Clause 20.—(SURTAX TO BE CHARGED ON CONSIDERATION FOR CERTAIN RESTRICTIVE COVENANTS, ETC.)

HC Deb 19 June 1950 vol 476 cc871-925

Amendment proposed [15th June]: In page 12, line 36, to leave out "gives" and insert: has after the sixth day of April, nineteen hundred and forty-eight, given".—[Mr. H. Strauss.]

Question again proposed, "That 'gives' stand part of the Clause."

3.38 p.m.

Major Sir David Maxwell Fyfe (Liverpool, West Derby)

I think that every one who was in the Committee before Progress was reported will agree that the Debate maintained a high standard. I think it is right to say that no one took up either of the extreme positions, that retrospective legislation was a good thing, or that there could be no occasion when there could be retrospective legislation.

The Amendment of my hon. and learned Friend the Member for Norwich, South (Mr. H. Strauss) limits the retroactive effect of the Clause in a manner which is of vital importance, and does so very reasonably from the point of view of the Chancellor of the Exchequer. The right hon. and learned Gentleman's warning was given on 6th April, 1948, and dealt with arrangements that people might make after that date. The first Finance Act in which he could have dealt with the problem was that of 1949. Therefore, the Amendment of my hon. and learned Friend the Member for Ilford, North (Mr. G. Hutchinson) is completely logical in fixing the date as April, 1949. We are not concerned with the minor point of which of these dates is correct, but are concerned with the protection of a large number of arrangements which may well have nothing to do with the mischief mentioned in the Clause.

In view of the line the discussion took last Thursday, I wish to say one or two words about the general principle underlying this matter. As I understand it, no one supports, or has sought to support, the imposition of retrospective punishment. Everyone agrees it is wrong to attach penal consequences to an innocent act. As was pointed out in the correspondence columns of "The Times" by Lord Winster, who used to be a Minister in the last Socialist administration, it is contrary to the Declaration of Human Rights of the United Nations. I agree with my hon. and learned Friend the Member for Norwich, South, that the aim ought to be to make the law conform with the norm of civilised countries. I think we are all agreed on the question of retrospective punishment; at least, we are so far as I know and I have heard no views to the contrary.

I think the second proposition with which there is general agreement is that no one believes it is generally desirable to attack, by retrospective legislation, completed transactions. The reason, here again, is that it destroys the certainty in and the respect held for the law and it also makes it impossible for individuals to plan ahead. As I see it, therefore, the question on which we have to make up our minds is whether there is a defined principle, not favour or facility of government, which governs the exceptional cases when retrospective legislation may be imposed, and especially in regard to taxation.

I accept, if I may say so, the principles which were set forward by my hon. Friend the Member for Oxford (Mr. Hogg), although I do not draw the same conclusions as to their application as those which he drew in what I hope I may be allowed to say was an admirable speech on Thursday night. My hon. Friend stated what he regarded as a principle which governs the cases on the right side of the line. He said: I do not see anything in principle objectionable if people seek to pick a hole in an Act of Parliament deliberately to defy its purposes and deliberately to get round its provisions, to repair the hole retrospectively. I think they must expect Parliament to protect its own policy in that way, at any rate up to a point. I entirely agree with that statement. I do not want to appear to be making any false points; afterwards my hon. Friend went on to draw conclusions against the present being an occasion for retrospective legislation, but so far I am in entire agreement.

I am also in agreement with him when he sought to define what was the other side of the line—what was the wrong use. He said: I see a distinction, and a distinction of importance, between cases where the Legislature and the Executive propose to protect their own previously declared policy contained in tax law against ingenious evasions of an illegitimate kind, and cases where they propose to protect a series of subjective standards of their own, which may or may not be laudable, against transactions which were obviously not subject to tax at the time when they were completed."—[OFFICIAL REPORT, 15th June, 1950; Vol. 476, c. 710.] Again, I think my hon. Friend is right in drawing the distinction between the declared policy expressed in Acts of Parliament and the super-added subjective test which has neither definiteness nor, maybe, logicality. I accept these principles entirely.

I also agree with what my hon. and learned Friend who moved this Amendment said—that there must be present the two requisites: there must be a warning and, secondly, the legislation must be commensurate with the warning. I do not think there would be a great deal of dispute by anyone who has considered the matter seriously over those four principles which I have laid down, having culled them, let me admit at once, from the speeches of my hon. Friends who have contributed to the Debate.

