viscount	Gridley, Sir A.
Astor, Hon. M.	Crookshank, Capt. Rt. Hon H F. C	Grimston, Hon. J. (St. Albans)
Baldock, J. M.	Cross, Rt. Hon. Sir R.	Grimston, R. V. (Westbury)
Banks, Col. C.	Crosthwaite-Eyre, Col. O E	Harden, J. R. E.
Beamish, Maj. T. V. H	Crouch, R. F.	Hare, Hon. J. H. (Woodbridge)
Bell, R. M.	Crowder, F P. (Ruislip-Northwood)	Harris, F. W. (Croydon, N.)
Bennett, Sir P. (Edgbaston)	Crowder, Capt. John F. E. (Finchley)	Harris, R. R. (Heston)
Bennett, R. F. B. (Gosport)	Cundiff, F. W.	Harvey, Air-Codre A. V. (Macolesfield)
Bennett, W. G. (Woodside)	Cuthbert, W. N.	Harvey, Ian (Harrow, E.)
Bevins, J. R. (Liverpool, Toxteth)	Darling, Sir W. Y. (Edinburgh, S.)	Hay, John
Birch, Nigel	Davidson, Viscountess	Head, Brig. A. H
Bishop, F. P.	Davies, Nigel (Epping)	Heald, L. F.
Black, C. W.	de Chair, S.	Henderson, John (Cathcart)
Boles, Lt.-Col. D. C. (Wells)	Deedes, W. F.	Hicks-Beach, Maj. W. W
Boothby, R.	Digby, S. Wingfield	Higgs, J M. C.
Bossom, A. C.	Dodds-Parker, A. D.	Hill, Mrs. E. (Wythenshawe)
Bower, N.	Donner, P. W.	Hill, Dr. C. (Luton)
Boyd-Carpenter, J. A.	Douglas-Hamilton, Lord M	Hinchingbrooke, Viscount
Bracken, Rt. Hon. Brendan	Drayson, G. B	Hirst, Geoffrey
Braine, B.	Drewe, C.	Hogg, Hon. Q
Bromley-Davenport, Lt.-Col. W.	Dugdale, Maj. Sir T. (Richmond)	Hollis, M. C.
Browne, J. N. (Govan)	Duncan, Capt. J. A. L.	Holmes, Sir J Stanley (Harwich)
Buchan-Hepburn, P. G. T.	Dunglass. Lord	Hope, Lord J
Bullock, Capt. M.	Duthie, W. S.	Hopkinson, H. L. D'A
Bullus, Wing-Commander E. E.	Eccles, D. M.	Horsbrugh, Miss F.
	Eden, Rt. Hon. A.	Howard, G. R. (St. Ives)
Burden, Squadron-Leader F. A.	Elliot, Lieut.-Col. Rt. Hon. Walter	Howard, Gerald (Cambridgeshire)
Butcher, H. W.	Erroll, F. J.	Hudson, Sir Austin (Lewisham, N.)
Carr, L. R. (Mitcham)	Fisher, Nigel	Hudson, Rt. Hon. R. S. (Southport)
Carson, Hon. E.	Fletcher, W. (Bury)	Hulbert, Wing-Cdr. N. J.
Channon, H.	Fort, R.	Hutchinson, Geoffrey (Ilford, N.)
Clarke, Col. R. S. (East Grinstead)	Fyfe, Rt. Hon. Sir D. P. M.	Hutchison, Lt.-Com. Clark (E'b'rgh W.)
Clarke, Brig. T. H. (Portsmouth, W.)	Galbraith, Cmdr. T. D. (Pollok)	Hyde, H. M.
Clyde, J. L.	Galbraith, T. G. D. (Hillhead)	Jeffreys, General Sir G.
Colegate, A.	Gammans, L. D.	.Jennings, R
Johnson, Howard S. (Kemptown)	Morrison, Maj. J. G. (Salisbury)	Spens, Sir P. (Kensington, S.)
Jones, A. (Hall Green)	Morrison, Rt Hon. W. S. (Cirencester)	Stanley, Capt. Hon. R. (N. Fylde)
Joynson-Hicks, Hon. L. W	Mott-Radclyffe, C. E	Stevens, G. P.
Kaberry, D.	Nabarro, G.	Steward, W. A. (Woolwich, W.)
Kerr, H. W. (Cambridge)	Nicholls, H.	Stewart, J Henderson (Fife, E.)
Lambert, Hon. G.	Nicholson, G	Storey, S.
Lancaster, Col. C. G.	Noble, Comdr. A. H. P.	Strauss, Henry (Norwich, S.)
Langford-Holt, J.	Nugent, G. R. H.	Stuart, Rt. Hon. J. (Moray)
Law, Rt. Hon. R. K.	Nutting, Anthony	Summers, G. S.
Leather, E. H. C.	Oakshott, H. D.	Sutcliffe, H.
Legge-Bourke, Maj. E. A. H.	Odey, G. W.	Taylor, C. S. (Eastbourne)
Lennox-Boyd, A. T	Ormsby-Gore, Hon. W. D	Taylor, W. J. (Bradford, N.)
Lindsay, Martin	Orr, Capt. L. P. S.	Teeling, William
Linstead, H. N.	Orr-Ewing, Charles Ian (Hendon, N.)	Thomas, J. P. L. (Hereford)
Liewellyn, D	Orr-Ewing, Ian L. (Weston-super-Mare)	Thompson, K. P. (Walton)
Lloyd, Rt. Hon. G. (King's Norton)	Osborne, C.	Thompson, R. H. M. (Croydon, W.)
Lloyd, Maj. Guy (Renfrew, E.)	Perkins, W. R. D	Thorneyeroft, G. E. P. (Monmouth)
Lloyd, Selwyn (Wirral)	Peto, Brig. C. H. M	Thornton-Kemsley, C. N.
Longden, G. J. M. (Hats, S. W.)	Pickthorn, K	Thorp, Brigadier R. A. F
Low, A. R. W	Pitman, I. J.	Tilney, John
Lucas, Major Sir J. (Portsmouth, S.)	Powell, J. Enoch	Touche, G. C.
Lucas, P. B. (Brentford)	Price, H. A. (Lewisham, W.)	Turton, R. H.
Lucas-Tooth, Sir H.	Prior-Palmer, Brig. O.	Tweedsmuir, Lady
Lyttelton, Rt. Hon. O.	Profumo, J. D.	Vane, W. M. F.
McAdden, S. J.	Raikes, H. V.	Vaughan-Morgan, J. K.
McCallum, Maj. D.	Rayner, Brig. R	Vosper, D. F.
McCorquoqale, Rt. Hon. M. S.	Redmayne, M.	Wakefield, E. B. (Derbyshire, W.)
Macdonald, Sir P (I. of Wight)	Remnant, Hon. P.	Wakefield, Sir W. W. (St. Marylebone)
Mackeson, Brig. H. R.	Renton, D. L. M.	Walker-Smith, D. C.
McKibbin, A	Roberts, P. G. (Heeley)	Ward, Hon. G. R. (Worcester)
Mckie, J. H. (Galloway)	Robinson, J Roland (Blackpool, S.)	Ward, Miss I. (Tynemouth)
Maclay, Hon. J. S.	Robson-Brown, W. (Esher)	Waterhouse, Capt. C.
Maclean, F. H. R.	Roper, Sir H.	Watkinson, H.
Macleod, lain (Enfied, W.)	Ropner, Col. L.	Watt, Sir G. S. Harvie
MacLeod, John (Ross and Cromarty)	Ross, Sir R. D. (Londonderry)	Webbe, Sir H. (London)
Macmillan, Rt. Hon. Harold (Bromley)	Russell, R. S.	White, J. Baker (Canterbury)
Macpherson, N. (Dumfries)	Ryder, Capt. R. E. D.	Williams, C. (Torquay)
Manningham-Buller, R. E	Sandys, Rt. Hon D.	Williams, Gerald (Tonbridge)
Marlowe, A. A. H.	Scott, Donald	Williams, Sir H. G. (Croydon, E.)
Marples, A. E.	Shepherd, W. S (Cheadle)	Wills, G.
Marshall, D. (Bodmin)	Smiles, Lt.-Col. Sir W.	Wilson, Geoffrey (Truro)
Marshall, S. H. (Sutton)	Smith, E. Martin (Grantham)	Winterton, Rt. Hon. Earl
Maude, A. E. U. (Ealing, S.)	Smithers, Peter H. B. (Winchester)	Wood, Hon. R.
Maude, J. C. (Exeter)	Smithers, Sir W (Orpington)	Young, Sir A. S. L.
Maudling, R.	Smyth, Brig. J. G. (Norwood)
Medlicott, Brigadier F.	Snadden, W. McN	TELLERS FOR THE AYES:
Mellor, Sir J.	Soames, Capt. C.	Mr. Studholme and
Malson, A. H. E.	Spearman, A. C. M	Major Wheatley.
Moore, Lt.-Col. Sir T	Spence, H. R. (Aberdeenshire, W)
NOES
Acland, Sir Richard	Brown, T. J. (Ince)	Davies, S. O. (Merthyr)
Adams, Richard	Burke, W A.	de Freitas, Geoffrey
Albu, A. H	Burton, Miss E.	Deer, G.
Allen, A. C. (Bosworth)	Butler, H. W. (Hackney, S.)	Delargy, H. J.
Allen, Scholefield (Crewe)	Callaghan, James	Diamond, J.
Anderson, F. (Whitehaven)	Carmichael, James	Dodds, N. N.
Awbery, S. S.	Castle, Mrs. B. A.	Donnelly, D.
Ayles, W. H.	Champion, A. J	Donovan, T. N.
Bacon, Miss A.	Chetwynd, G. R	Driberg, T. E. N.
Baird, J	Clunie, J.	Dugdale, Rt. Hon. J. (W. Bromwich)
Balfour A	Cocks, F. S.	Dye, S.
Barnes, Rt. Hon A. J.	Coldrick, W.	Ede, Rt. Hon. J. C.
Bartley, P.	Collick, P.	Edelman, M.
Benson, G.	Collindridge, F.	Edwards, John (Brighouse)
Beswick, F.	Cook, T. F.	Edwards, Rt. Hon. N. (Caerphilly)
Bevan, Rt. Hon A. (Ebbw Vale)	Cooper, G. (Middlesbrough, W.)	Edwards, W. J. (Stepney)
Bing, G. H. C.	Cooper, J. (Deptford)	Evans, Albert (Islington, S.W.)
Blackburn, A. R.	Cove, W. G.	Evans, E. (Lowestoft)
Blenkinsop, A.	Craddock, George (Bradford, S.)	Evans, S. N. (Wednesbury)
Blyton, W. R.	Crawley, A.	Ewart, R.
Boardman, H.	Cripps, Rt. Hon. Sir S.	Fernyhough, E.
Booth, A.	Crosland, C. A. R	Field, Capt. W. J.
Bottomley, A. G.	Crossman, R. H. S.	Finch, H. J.
Bowden, H. W.	Cullen, Mrs. A.	Fletcher, E. G. M. (Islington, E.)
Bowen, R.	Daggar, G	Follick, M.
Bowles, F. G. (Nuneaton)	Daines, P.	Foot, M. M.
Braddock, Mrs. E. M.	Dalton, Rt. Hon. H.	Forman, J. C.
Brockway, A Fenner	Darling, G. (Hillsboro')	Fraser, T. (Hamilton)
Brook, D. (Halifax)	Davies, A Edward (Stoke, N.)	Freeman, J. (Watford)
Brooks, T. J. (Normanton)	Davies, Ernest (Enfield, E.)	Gaitskell, Rt. Hon. H. T. N
Broughton, Dr A. D. D.	Davies, Harold (Leek)	Ganley, Mrs. C. S.
Brown, George (Belper)	Davies, R J. (Westhoughton)	Gibson, C. W.