But the importance in the next stage of the argument, and where I differ from my hon. Friend the Member for Oxford, is that I say that these principles which I just endeavoured to ennunciate are the basis of the Amendment of my hon. and learned Friend the Member for Norwich, South, which we are discussing, when it is taken, as I think my hon. and learned Friend will agree, with the next Amendment, which is in my name and to which his name has been added. The way we regard the matter is this: we say that it is the purpose—to use the words of my hon. Friend the Member for Oxford—of the Income Tax Act that people should pay tax on remuneration but not on payment for a capital asset. Again, I do not think anyone would dispute that: that is the principle.

The mischief against which the Chancellor's statement was directed was the future—to use his words—dressing up of remuneration as payment for a capital asset. The essential condition of taxability, in my view, is whether it can be proved that there is an abuse of the provisions dealing with capital assets and that, by that abuse, people have set out to defy the provisions that one pays tax on remuneration. That is how I see it and, from that point of view, it fits entirely with the tests which my hon. Friend the Member for Oxford laid down.

I say that we must first look at the Chancellor's statement to see whether the mischief with which it deals is an evasion of an illegitimate kind, to use my hon. Friend's words. If it is, then we must look at the legislative proposal to discover, first whether the alleged abuses came after the statement—because the warning statement is the initial point—and, secondly, whether the alleged remedy does not deal with mischiefs which are outside the statement. That is the importance of this Amendment and of the next.

I should like to say a word to my hon. and learned Friend the Member for Hove (Mr. Marlowe). He very rightly drew attention—and I think it was most important that he should have done so—to the fact that Ministerial statements do not constitute the law of this country and that we are not governed by Ministerial statements. But, equally, it is a well-known principle of law that one can look at Ministerial statements in order to see what is the evil at which legislation is directed. One can look at Ministerial statements, at a newspaper or at anything else which tell one what is the evil at which the legislation is directed, although one cannot use that to state what is the law.

My hon. Friend the Member for Oxford proceeded from that portion of his argument to argue with great force that it is beneath the dignity of Parliament to legislate against individuals. I agree, if the legislation pre-judges the action taken by individuals. I think it is wrong to legislate to say that A. B., or words which can only apply to A. B., has done wrong; but if we are to lay down what we believe is wrong, then there must be an opportunity given to A.B. and to those who say the contrary to establish whether he has done wrong or not. I think we must always remember this aspect of tax litigation, that an individual case often brings into relief a difficulty or an abuse which has gone on in less important cases without requiring attention.

I feel bound in honesty to face this position with regard to taxation, that we may find a difference of degree arising, which, starting as a difference of degree, becomes so enormous and extensive that it really becomes a difference in kind. If we take that line of Kipling 'Steal in measure,' quo 'Brigandyne,'in measure are all things made.' and if we apply it to taxation, putting the words "dodge in measure" instead of "steal in measure," we come upon a real principle. It is only the end of a slope of degree. It has become a principle of our tax legislation, and indeed very much a principle of our national life, that if we go to such an extent that we are abusing something which, if moderately used, may not be noticeably of a different kind, in a strict sense we have brought about a fresh state of affairs. From my own practical experience of litigation with regard to taxation I feel bound to recognise that point.

Some of my hon. Friends were good enough to mention my own past in the matter. Of course, I would not occupy time with something which is really irrelevant, only I should like to say that my hon. Friends have referred, and were even good enough to give me what one might colloquially call a get-out, to my action in regard to the whisky case during the war. I should like to make it clear that I do not take back a word of what I said in the course of that legislation and that I should do exactly the same again. What was done on that occasion clearly comes, in my view, within the principle which my hon. Friend the Member for Oxford enunciated so clearly on Thursday night. The last thing I want to do is to bore hon. Gentlemen with a discussion of what I did seven years ago. I thank them for listening to that short exposition as patiently as they have done.

Having dealt, as I feel it is only right to deal, with the argument which my hon. Friend put forward with such force and conviction on Thursday, I want the Committee to appreciate the practical effect of the Amendment of my hon. and learned Friend the Member for Norwich, South. After all, the Chancellor of the Exchequer will recognise this point. It is a fair point. The decision of the House of Lords which clarified this matter was in 1943. Since then, right hon. Gentlemen opposite have been in office for five years and have had the opportunity on five previous occasions to legislate with regard to this matter. They did not do it. Therefore, it must be—I put this point to the Chancellor of the Exchequer who will see that I am not trying to make debating points by this speech but to approach the matter on as serious a line as I can—that the Clause will hit arrangements made at any time, considerably before the Chancellor's statement, and possibly years previously.