Gilzean, A.	Longden, F. (Small Heath)	Ross, William (Kilmarnock)
Glanville, J. E. (Consett)	McAllister, G.	Royce, C.
Greenwood, A. W. J. (Rossendale)	MacColl, J. E.	Shacklelon, E. A. A
Greenwood, Rt. Hn. Arthur (Wakefield)	Macdonald, A. J. F. (Roxburgh)	Shurmer, P. L. E.
Grey, C. F.	McGhee, H. G.	Silverman, J. (Erdington)
Griffiths, D. (Rother Valley)	McGovern, J.	Silverman, S. S. (Nelson)
Griffiths, Rt. Hon. J. (Lianelly)	McInnes, J.	Simmons, C J
Griffiths, W. D. (Exchange)	Mack, J. D	Slater, J.
Gunter, R. J.	McKay, J. (Wallsend)	Smith, Ellis (Stoke, S.)
Hale, J. (Rochdale)	Mackay, R. W. G. (Reading, N.)	Snow, J. W.
Hale, Leslie (Oldham, W.)	McLeavy, F.	Sorensen, R. W.
Hall, J. (Gateshead, W.)	MacMillan, M. K. (Western Isles)	Soskice, Rt. Hon. Sir F
Hamilton, W. W	McNeil, Rt. Hon. H.	Steele, T.
Hannan, W.	MacPherson, Malcolm (Stirling)	Stewart, Michael (Fulham. E.)
Hardy, E. A.	Mainwaring, W. H.	Strachey, Rt. Hon. J
Hargreaves, A	Mallalieu, E. L. (Brigg)	Strauss, Rt. Hon. G R. (Vauxhall)
Harrison, J.	Mallalieu, J. P. W. (Huddersfield, E.)	Stross, Dr. B.
Hastings, Dr. Somerville	Mann, Mrs. J.	Summerskill, Rt. Hon. Edith
Hayman, F. H.	Manuel, A. C.	Sylvester, G. O.
Henderson, Rt. Hon. A. (Rowley Regis)	Marquand, Rt. Hon. H. A	Taylor, H. B. (Mansfield)
Herbison, Miss M.	Mathers, Rt. Hon. George	Taylor, R. J. (Morpeth)
Hewitson, Capt. M	Mellish, R. J.	Thomas, D. E. (Aberdare)
Hobson, C. R.	Messer, F.	Thomas, George (Cardiff)
Holman, P.	Middleton, Mrs. L.	Thomas, I O. (Wrekin)
Holmes, H. E. (Hemsworth)	Mikardo, Ian	Thomas, I. R. (Rhondda, W.)
Houghton, Douglas	Mitchison, G. R.	Thorneycroft, Harry (Clayton)
Hoy, J.	Moeran, E. W.	Thurtle, Ernest
Hubbard, T.	Monslow, W.	Timmons, J.
Hudson, J. H. (Ealing, N.)	Moody, A. S.	Tomney, F.
Hughes, Emrys (S. Ayr)	Morgan, Dr. H. B.	Turner-Samuels, M
Hughes, Hector (Aberdeen. N.)	Morley, R.	Usborne, Henry
Hughes, Moelwyn (Islington, N.)	Morris, P. (Swansea, W.)	Vernon, Maj. W. F
Hynd, H. (Accrington)	Mort, D. L.	Viant, S. P.
Hynd, J. B. (Attercliffe)	Moyle, A.	Wallace, H. W
Irvine, A. J. (Edge Hill)	Mulley, F. W	Watkins, T. E
Irving, W. J. (Wood Green)	Nally, W.	Webb, Rt. Hon M. (Bradford. C.)
Isaacs, Rt. Hon. G. A	O'Brien, T.
Janner, B.	Oliver, G. H.	Weitzman, D.
Jay, D. P. T.	Orbach, M.	Wells, P. L. (Faversham)
Jeger, G. (Goole)	Padley, W. E.	Wells, W. T (Walsall)
Jeger, Dr. S. W. (St. Pancras, S.)	Pannell, T. C.	West, D. G.
Jenkins, R. H.	Pargiter, G. A.	Wheatley, Rt. Hn. John (Edinb'gh, E.)
Johnson, James (Rugby)	Parker, J.	White, Mrs. E. (E. Flint)
Johnston, Douglas (Paisley)	Paton, J.	White, H. (Derbyshire, N.E.)
Jones, D. T. (Hartlepool)	Peart, T. F.	Whiteley, Rt. Hon. W.
Jones, Frederick Elwyn (West Ham, S.)	Poole, Cecil	Wigg, George
Jones, Jack (Rotherham)	Popplewell, E.	Wilcook, Group-Capt. C. A. B.
Jones, William Elwyn (Conway)	Porter, G.	Wilkins, W. A.
Keenan, W	Price, M Philips (Gloucestershire, W.)	Willey, F. T (Sunderland)
Kenyon, C	Pryde, D. J.	Willey, O. G. (Cleveland)
Key, Rt Hon. C. W.	Pursey, Comdr. H.	Williams, Ronald (Wigan)
King, H. M.	Rankin, J.	Williams, Rt. Hon. T. (Don Valley)
Kinghorn, Sqn.-Ldr. E	Rees, Mrs. D.	Williams, W. T. (Hammersmith, S.)
Kinley, J.	Reeves, J.	Wilson, Rt. Hon. J. H. (Huyton)
Lang, Rev, G.	Reid, T. (Swindon)	Winterbottom, I. (Nottingham, C.)
Lee, F. (Newton)	Reid, W. (Camlachie)	Winterbottom, R. E. (Brightside)
Lee, Miss J. (Cannock)	Rhodes, H.	Wise, Major F. J
Lever, L. M. (Ardwick)	Richards, R	Woodburn, Rt. Hon. A
Lever, N H. (Cheetham)	Robens, A.	Woods, Rev. G. S
Lewis, A W J. (West Ham, N.)	Roberts, Emrys (Merioneth)	Wyatt, W. L.
Lewis, J. (Bolton, W.)	Roberts, Goronwy (Caernarvonshire)	Yates, V. F.
Lindgren, G. S.	Robertson, J. J. (Berwick)
Lipton, Lt.-Col. M.	Robinson, Kenneth (St. Pancras, N.)	TELLERS FOR THE NOES:
Logan, D. G.	Rogers, G. H. R. (Kensington, N.)	Mr. Pearson and Mr. Sparks

The Solicitor-General

I beg to move, in page 19, line 21, after "that," to insert—

(a) the said preceding provisions shall not apply to any sums paid or consideration given if either—

1. (i) the undertaking in question was given on or before the sixth day of April, nineteen hundred and forty-eight; or
2. (ii) the sum or consideration is or was paid or given at or after the time of the retirement of the individual in question from the service of the person under whom the office or employment in question was held and is or was so paid or given in pursuance of a provision in that behalf which expressly provides for the 382 payment or giving thereof at or after that time and is embodied in a contract made in writing on or before the eighteenth day of April, nineteen hundred and fifty, or reduced to writing on or before that date; or
3. (iii) the sum or consideration is or was paid or given in pursuance of an express provision in that behalf embodied in a contract made in writing on or before the eighteenth day of April, nineteen hundred and fifty, or reduced to writing on or before that date, being a contract the main purpose of which was to provide for the transfer of a trade or part of a trade or for the transfer of the controlling interest in any body corporate; and

(b). This Amendment is designed to implement the proposal I made, when we were discussing this Clause in Committee, to deal with the retrospective aspect of it. I said that, in the first place, I would carry out the purpose of an Amendment which was down in the name of the hon. and learned Member for Norwich, South (Mr. H. Strauss). That Amendment proposed that all undertakings entered into before the warning was given by my right hon. and learned Friend on 6th April, 1948, should be altogether excluded from the scope of the Clause. Sub-paragraph (i) does exclude, for all purposes, all such undertakings. That is to say, whatever the undertaking was that was entered into or whether, if I may use loose language, it was a tax evasion undertaking or a genuine commercial one, it is outside the scope of the Clause. I think that implements the first undertaking I gave.

We come now to sub-paragraphs (ii) and (iii). When discussing the Bill during the Committee stage, I said that I would go as far as I could to try to eliminate from the Clause what I may loosely call genuinely commercial transactions, even though they were undertakings entered into after the date of the warning but before the date of the Budget statement of this year. These two sub-paragraphs are designed to do that. They set about to do it in this way. Broadly speaking I think one can say that those undertakings which are given when an employee is still intending to remain in the employment of the employer are, generally speaking a type of undertaking which have tax motive behind them.

Therefore, what I have done is to take out from the operation of the Clause undertakings which provide for payment when an employee leaves the service. Any undertaking of that kind entered into after the warning, but before this year's Budget statement, is outside the scope of the Clause. Hon. Members will note that payments under those undertakings are taken outside the Clause whether they are made before the Act comes into force or afterwards. In other words, payments by instalments are entirely out of the Clause, whether they are made before the Act comes into operation or after.

The second category of undertaking which, broadly speaking, one can say is likely to be actuated by a genuine commercial motive is that which is dealt with in sub-paragraph (iii), and that is the undertaking which is given by an employee or a director on the occasion of the sale of a business or the sale of a controlling interest in the business. There again, whether the payment is made before or after the Measure comes into force, it is not caught by the Clause. I submit that one can say that those two categories of undertaking comprehend most of those that are likely to be actuated by genuine commercial motives, and the effect of my Amendment would be that I would take out of the operation of the Clause all pre-Budget undertakings of that sort.

When we were discussing this on the Committee stage, two general trends of opinion were expressed. Some hon. Members declared themselves against any kind of retrospective operation, and quite obviously this Amendment will not satisfy those hon. Members. But other hon. Members, amongst whom was the right hon. and learned Member for West Derby (Sir D. Maxwell Fyfe), accepted that retrospective legislation was permissible in some cases. I hope that he may be able to agree that this Amendment goes as far as the Government can be expected to go in order to meet the kind of point he had in mind.

The right hon. and learned Gentleman put down an Amendment which would have the effect of applying a subjective motive test—and hon. Members will know what I mean by that, because that is what we have been discussing on a previous Amendment. I intimated that I did not think that I could see my way to accept an Amendment on those lines. Short of accepting such an Amendment, I suggest that I have gone as far as I can to try to take out innocent transactions entered into before the Measure comes into force.

Mr. Selwyn Lloyd

The right hon. and learned Gentleman has dealt with sums paid arising out of the retirement of a person, or sums paid on the transfer of a trade or part of a trade or for the transfer of the controlling interest in any body corporate. Will he explain what is the difficulty in excluding that type of transaction in the future if he has been able to do it retrospectively?

The Solicitor-General

If we exclude that type of contract in the future, it will give rise to wide possibilities of evasion, particularly in the case of sales of business not at arm's length—sales of business between relatives, and so on. It would be easy to evade the operation of the Clause if we excluded that type of transaction for future purposes. It may well be that we have excluded some not innocent transactions already by this Amendment, but I could not go further and provide an opportunity of evasion on a very large scale by making the exclusion apply to the future as well as to the past.

Sir D. Maxwell Fyfe

There is a traditional warning against looking gift horses in the mouth, and although it is difficult to refrain from doing so when the gift horse has more resemblance to a mule and has neither pride of ancestry nor hope of posterity, the overriding principle still exists and we must be thankful for such small mercies as the right hon. and learned Gentleman has given us in this Amendment. Having said that, I should like to say that the right hon. and learned Gentleman showed great consideration in displaying his intentions before we dealt with these matters by Amendments on the Order Paper, and in ascertaining our views. We are grateful to him for the consideration which he showed to us and which he always shows to the House.

10.0 p.m.

I should like to make two points. The first is that paragraph (i) of the Amendment meets the point raised in the Amendment put down by my hon. and learned Friend the Member for Norwich, South (Mr. H. Strauss), in ruling out all undertakings before 6th April, 1948. But I think the difficulty with regard to paragraphs (ii) and (iii) is present to all our minds. The right hon. and learned Gentleman has said that they cover, in his view, what are the best approximations he can give to commercial transactions and, having covered them up to 18th April, 1950, as soon as we get beyond that date he says it is impossible to cover them for the future. That is a non sequitur which we cannot accept.

I do not want to reiterate the Debate we have just had on the last Amendment by going into that point again, but I must put on record our disappointment that it has not been possible to find any way, either by test such as we tried to do or by description such as the right hon. and learned Gentleman has used in paragraphs (ii) and (iii), to make this distinction for future transactions and for future years. That must be a matter of deep regret for two reasons. First of all, we think that there will be unfairness. Secondly, we think that there will be a handicap on genuine commercial transactions and we establish the point which has been made on many occasions—the retention of valuable personnel and even more valuable ideas and expertise in this country when there will be serious and heavy temptations for those responsible for them to go elsewhere.