As the right hon. and learned Gentleman knows, although the law was clarified in the House of Lords and was so clear that counsel for the taxpayer was not called upon at that time, it was known what was probably the state of the law for some period before We therefore have the position that a number of arrangements have been made, and were made long before the Chancellor's statement came into existence. Some of these arrangements may be within the abuse against which he spoke, that is, the dressing up of remuneration as payment for a restrictive covenant. Some of them may not be. Some may be quite ordinary transactions taking place on the sale of a business, where it is necessary to have a restrictive covenant on somebody's services, or an ordinary case where a restraint has been made on somebody's services for the perfectly proper reason of preventing them going to rivals, or the like. I am postulating this now and I think the Chancellor of the Exchequer would agree that there are proper cases. One can imagine them and I do not want to expatiate on them now.

The difficulty of the proposal before the Committee is that it catches all these arrangements, whether right or wrong and irrespective of the effect that that will have upon an individual's position or the position of the company who employed them. I might take as example where an individual may have been tempted to go overseas to give his services to people who would not fit in with the Chancellor's broad economic policy. The right hon. and learned Gentleman will understand that one does not want to give specific examples, but I am sure that examples will occur to any of us in these circumstances. I do not think that a number of people have appreciated that the legislation as drafted will catch these agreements as they come to be enforced after last year, whenever they were made and whatever be the arguments for or against them. Therefore, what we seek to do by the Amendment of my hon. and learned Friend the Member for Norwich, South, is to make the legislation co-extensive with the statement of the right hon. and learned Gentleman. We are not trying to cut it down in any way, but we are trying to ensure, the statement having been made laying down clearly the mischief at which it is aimed, namely, the dressing up of remuneration as a capital payment in this way, that that should be the matter dealt with by the Clause. Therefore, it is my advice that my hon. Friends should support the Amendment of my hon. and learned Friend the Member for Norwich, South, and that we should in that way secure protection for transactions the vast majority of which are probably utterly unimpeachable on every other ground, and secure also that the statement of the right hon. and learned Gentleman, but nothing more than his statement, should receive legislative form.

4.0 p.m.

The Solicitor-General (Sir Frank Soskice)

I think the views to which we have just listened are views to which a number of my hon. Friends on this side of the Committee would assent. Certainly I would. However, before embarking upon an examination of the extent to which we agree I should like to clear up what I think are one or two misapprehensions which have been given voice to in the course of the Debate. It was said by the hon. and learned Member for Hove, (Mr. Marlowe) that we were, as it were, rendering illegal transactions which, when they were entered into, were perfectly legal and within the law. That is entirely mistaken. It is perfectly legal now, and it will be hereafter, to go on entering into those transactions, and those transactions will remain as legal as they have ever been; all we are doing is to say that in the event of their having been entered into certain tax consequences will follow retrospectively and in the future.

He also used the expression "penalty." In discussions on retrospective legislation we constantly hear it said" and I believe that everybody on both sides of the Committee would agree, that in general—there may be exceptional circumstances—we ought not retrospectively to impose a penalty. Here we are not imposing a penalty at all in the sense in which that expression is used in these discussions, that is to say, punishing somebody—to take an extreme case, sending them to prison. We are not doing anything of that sort. We are not fining them or imposing any punishment on them. We are simply saying that a tax consequence will follow. That is perfectly accurate, and I am quite sure that any hon. Member who thinks about it will agree that that is so. Of course, none of us like being taxed, but the fact that we have to pay tax does not mean that we are being punished in the sense in which that expression is used in the context of these discussions.

Mr. Marlowe (Hove)

Will not the right hon. and learned Gentleman agree that if either of these gentlemen refused to pay this sum and it was established that they were capable of paying the sum they would go to prison for contempt of court for their refusal to do so?

The Solicitor-General

That would certainly not be contempt of court, but if they refused to pay they would be in exactly the same position as any other taxpayer hereafter or backwards since tax was imposed. The fact that they have to pay tax does not mean that they are being punished. If they fail to pay the tax, we may consider how we shall punish them.