For those reasons I can only express combined appreciation of the fact that the right hon. and learned Gentleman has met us on paragraph (i) with disappointment that he has not been able to deal with what we believe is the really serious problem left open by the other paragraphs.

Mr. Pitman

The Amendment on the Order Paper in my name, which you ruled we might discuss at this time, Mr. Speaker, is really a separate issue, if I may say so in all humility. Both of these Amendments deal with an issue of the future. I want to get this absolutely clear with the right hon. and learned Gentleman—whether or not we are here trying to stop compensation for loss of office with no restrictive covenant attached thereto. As I see it, the whole field of tax evasion still remains open provided no restriction is included. [Interruption.] On a point of order. On a major Amendment, earlier today, Mr. Speaker, you asked me to speak on the Amendments arising out of the Amendment in the name of the Chancellor of the Exchequer.

Mr. Speaker

That is the first Amendment—in page 20, line 12, at end. insert: (6) It is hereby declared that this section shall not apply in relation to any such undertaking as is mentioned in paragraph (a) of subsection (1) of this section in a case where such undertaking is given in connection with the sale of a trade or business or assets thereof or of shares conferring the controlling interest in a company carrying on a trade or business. If the hon. Member wants to talk on other Amendments following, they will be called separately. His name is down on the next Amendment; it is not down on the one after that. If he wishes to speak on the first of those two, that will be called separately.

Mr. Marlowe

The right hon. and learned Gentleman has, as I said previously tonight, got himself into difficulty by trying to legislate in a general Act of Parliament for particular cases which have offended his party politically; and it is that which has led him into the numerous difficulties in which he now finds himself. I am not in the position of my right hon. and learned Friend the Member for West Derby (Sir D. Maxwell Fyfe) in relation to a gift horse, because, as far as my own point of view in this matter is concerned, I have not received any gift at all. I do want the attention of the Solicitor-General, when he is able to give it. I hope he will, if he can find time to do so, cast his memory back to what took place when he gave the pledges which he gave at Committee stage, and consider whether he has—

Captain Crookshank

Which one are we on?

Mr. Marlowe

We are now dealing with Clause 23 and the Chancellor's Amendments, and the attempt made by the right hon. and learned Gentleman and the Solicitor-General to fulfil the pledges which they gave on a previous occasion. It has become abundantly clear, as we see when we look at the words of the Amendments, that they have found it impossible to fulfil the pledges which the Solicitor-General gave, when he said he would introduce words which would, in fact, exempt innocent transactions. The actual words he used were: We shall try, if we can … to find words … which will except what I have broadly described as innocent transactions, that is to say transactions which were not entered into with a view to tax evasion."—[OFFICIAL REPORT, 19th June, 1950; Vol. 476, c. 881.] In spite, however, of the attempt to do so, the right hon. and learned Gentleman has found it impossible to carry out that pledge, and he is, in fact, now bound to include not only contracts which were tax evasions but also contracts which were not tax evasions, and the reason for that is that the right hon. and learned Gentleman, in common with his party, prejudged the whole of this issue, and were not prepared for the ordinary tax laws to operate; but they decided that two gentlemen had offended against their party views. That is, of course, borne out by the quotation, with which I need not weary the House again because I have referred to it once before tonight already.

The right hon. and learned Gentleman said on the previous occasion when we debated this matter, "We give an undertaking that we shall introduce legislation to meet the position as far as possible, and I shall see that it does not exempt those two particular gentlemen." [Interruption.] That, of course, meets with the approval of hon. Gentlemen opposite. It certainly can be said that that part of the right hon. and learned Gentleman's undertaking has been carried out. He has done his best to prejudge this issue, and instead of letting the courts determine whether there has been a case of tax evasion or not he has deliberately brought in specialised legislation for the sole purpose of prejudging that issue, and it is an unworthy thing for this House to approve.

I want to refer to one other aspect of the matter in which the right hon. and learned Gentleman has failed to honour an undertaking. Again I make no complaint against him, for I realise that he gave an undertaking it was impossible to keep. He said on the same occasion as that to which I have already alluded: I hope we shall be able not merely to cover payments under such covenants before the Act comes into force, but after."—[OFFICIAL REPORT, 19th June, 1950; Vol. 476, c. 883.] Now the right hon. and learned Gentleman has had to agree that he has not been able to honour that undertaking as regards transactions that come after. I do not want to detain the House further on this matter—[Interruption.] I know hon. Gentlemen opposite do not like honour being defended, but I am perfectly ready to go on to do so. If, as far as we know, transactions have been honourably entered into they should be honourably safeguarded by this House. On that, I do not expect any assistance from hon. Members opposite. If pledges are given in this House they should be kept; and I do not expect any assistance from hon. Members opposite in regard to that either. I only say that it will be recorded that here is another broken pledge added to the long list of pledges broken by the Socialist Government.

Mr. Powell

There is one element in this Amendment which is extremely offensive to my mind—and I believe not to my mind alone. I refer to the date of 6th April, 1948. Without entering into the whole question, which has been so much discussed, of the rights and wrongs of retrospection, I submit that it would be far better for any other date than 6th April, 1948, to have been written into this Amendment. There is only one reason why that date is there: because it is the date upon which the Chancellor of the Exchequer made a certain statement in his Budget speech, which has been described as a warning.

The implication of that date in this Amendment is that after that date those whom it concerns should have known better. In other words, it is a statement of the principle that a person desiring to know what he may lawfully do and what his lawful position is should have regard to, amongst other things, statements made by Chancellors of the Exchequer and other Ministers. Now that principle, which is clearly present in the writing of that date into this Amendment, is a principle which overthrows the whole basis of the ascertainability of the law.

It is a principle of our constitution that a man shall be able to ascertain what he may lawfully do and what he may lawfully not do, and how the law relates to his circumstances. Hitherto he has been able to do so by consulting statute law and case law, and if he himself or his advisers have satisfied themselves of the state of statute law and of case law—

Mr. Speaker

The hon. Gentleman now seems to be talking on the Clause and not on the Amendment.

Mr. Powell

I was addressing myself to paragraph (i) of the Amendment, in which the date 6th April, 1948, is made the operative date, and I was arguing that that is the wrong date to choose. I was doing so by showing that on our present understanding a man's knowledge of the law is derived from statute law and case law as he is advised of it by his legal advisers. If we accept this Amendment with this date a man cannot be satisfied of his legal position merely in that way. He has also got to read HANSARD; he has got to ascertain whether perhaps some statement which bears upon his case or his circumstances has been made by a Chancellor of the Exchequer; and he has got, as best he can, to interpret that statement in HANSARD.

In the particular case which is relevant he might have considerable difficulty in so interpreting such a statement, because the Chancellor's statement was a very qualified one. The passage has been quoted many times in the course of these Debates, but the words to which I refer are these. He said that such devices as he gave a warning against are intolerable in our present state of affairs."—[OFFICIAL REPORT. 6th April, 1948 Vol. 449, c. 70.] Now that is a very qualified warning; it is a very subjective statement, and very much an expression of opinion. If a man, in order to ascertain what he may or may not do and how he stands in the eyes of the law, is to have regard, not to statutes, not to pronouncements of judges, but to expressions of Chancellors of the Exchequer as loosely worded as that, then he can never be sure what his position is.

I observe that this principle goes a great deal further. It so happens that in the present case it is the same Chancellor of the Exchequer who spoke in 1948 who is now bringing forward this Finance Bill. But would not the same arguments be used had there been a change of Government and a change of Chancellor of the Exchequer? One of my right hon. Friends on the Opposition Front Bench might have given this warning in 1948 and might now, in 1950—

10.15 p.m.

Mr. Speaker

The hon. Gentleman is going too wide. He is discussing the Clause as a whole. This is a fairly limited Amendment, and we have discussed the Clause once before.

Mr. Powell

I am very sorry, Mr. Speaker. I was endeavouring to restrict my remarks to the question of the date of 6th April, 1948, to which my objection relates. I object to that date because it has been chosen as being the date on which the so-called warning was given by the Chancellor of the Exchequer. I argue that if we accept the principle which is involved in writing that date into the Clause, then we are imposing on everyone who desires to know his position the necessity of consulting not only the law but the statements in HANSARD of right hon. Gentlemen on both sides of the House and, for all I know, the statements of party programmes of parties who have not yet come into office.