I accept at once that in general our system of law does not like retrospective legislation, but we have to consider, as the right hon. and learned Member for West Derby (Sir D. Maxwell Fyfe) said, and as the hon. Member for Oxford (Mr. Hogg) said—if my memory does not play me false—that there is a certain type of legislation in respect of which it is impossible to avoid the application of retrospective provisions. We have to consider what we are dealing with. For example, if we are dealing with legislation which confers an indemnity from the very nature of things that must be retrospective. In exactly the same way legislation dealing with tax has for many many years past been recognised both by the context of legislative enactments and by pronouncements of Chancellors of the Exchequer and previous Law Officers, including—as he recognised quite frankly at once—the right hon. and learned Member for West Derby, as a type of legislation in respect of which it is impossible to dispense with some retrospective enactments.

The Committee might be interested to look back for a moment to see how far that is borne out by legislative history Let us go back to the Finance Act, 1936, and look at a few Acts after that time, In the Finance Act, 1936, Sections 18 and 19 were retrospective; in the Finance Act, 1937, Section 14 was retrospective. So one goes on through the Finance Acts of 1938, 1939 and 1940 and one gets to the case of the Finance Act, 1943, when the right hon. and learned Gentleman introduced and moved the provision dealing with what are known as the "Whisky cases." Speaking for myself and occupying now the position which the right hon. and learned Gentleman did then, I think he was perfectly justified.

That was a case in which there were transactions which were perfectly legitimate and perfectly within the law before the Finance Act, 1943. They were carried out before the Finance Act, 1943, and they attracted no Excess Profits Tax, but the right hon. and learned Gentleman introduced Section 24 of the Finance Act, 1943, and in introducing it he used these words. One would want to analyse them rather carefully. He said: Everyone who goes in for a tax-dodging scheme does so with his eyes open to the possibility that Parliament will take retrospective power. Retrospective powers have been taken in at least four Finance Acts to my knowledge, and it is a perfectly proper way."—[OFFICIAL REPORT. 2nd June, 1943; Vol. 3'90, c. 311.] In that case—the right hon. and learned Gentleman will correct me if I am wrong—there was no previous warning—

Sir D. Maxwell Fyfe

Yes, there was. There was a warning in November, 1942. by Sir Kingsley Wood.

The Solicitor-General

I do not know whether the right hon. and learned Gentleman can cast his memory back and say whether the transactions had taken place before the warning or not. They had gone back some considerable time. However, there was a warning which may or may not have been before the transactions took place. In view of what I have to say in a moment—to some extent I am accepting the basis of the arguments to which we have listened—perhaps that will not be so material. Mr. Neville Chamberlain, when dealing with the Act of 1936, recognised perfectly expressly that there must be retrospective legislation on occasions in this type of legislation. So did Sir John Simon, as he then was, when he was dealing with the Finance Act, 1938.

Therefore, I would suggest that the Committee should accept it as a generally well established proposition that in this type of legislation we cannot dispense on occasions with retrospective legislation. I should like to cite a passage which is well known in the courts, and perhaps might be rather better known outside the courts, from a judgment of the former Master of the Rolls, Lord Greene, who was then a Lord of Appeal in Ordinary and has now resigned. They are words which very graphically describe the situation with which the Revenue authorities have to deal. These are the words: For years a battle of manoeuvre has been waged between the Legislature and those who are minded to throw the burden of taxation off their own shoulders on to those of their fellow subjects. In that battle the Legislature has often been worsted by the skill, determination and resourcefulness of its opponents … It would not shock us in the least to find that the Legislature has determined to put an end to the struggle by imposing the severest of penalties. It scarcely lies in the mouth of the taxpayer who plays with fire to complain of burnt fingers. Those are words used by the then Master of the Rolls sitting in the Court of Appeal in the course of a judgment which he was delivering on a tax evasion case which describe, as he saw it, the situation with which the Revenue authorities have to deal.

Sir Herbert Williams (Croydon, East)

He called them penalties.

The Solicitor-General

He was dealing with penalties. Here we are simply dealing with the imposition of tax, which is not a penalty in any sense.