I would further illustrate the danger of accepting this principle by drawing attention to another element in this warning. The Chancellor of the Exchequer instanced sums paid as compensation for loss of office. I understand that in the present case he is not catching compensation for loss of office, but if we accept the principle, as we are doing, that his warning was a valid statement of what the law was going to be, then any Chancellor of the Exchequer could come to this House at any time in the future and bring in a retrospective provision from 6th April, 1948, to render taxable payment of compensation for loss of office. This is a principle which is indefinitely extendable, and which we accept by the simple act of writing in this date. Therefore, without regard to the general question of retrospection, I want to lodge my most emphatic protest against the acceptance, with all its implications, of that particular date.

Mr. Selwyn Lloyd

I take it that the right hon. and learned Gentleman maintains that he has fulfilled his undertaking in Committee to exclude from the purview of the Clause certain payments made before the passing of the Act in relation to agreements made before the passing of the Act and, also, he is excluding certain payments made in respect of such agreements even though the payments may be made after the passing of the Act. Those payments he has defined in two sets of circumstances—one the retirement from an employment and the other a transfer of a trade or part of a trade or of the controlling interest in a body corporate.

I understand that his only objection to excluding such transactions in the future is the difficulty of finding a formula and he considers it would be impossible to find a formula whereby such transactions,could be excluded, because their inclusion would make tax evasion so easy. I see that the learned Solicitor-General and the Chancellor of the Exchequer both nod their heads in agreement so I take it that if it is possible for a formula to be produced then it might be possible in a future Finance Bill to exclude such transaction.

I would urge on the right hon. and learned Gentleman that there are certain instances where substantial damage would be done by making payments under such transactions taxable. For example, on the transfer of a business or the controlling interests in a business, it may be that the purchasers do not wish to employ the manager who has been in the employment of the vendors. It is very much better that that gentleman should get a capital sum in respect of his restrictive covenant not to enter into the employment of a competing firm.

It would be better to commute that sum and get rid of the contingent liability right away rather than to provide for annual payments. It is a thing which is very often done, and I do not think it is the desire of either of the right hon. and learned Gentlemen to catch such transactions if such a formula can be devised. Both right hon. and learned Gentlemen agreed with me on that point, and I hope through the ingenuity of people on both sides of the House that it will be possible in a future Finance Bill to put that right.

Amendment agreed to.

Further Amendments made: In page 19, line 25, at the end, insert: For the purposes of this subsection, a director of a company shall be deemed to be in the service of that company and to hold his office as such under that company.

In line 28, after "undertaking," insert: given after the sixth day of April nineteen hundred and forty-eight, and."—[The Solicitor-General.]

The following Amendment stood on the Order Paper in the name of Mr. SELWYN LLOYD:

In page 20, line 12, at end, insert: (6) It is hereby declared that this section shall not apply in relation to any such undertaking as is mentioned in paragraph (a) of subsection (1) of this section in a case where such undertaking is given in connection with the sale of a trade or business or assets thereof or of shares conferring the controlling interest in a company carrying on a trade or business.

Mr. Selwyn Lloyd

The purpose of this Amendment is to ensure that an agreement for the payment of compensation for loss of office shall not be caught by the terms of the Clause as it is after the Amendment introduced by the right hon. and learned Gentleman is included. If the Solicitor-General will interrupt me straight away and tell me that if in his view such agreements for payment by way of compensation for loss of office would not be caught by the Clause it would enable me to curtail the discussion on my Amendment. Before moving the Amendment I will give way to the right hon. and learned Gentleman.

The Solicitor-General

My view would be that if it is merely a contract for compensation for loss of office and does not contain a restrictive covenant, that is, a covenant restricting him in the pursuit of certain activities, then it is not within this Clause.

Mr. Selwyn Lloyd

In view of that quite definite undertaking from the right hon. and learned Gentleman of his interpretation of the Clause, I do not propose to move the Amendment.

Mr. Lionel Heald (Chertsey)

I beg to move, in page 20, line 12, at end, to insert: (6) Notwithstanding the preceding provisions of this section, where any such undertaking as is mentioned in subsection (1) hereof has been given, if before the thirty-first day of December, nineteen hundred and fifty, the parties thereto agree to cancel the same and the individual mentioned in subsection (1) hereof refunds any such sum as is mentioned in that subsection or returns any such valuable consideration as is mentioned in subsection (2) hereof as the case may be the provisions of this section shall not apply to any such case. This Amendment can be described extremely shortly, but it raises a very important question of principle and the necessity for it follows from the whole course of the discussion this evening. To put it quite shortly and bluntly, the Amendment provides that if the Legislature is to be permitted to be retrospective in this matter so may the subject. This is not a lawyer's Amendment in any sense. If there is any legalistic aspect about it I would prophesy that it will be in the Government's reply. I hope for a reply on a considered basis of policy, because this Amendment is one which I believe will appeal to laymen as being fair and just.

The background to the Amendment is, first of all, that retrospective legislation is generally agreed to be something that should be avoided if possible, but the House has decided that in this case it should be sanctioned. In the second place, it has been emphasised by the Government that there is no penal element in the Clause, which is not aimed at any individual. Thirdly, it is admitted that certain people will be penalised under the Clause who did not come within the area of the warning and who were innocent in the sense in which that word has been used or misused during our discussion. They entered into transactions which were clearly not taxable at the time they were made. The Clause changes the whole nature of the contract that was made in those cases. A contract between X and Y will be quite a different contract and will give results which neither party could have expected or intended.

It would be natural and reasonable for persons in such a situation to say, "Parliament now says that something that we did innocently, legally, and properly, is taxable, whereas it was not taxable at that time." The result is that Y in that case will not receive what X considers to be the proper and fair consideration in respect of the company. In normal circumstances those two parties, especially if there had been long and friendly relations between them, would say, "We will cancel that arrangement and re-arrange it in such a way that it will not be taxable." Nobody can say that those who did that were not doing something right, proper and reasonable. In the present case we cannot bring that about unless the Amendment is accepted, because the Chancellor is making away with the lion's share of the consideration and it will not be possible to cancel the contract and make that re-arrangement.

What is to be said in answer to that? I believe that the only answer that will be given is that we must look at the matter from a more legal point of view. This contract has been carried out and the money has been paid. It is true that the man may not be going to get his money because it is going to another source, but he is bound by his contract and the loss must lie where it falls. That is not fair or just or a position which the people of this country would desire.

One of my legal friends said, "The answer which you will be given by the Chancellor of the Exchequer is an analogy. He will say: 'Suppose this money were paid in cash. Suppose £50,000 were handed over to Mr. X or Mr. Y. He signed the covenant, and drove away in his car. While he was crossing Hampstead Heath he was hit over the head by a bandit with what might be described without impropriety even here as a cosh and the bandit made away with the money. What will he do about that? He will still be bound by his contract, and you cannot put him back where he was before.'"

The difference in this case is that the bandit is the Chancellor of the Exchequer, but he is under the control of this House whereas the bandit which I have imagined is not. I urge the House to accept the Amendment and thereby mitigate the damage which is being done to the law and to the constitution by adopting retrospective legislation.

10.30 p.m.

Mr. Maudling

This Amendment arose directly from one of the arguments used by the Government in introducing this Clause originally. It was an argument which carried much weight on this side of the House. It was stated clearly and definitely by the learned Solicitor-General that the Government's intention was not to inflict a penalty or punishment, and that its purpose was to restore the position as it would have been had the sum in question been paid as remuneration. They were not going to punish people for trying to dress up remuneration as something else, but to deprive people of the benefits they would have gained by this device. That is precisely the effect of this Amendment, if the Government intend to enable people to go back to where they started, which was what I understood the Government intended to do.