Therefore, if we start from the position that we can have, and rightly have, retrospective provisions in this type of legislation, the question then arises whether we have gone far in this Clause. Perhaps I might again supplement what I have said by another quotation from the right hon. and learned Gentleman, one which I think I should make in fairness to him because it is one in which he makes it quite clear that the words he used in connection with the whisky legislation should be read as subject to some restriction. He said in the Debate on the Iron and Steel Bill: I should be the last to deny that all Governments bring in retroactive legislation at some time and every Law Officer has had to do it in regard to the Finance Acts dealing with tax evasion. However, I put this principle forward as quite unchallengeable, that the justification for retroactive legislation is that a reasonable and definite warning has been given to people likely to practise the matter to be struck at and they have been given the opportunity to avoid that course."—[OFFICIAL REPORT, 28th April, 1949; Vol. 464, c. 499–500.] The right hon. and learned Gentleman is there saying that there must be warning. Here there was warning as from 6th April, 1948. The Amendment of the hon. and learned Member for Norwich, South (Mr. H. Strauss) says that we should exclude from the scope of the Act all covenants entered into before that warning. Now I hope the Committee will agree, that, if we do that, we have not been offending against the principles laid down by the right hon. and learned Gentleman and the hon. Member for Oxford.

I and my right hon. and learned Friend are prepared to accept the effect of that Amendment though not the Amendment in terms, for this reason, that we are prepared to go even somewhat further than that Amendment. We are prepared to try to meet the spirit of the Amendment in the name of the right hon. and learned Member for West Derby. His Amendment, in effect, says this: not only should you except pre-warning covenants but you should try to except pre-Act payments where you can say that the payment was of an innocent nature. 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.

We have thought of certain words, we are carefully considering them, and we propose to put down an Amendment before the Report stage. That Amendment will have the effect of accepting the principle of the Amendment of the hon. and learned Member for Norwich, South, and it will also exclude in respect of the retrospective operation of this Bill transactions which were non-tax evasion transactions. I must, however, make it perfectly clear that any wording we choose will not except transactions of the type entered into by Sir John Black and Mr. Lord. Those transactions, we feel, are entirely outside the scope of any such Amendment, and in this I think there is no difference of opinion on either side of the Committee. I do not want to analyse those transactions, and I certainly do not want to use any kind of viputerative language with regard to individuals, but nobody on either side of the Committee has sought to defend those transactions. Indeed, they are not the only ones in question.

Other cases have come to light in which there were similar transactions, and any words which we put down on Report will leave within the scope of the Bill, and within its retrospective scope, transactions of the type of those entered into by Sir John Black and Mr. Lord. I hope that if we do that the Committee will agree that we have met the general spirit of the arguments raised against us, though not the spirit of the arguments of the hon. and learned Member for Hove because he goes much further. He thinks we should have no retrospective legislation at all and that I think is going too far.

There is one other point I want to make. In accepting the principle of the Amendment in the name of the hon. and learned Member for Norwich, South, I do not want to be taken as accepting that, for all purposes always, we should only legislate retrospectively if we have given an anterior warning. I am not expressing a view one way or another upon that for present purposes, and I think the Committee will agree that if we are accepting the effect of the argument of the hon. and learned Member for Norwich, South, it is not relevant in the course of this discussion to investigate that further matter of principle.

Mr. Selwyn Lloyd (Wirral)

May I ask a question with regard to the last topic which the Solicitor-General was discussing? I appreciate what he has said in regard to the extent to which he is endeavouring to meet the spirit of the Amendment of my right hon. and learned Friend but I, and other of my hon. Friends, have down further Amendments dealing with what might be called genuine agreements in respect of restrictive covenants. Did I understand from the right hon. and learned Gentleman that such payments made in the future, if after the Act, will be taxable?

The Solicitor-General

I am sorry to say that, after carefully investigating the position generally, we feel it would be impossible to find words to exclude in the future transactions of that kind without giving rise to large opportunities for tax evasion. What I am saying applies only to the retrospective operation of this Measure. That is as far as we are able to go and I hope, with that undertaking to exclude covenants entered into before the warning—and to try to follow the words used by my right hon. and learned Friend in the course of his warning when he used the words "dressing up"—by introducing further words on the Report stage, the Committee will agree that we have not transgressed any principle we ought to observe in making this Clause retrospective to the extent it will be retrospective.

4.15 p.m.

Sir Hugh Lucas-Tooth (Hendon, South)

The Solicitor-General referred to the difficulty of finding words to cover future transactions, but my hon. and learned Friend asked about future payments in respect of certain past transactions. Is it not possible to find words to cover future payments where the transactions have already been entered into?