But, in fact, the Government are going further; they are inflicting a penalty, a punishment. Under this Clause, as it stands without Amendment, the Chancellor of the Exchequer will collect a great deal more in taxation from the combined reserves of the individual and the company than he would have done if the sum had been paid as remuneration. I do not think that can be denied by the Government. The Clause does not permit the company to charge the payment against expenses. Take, for example, the figure of £100,000. If that were paid to the individual as remuneration, the Chancellor of the Exchequer would take about £90,000 and nothing more. But if the payment is made under this arrangement, the Chancellor will also take £45,000 or £50,000 out of the company. In this case, the Chancellor will be £50,000 better off than he would have been had the sum been paid rightfully and openly as remuneration. If the Chancellor of the Exchequer is £50,000 better off, someone must be £50,000 worse off. Therefore someone must have suffered punishment.

It is clear that the Clause, as drafted, inflicts a penalty; and it was introduced by the Government on the ground that no punishment was contained in it. The only way out of that difficulty is to give the parties to the contract the right contained in this Amendment to cancel the arrangement. I appeal to the Government to accept this Amendment. Only thus can they get out of the difficulty that they are inflicting a punishment when all along they have declared that that was not their intention.

The Solicitor-General

The hon and learned Gentleman who moved this Amendment made various conjectures as to what the Government's answer was likely to be. Some of those conjectures came, I gather, from his imagination and some had been suggested to him. The answer which I propose to make is none of those which formed the subject of the hon. and learned Gentleman's conjectures. He introduced the Amendment as one which would appeal to the layman as common sense and claimed that it was not the preserve of lawyers. But four distinguished hon. Members of the Bar are in point of fact the only hon. Members who have put their names to the Amendment.

The answer which I am proposing to give is one which I think, if I may say so without presumption, is also full of common sense. It is that if we really gave persons who attempted to evade tax legislation the chance to unscramble this before it was too late, we should be presenting a paradise to the tax dodger. He would think that any attempt to evade tax is worth while. Either the Legislature would not react and he would get away with it and get his untaxed payment; or, if the Legislature did react, he would be given the opportunity to unscramble and go back to where he started. Either he would receive a substantial untaxed payment, or the worst situation in which he could find himself is that he would not have lost anything.

Therefore, if we introduce this kind of provision into tax legislation it will really make nonsense of the tax code. It would invite everybody who was so minded to try tax dodges. It is true that it is only to be introduced in this particular Clause, but, if it is introduced into that Clause, and persons try to evade tax in this connection, it will be difficult as a matter of consistency, not to introduce it into other tax Clauses. I submit that this is a conclusive answer.

Mr. Maudling

I wonder if I get the argument of the right hon. and learned Gentleman aright? Is he saying that this cannot be accepted because it would only enable the taxpayer to get back to the same arrangement without any punishment? It does not allow the Government to punish a person, but only to put him in a worse position if he did try to evade the payment of tax. That surely is punishment.

The Solicitor-General

The hon. Gentleman is also drawing on his imagination, if I may say so, because I did not use the word punishment and I had no intention of so doing. It is not a question of punishment, for as I explained when we were discussing this matter on the Committee stage, certain tax consequences follow from entering into an agreement, and we are not here talking of punishment. If we did accept this as a principle we should have to extend it in other cases, and if we did so we should be offering the strongest inducement to those minded to evade tax to do so, because they would do so in the knowledge that the worst that could happen to them would be that they would lose nothing and the best that they would succeed in their dodge.

Sir D. Maxwell Fyfe

I think there is a divergence between the two sides of the House on this point and I want to sum up what it is. The learned Solicitor-General has said this would create a new danger for the tax gatherer. He knows the scheme of the Income Tax Acts as well as anybody else. He knows that this procedure of getting out of a transaction has been tried once before under Section 38 and the subsequent Sections of the Finance Act of 1938. It never had the effect which he so dolefully prophesied with regard to that class of transaction. It has only been used in exceptional circumstances.

What are the exceptional circumstances here? They are that the law had stood in the condition it was before that. Finance Act for seven years, and the right hon. Gentleman or his predecessor had had the five years to make this change, if he had so desired, but it had never been done. It is clear that the pre-existing law was the basis of the contracts that were made, and in those circumstances that we are accepting now of more severe treatment, we did not think it unfair to give to people the right of restoring the whole position to that with which they started. As I say, it has been done and has never had the ill-results during the last 12 years that has been suggested. That was an exceptional case; this is an exceptional case. I believe if the right hon. and learned Gentleman is not prepared to meet us in any way there is only one step for my hon. Friends to do, and that is to divide the House.

Mr. Blackburn (Birmingham, Northfield)

I intervene only for a few moments. I venture to suggest I have the right to do so because I am personally concerned; at the beginning I suggested to the Chancellor of the Exchequer that a provision of this kind should be put in the Bill. I do not think we should consider this purely from the lawyer's point of view. I feel that retrospective legislation is a great evil, even though in some circumstances, such as this, it may be regarded as a necessary evil. In general the argument in favour of this legislation is that because the Tories did it in the past, we should do it now.

Mr. Messer (Tottenham)

No.

Mr. Blackburn

The fact is that over and over again the Tories did this in the past, and the argument is that we are, therefore, justified in doing it. The narrow issue in this Amendment is: Are we to give the person who makes a mistake the opportunity of putting himself in the same position he would have been in if the Legislature had declared it impracticable? I am not a lawyer, but it seems to me that Parliament should give those who do something illegal the chance of being put in the same position as they would have been in if Parliament had not declared it illegal.

I have listened very carefully to the arguments and I honestly feel, and I think the Solicitor-General when he reads the OFFICIAL REPORT tomorrow will also feel, that the purpose of this Clause was to act as a punishment to those who had received sums of money by way of bonus. Many of my hon. and learned Friends have been consulted upon the general issues of taxation and, as is their duty as lawyers, they have advised their clients of their situation under the law. I cannot say that anyone is behaving disgracefully if he pays large sums of money to his solicitor and then the very important and learned Gentlemen on both Front Benches enter into certain decisions, the effect of which is to enable him to avoid taxation. If Parliament afterwards decides they are taxable, I do not think anybody should be

punished. I regret that in this instance the Amendment has not been accepted by the Government. I register my protest because I feel that, in future, such a proposal should be accepted in the event of retrospective legislation being introduced from either side in this connection.

Mr. Pitman

Is that not all the more important in cases which are genuine commercial cases? Are those cases which will be equally hit in this way to be penalised?

Question put, "That those words be there inserted in the Bill."

The House divided: Ayes, 251 Noes, 278.

Division No. 58.]	AYES	(10.45 p.m.
Amery, J. (Preston, N.)	Dugdale, Maj. Sir T. (Richmond)	Joynson-Hicks, Hon. L. W
Amory, D. Heathcoat (Tiverton)	Duncan, Capt. J. A. L.	Kaberry, D.
Arbuthnot, John	Dunglass, Lord	Kerr, H. W. (Cambridge)
Ashton, H. (Chelmsford)	Duthie W. S.	Lambert, Hon. G.
Assheton, Rt. Hon R. (Blackburn, W.)	Eccles, D. M	Lancaster, Col. C. G
Astor, Hon. M.	Eden, Rt. Hon. A	Langford-Holt, J.
Baker, P.	Elliot, Lieut.-Col Fit Hon Walter	Law, Rt. Hon. R. K
Baldock, J. M.	Erroll, F. J.	Leather, E. H. C.
Banks, Col. C.	Fisher, Nigel	Legge-Bourke, Maj. E. A. H
Beamish, Maj. T. V H	Fletcher, W. (Bury)	Lennox Boyd, A. T
Bell, R. M.	Fort, R.	Lindsay, Martin
Bennett, Sir P. (Edgbaston)	Fraser, Sir I. (Lonsdale)	Linstead, H. N.
Bennett, R. F. B. (Gosport)	Fyfe, Rt. Hon. Sir D. P. M	Llewellyn, D.
Bennett, W. G. (Woodside)	Galbraith, Cmdr. T. D. (Pollok)	Lloyd, Rt. Hon. G. (King's Norton)
Bevins, J. R. (Liverpool, Toxteth)
Birch, Nigel	Gammans, L. D.	Lloyd, Maj. Guy (Renfrew, E.)
Bishop, F. P.	Garner-Evans, E. H. (Denbigh)	Lloyd, Selwyn (Wirral)
Black, C. W.	Gates, Maj. E. E	Longden, G. J. M. (Herts. S W.)
Boles, Lt.-Col. D. C. (Wells)	Glyn, Sir R.	Low, A. R. W.
Boothby, R.	Gomme-Duncan, Col. A	Lucas, Major Sir J. (Portsmouth, S.)
Bossom, A. C.	Gridley, Sir A.	Lucas, P. B. (Brentford)
Bower, N.	Grimston, Hon. J. (St. Albans)	Lucas-Tooth, Sir H.
Boyd-Carpenter, J. A.	Grimston, R. V. (Westbury)	Lyttelton, Rt. Hon. O.
Bracken, Rt. Hon. Brendan	Harden, J. R. E.	McAdden, S. J.
Braine, B.	Hare, Hon. J. H. (Woodbridge)	McCallum, Maj. D.
Bromley-Davenport, Lt.-Col. W.	Harris, F. W. (Croydon, N.)	McCorquodale, Rt. Hon. M. S.
Brooke, H. (Hampstead)	Harris, R. R. (Heston)	Macdonald, Sir P. (I. of Wight)
Browne, J. N. (Govan)	Harvey, Air-Codre. A. V. (Macclesfield)	Mackeson, Brig. H. R.
Buchan-Hepburn, P. G T.	Harvey, Ian (Harrow, E.)	McKibbin, A.
Bullus, Wing-Commander E. E.	Harvie-Watt, Sir G. S	McKie, J. H. (Galloway)
Burden, Squadron-Leader F. A	Hay, John	Maclay, Hon. J. S.
Butcher, H. W.	Head, Brig. A. H	Maclean, F. H. R.
Carr, L. R. (Mitcham)	Heald, L. F.	MacLeod, Iain (Enfield, W.)
Carson, Hon. E.	Henderson, John (Cathcart)	MacLeod, John (Ross and Cromarty)
Channon, H.	Hicks-Beach, Maj. W. W	Macmillan, Rt. Hon. Harold (Bromley)
Clarke, Col. R. S. (East Grinstead)	Higgs, J. M. C.	Macpherson, N. (Dumfries)
Clarke, Brig. T. H. (Portsmouth, W)	Hill, Mrs. E (Wythenshawe)	Manningham-Buller, R. E
Clyde, J L.	Hill, Dr. C. (Luton)	Marlowe, A. A. H.
Colegate, A.	Hinchingbrooke, Viscount	Marples, A. E.
Conant, Maj. R. J. E.	Hirst, Geoffrey	Marshall, D. (Bodmin)
Cooper-Key, E. M.	Hogg, Hon. Q.	Marshall, S. H. (Sutton)
Craddock, G. B. (Spelthorne)	Hollis, M. C.	Maude, A. E. U. (Ealing, S.)
Crookshank, Capt. Rt. Hon. H. F. C.	Holmes, Sir J Stanley (Harwich)	Maude, J. C. (Exeter)
Cross, Rt. Hon. Sir R.	Hope, Lord J.	Maudling, R.
Crosthwaite-Eyre, Col. O. E	Hopkinson, H. L. D'A	Medlicott, Brigadier F
Crouch, R. F.	Horsbrugh, Miss F	Mellor, Sir J.
Crowder, Capt. John F. E. (Finchley)	Howard, G. R. (St. Ives)	Molson, A. H. E.
Crowder, F. P. (Ruislip—Northwood)	Howard, Gerald (Cambridgeshire)	Moore, Lt.-Col. Sir T.
Cundiff, F. W.	Hudson, Sir Austin (Lewisham, N.)	Morrison, Maj. J. G. (Salisbury)
Cuthbert, W. N.	Hudson, Rt. Hon. R. S. (Southport)	Morrison, Rt. Hon. W. S (Cirencester)
Darling, Sir W. Y. (Edinburgh, S.)	Hudson, W. R. A. (Hull, N.)	Mott-Radclyffe, C. E.
Davidson, Viscountess	Hulbert, Wing-Cdr N. J.	Nabarro, G.
de Chair, S.	Hutchinson, Geoffrey (Ilford, N.)	Nicholls, H.
Deedes, W. F.	Hutchison, Lt.-Com. Clark (E'b'rgh W.)	Nicholson, G.
Dodds-Parker, A. D	Hyde, H. M.	Noble, Comdr. A. H. P
Douglas-Hamilton, Lord M	Jeffreys, General Sir G	Nugent, G. R. H.
Drayson, G. B.	Jennings, R	Nutting, Anthony
Drews, C.	Jones, A. (Hall Green)	Oakshott, H. D
Odey, G. W.	Shepherd, W. S. (Cheadle)	Touche, G. C.
Ormsby-Gore, Hon. W. D.	Smiles, Lt.-Col. Sir W.	Turton, R. H.
Orr, Capt. L. P. S.	Smith, E. Martin (Grantham)	Tweedsmuir, Lady
Orr-Ewing, Charles Ian (Hendon, N.)	Smithers, Peter H. B. (Winchester)	Vane, W. M. F.
Orr-Ewing, Ian L. (Weston-super-Mare)	Smithers, Sir W. (Orpington)	Vaughan-Morgan, J. K.
Osborne, C.	Snadden, W. McN.	Vosper, D. F.
Perkins, W. R. D.	Soames, Capt. C.	Wakefield, E. B. (Derbyshire, W.)
Peto, Brig. C. H. M	Spearman, A. C. M.	Wakefield, Sir W. W. (St. Marylebone)
Pickthorn, K.	Spens, Sir P. (Kensington, S.)	Walker-Smith, D. C.
Pitman, I. J.	Stanley, Capt. Hon. R. (N. Fylde)	Ward,.Hon, G. R. (Worcester)
Powell, J. Enoch	Stevens, G. P.	Ward, Miss I. (Tynemouth)
Price, H. A. (Lewisham, W.)	Steward, W. A. (Woolwich, W.)	Waterhouse, Capt. C.
Prior-Palmer, Brig. O.	Stewart, J. Henderson (Fife, E.)	Watkinson, H
Profumo, J. D.	Storey, S.	Webbe, Sir H. (London)
Raikes, H. V.	Strauss, Henry (Norwich, S.)	Wheatley, Major M. J. (Poole)
Rayner, Brig. R.	Stuart, Rt. Hon. J. (Moray)	White, J. Baker (Cante bury)
Redmayne, M.	Studholme, H. G.	Williams, C. (Torquay)
Remnant, Hon. P.	Summers, G. S.	Williams, Gerald (Tonbridge),
Renton, D. L. M.	Sutcliffe, H.	Williams, Sir H. G. (Croydon, E.)
Roberts, P, G. (Heeley)	Taylor, C. S. (Eastbourne)	Wills, G.
Robinson, J. Roland (Blackpool, S.)	Teeling, William	Wilson, Geoffrey (Truro)
Robson-Brown, W. (Esher)	Thomas, J. P. L. (Hereford)	Winterton, Rt. Hon. Earl
Roper, Sir H.	Thompson, K. P. (Walton)	Wood, Hon. R.
Ropner, Col L.	Thompson, R. H. M. (Croydon W.)	Young, Sir A. S. L.
Ross, Sir R. D. (Londonderry)	Thorneycroft, G. E. P. (Monmouth)
Russell, R. S.	Thornton-Kemsley, C. N.	TELLERS FOR THE AYES:
Sandys, Rt. Hon. D.	Thorp, Brigadier R. A. F.	Mr. Digby and Mr. Galbraith.
Scott, Donald	Tilney, John
NOES
Acland, Sir Richard	Daines, P.	Hargreaves, A.
Adams, Richard	Dalton, Rt. Hon. H.	Harrison, J.
Albu A. H.	Darling, G. (Hillsboro')	Hastings, Dr. Somerville
Allen, A. C. (Bosworth)	Davies, A Edward (Stoke, N.)	Hayman, F. H.
Allen, Scholefield (Crewe)	Davies, Ernest (Enfield, E.)	Henderson, Rt. Hon. A. (Rowley Regis)
Anderson, F. (Whitehaven)	Davies, Harold (Leek)	Herbison, Miss M.
Awbery, S. S.	Davies, R. J. (Westhoughton)	Hewitson, Capt. M.
Ayles. W. H.	de Freitas, Geoffrey	Hobson, C. R.
Bacon, Miss A	Deer, G.	Holman, P.
Baird, J.	Delargy, H. J.	Holmes, H. E. (Hemsworth)
Balfour, A.	Diamond, J.	Houghton, Douglas
Barnes, Rt. Hon A. J.	Dodds, N. N.	Hoy, J.
Bartley, P.	Donnelly, D.	Hubbard, T.
Benson, G.	Donovan, T. N.	Hudson, J. H. (Ealing, N.)
Beswick, F.	Driberg, T. E. N.	Hughes, Emrys (S. Ayr)
Bevan, Rt. Hon. A. (Ebbw Vale)	Dugdale, Rt. Hon, J. (W. Bromwich)	Hughes, Hector (Aberdeen, N.)
Bing, G. H. C.	Dye, S.	Hughes, Moelwyn (Islington, N.)
Blenkinsop, A.	Ede, Rt. Hon. J. C.	Hynd, H. (Accrington)
Blyton, W. R.	Edelman, M.	Hynd, J. B. (Attercliffe)
Boardman, H.	Edwards, John (Brighouse)	Irvine, A. J. (Edge Hill)
Booth, A.	Edwards, Rt. Hon. N. (Caerphilly)	Irving, W. J. (Wood Green)
Bottomley, A. G.	Edwards, W. J. (Stepney)	Isaacs, Rt. Hon, G. A.
Bowden, H. W.	Evans, Albert (Islington, S.W.)	Janner, B.
Bowles, F. G. (Nuneaton)	Evans, E. (Lowestoft)	Jay, D. P. T.
Braddock, Mrs. E. M.	Evans, S. N. (Wednesbury)	Jeger, G. (Goole)
Brockway, A. Fenner	Ewart, R.	Jeger, Dr. S. W. (St. Pancras, S.)
Brook, D. (Halifax)	Fernyhough, E.	Jenkins, R. H.
Broughton, Dr. A. D. D.	Field, Capt. W. J	Johnson, James (Rugby)
Brown, George (Belper)	Finch, H. J.	Johnston, Douglas (Paisley)
Brown, T J. (Ince)	Fletcher, E. G. M. (Islington, E.)	Jones, D. T. (Hartlepool)
Burke, W. A.	Follick, M.	Jones, Frederick Elwyn (West Ham, S.)
Burton, Miss E.	Foot, M. M.	Jones, Jack (Rotherham)
Butler, H. W. (Hackney, S.)	Forman, J. C.	Jones, William Elwyn (Conway)
Callaghan, James	Fraser, T. (Hamilton)	Keenan, W.
Carmichael, James	Freeman, J. (Watford)	Kenyon, C.
Castle, Mrs. B. A	Gaitskell, Rt. Hon. H. T. N.	Key, Rt. Hon. C. W.
Champion, A. J	Ganley, Mrs. C. S	King, H. M.
Chetwynd, G. R	Gibson, C. W.	Kinghorn, Sqn.-Ldr. E
Clunie, J.	Gilzean, A.	Kinley, J.
Cooks, F. S.	Glanville, J. E. (Consett)	Lang, Rev. G.
Coldrick, W.	Gordon-Walker, Rt. Hon. P. C.	Lee, F. (Newton)
Collick, P.	Greenwood, Anthony W. J. (Rossendale)	Lee, Miss J. (Cannock)
Collindridge, F.	Greenwood, Rt. Hon. Arthur (Wakefield)	Lever, L. M. (Ardwick)
Cook, T. F.	Grey, C. F.	Lever, N. H. (Cheetham)
Cooper, G. (Middlesbrough, W)	Griffiths, D. (Rother Valley)	Lewis, A. W. J. (West Ham. N.)
Cooper, J. (Deptford)	Griffiths, Rt. Hon. J. (Lianelly)	Lewis, J. (Bolton, W.)
Corbet, Mrs. F. K. (Peckham)	Griffiths, W. D. (Exchange)	Lindgren, G. S.
Cove, W. G.	Gunter, R. J	Logan, D. G.
Craddock, George (Bradford, S.)	Hale, J. (Rochdale)	Longden, F. (Small Heath)
Crawley, A.	Hale, Leslie (Oldham, W.)	McAllister, G.
Cripps, Rt. Hon. Sir S.	Hall, J. (Gateshead, W.)	MacColl, J. E.
Crosland, C. A. R.	Hall, Rt. Hn. W. Glenvil (Colne V'll'y)	McGhee, H. G.
Crossman, R. H. S	Hamilton, W. W.	McGovern, J.
Cullen, Mrs. A.	Hannan, W.	McInnes, J.
Daggar, G.	Hardy, E. A.	Mack, J. D.

McKay, J. (Wallsend)	Porter, G.	Thorneycroft, Harry (Clayton)
Mackay, R. W. G. (Reading, N.)	Price, M. Philips (Gloucestershire, W.)	Thurtle, Ernest
McLeavy, F.	Pryde, D. J.	Timmons, J
MacMillan, M. K. (Western Isles)	Pursey, Comdr. H.	Tomney, F.
McNeil, Rt. Hon. H.	Rankin, J.	Usborne, Henry
MacPherson, Malcolm (Stirling)	Rees, Mrs. D	Vernon, Maj. W. F.
Mainwaring, W. H.	Reeves, J.	Viant, S. P.
Mallalieu, E. L. (Brigg)	Reid, T. (Swindon)	Wallace, H. W.
Mallalieu, J. P. W. (Huddersfield, E.)	Reid, W (Camlachie)	Watkins, T. E.
Mann, Mrs. J.	Rhodes, H.	Webb, Rt. Hon. M. (Bradford, C.)
Manuel, A C.	Richards, R.	Weitzman, D.
Marquand, Rt. Hon. H. A.	Roberts, A.	Wells, P. L. (Faversham)
Mathers, Rt. Hon. George	Roberts, Goronwy (Caernarvonshire)	Wells, W. T. (Walsall)
Mellish, R. J.	Robertson, J. J. (Berwick)	West, D. G.
Messer, F.	Rogers, G. H. R. (Kensington, N.)	Wheatley, Rt. Hn. John (Edinb'gh, E.)
Middleton, Mrs. L.	Ross, William (Kilmarnock)	White, Mrs. E. (E. Flint)
Mikardo, Ian	Royle, C	White, H. (Derbyshire, N E)
Mitchison, G. R.	Shackleton, E. A. A.	Whiteley, Rt. Hon. W
Moeran, E. W	Shurmer, P. L. E.	Wigg, George
Monslow, W.	Silverman, J. (Erdinglon)	Wilcock, Group-Capt. C. A. B.
Moody, A. S.	Simmons, C. J	Wilkins, W. A.
Morgan, Dr. H. B	Slater, J.	Willey, F. T. (Sunderland)
Morley, R.	Smith, Ellis (Stoke, S.)	Willey, O. G. (Cleveland)
Morris, P. (Swansea, W.)	Snow, J. W.	Williams, Ronald (Wigan)
Mort, D. L.	Sorensen, R. W.	Williams, Rt. Hon. T. (Don Valley)
Moyle, A.	Soskice, Rt. Hon. Sir F	Williams, W. T. (Hammersmith, S.)
Mulley, F. W	Sparks, J A.	Wilson, Rt. Hon J. H (Huyton)
Nally, W	Steele, T.	Winterbottom, I. (Nottingham, C.)
O'Brien, T.	Stewart, Michael (Fulham, E.)	Winterbottom, R. E. (Brightside)
Oliver, G. H.	Strachey, Rt. Hon. J.	Wise, Major F. J.
Orbach, M.	Strauss, Rt. Hon. G. R. (Vauxhall)	Woodburn, Rt. Hon. A
Padley, W. E.	Stross, Dr. B.	Woods, Rev. G. S.
Pannell, T. C.	Sylvester, G. O.	Wyatt, W L.
Pargiter, G. A.	Taylor, H. B. (Mansfield)	Yates, V. F.
Parker, J.	Taylor, R. J. (Morpeth)	Younger, Hon. Kenneth
Paton, J.	Thomas, D. E. (Aberdare)
Pearson, A.	Thomas, George (Cardiff)	TELLERS FOR THE NOES:
Pearl, T. F.	Thomas, I. O. (Wrekin)	Mr. Popplewell and
Poole, Cecil	Thomas, I. R. (Rhondda, W.)	Mr. Kenneth Robinson.

Question put, and agreed to.