The Solicitor-General

I hope we shall be able to do that. Really three sets of circumstances have to be considered. The first relates to pre-warning covenants and under those there may have been pre-Act and post-Act payments. In the case of all those pre-warning covenants we will exclude both pre-Act and post-Act payments. The second is the case of pre-Act non-tax evasion transactions which we will try to cover. I hope we shall be able not merely to cover payments under such covenants before the Act comes into force, but after. I would rather not bind myself specifically with regard to the payments after, but I hope and think we shall be able to exclude them also.

Sir D. Maxwell Fyfe

I am grateful to the right hon. and learned Gentleman for considering the arguments we have advanced and for indicating how he proposes to meet them pro tanto. I myself feel it would not be profitable to go on discussing hypotheses at the moment. I should like to see the Clause put down, and I am sure that the right hon. and learned Gentleman would be the first to agree that one cannot commit oneself to it without seeing the Clause and without careful consideration. None the less I am grateful, and I do not want to appear otherwise, for an attempt being made in the direction we desire. Therefore, as far as that is concerned, my own inclination is to wait for the Report stage and see the Clause.

There is just one point I ought to mention. The right hon. and learned Gentleman has pointed out certain practical difficulties which exist in his mind. Of course we have considered these matters and it might be useful if we found some occasion to indicate the way our minds have been working to meet these practical difficulties.

The Chancellor of the Exchequer (Sir Stafford Cripps)

I should be glad if the right hon. and learned Gentleman would take the opportunity of having a word with my right hon. and learned Friend the Solicitor-General on the subject matter he has just mentioned.

Mr. Henry Strauss (Norwich, South)

I, too, wish to facilitate progress in view of what the right hon. and learned Gentleman has said and the reply of my right hon. and learned Friend. I find myself in the difficulty of not knowing whether my right hon. and learned Friend the Member for West Derby (Sir D. Maxwell Fyfe) meant that he was not going to move the next Amendment. If that is what he meant, then I should have to discuss a few things involved in that Amendment which were dealt with by the Solicitor-General; whereas, if we are to have a short discussion upon it, I could facilitate matters by agreeing to withdraw my present Amendment which, in substance, is being accepted.

Unless there is to be a discussion on the Amendment of my right hon. and learned Friend, which I gather is the next one to be called, I should have to answer some of the remarks which the Solicitor-General has made. Do I understand from my right hon. and learned Friend that he proposes to move the Amendment in order to permit a discussion?

Sir D. Maxwell Fyfe

I did not intend to do so. I should prefer to see the new Clause with which the Solicitor-General said he was going to try to meet the spirit of my next Amendment, and then have a discussion, if the Chair takes a favourable view, on the Report stage when we have seen it. I personally hate to discuss hypothetical matters, with the argument moving from side to side according to what hypotheses may be accepted. That is my own feeling and is what I should prefer to do.

Mr. Strauss

I am much obliged to my right hon. and learned Friend for that indication. That only necessitates my saying a few words before I withdraw the Amendment in view of the undertaking of the Solicitor-General that he will meet its objects. The right hon. and learned Gentleman dealt by way of anticipation—I am not saying that this was not very useful—with how he wished to meet, not only my Amendment, but also the subsequent one on the Order Paper.

The Solicitor-General

When I say that I shall endeavour to meet the spirit of the Amendment in the name of the right hon. and learned Gentleman, we do not think it possible to accept a purely subjective motive test. It has been found quite impossible to try to operate that when we tried it in the Excess Profits Tax legislation in Section 35 of the 1941 Act. Therefore, when I say "the spirit of this Amendment," I do not think that we could proceed upon the principles upon which the Amendment is based.

Mr. Strauss

I am much obliged. I do not think that I was misunderstanding the right hon. and learned Gentleman. Like my right hon. and learned Friend, we will wait to see what the Solicitor-General proposes to put down.

I think it desirable, however, to say, on my own behalf and on behalf of a great many of my hon. and right hon. Friends, that there will be certain requirements of the new Clause which is to be put down which must be satisfied if it is to meet the essential minimum that we consider necessary. That links up with something which the right hon. and learned Gentleman said in his speech. Among the requirements, he talked about excepting innocent transactions from retrospective action. The meaning which I give to innocent transactions is transactions that fall outside the warning which was given by the Chancellor of the Exchequer on the date mentioned in my Amendment. That is the first point.

The second point is this. The Solicitor-General said that his Amendment would not exclude the two specific cases which have been very much in the minds of the Committee. I, of course, do not expect any words to be set down by the right hon. and learned Gentleman which may not catch those transactions. I regard it as absolutely essential, however, that what is put down in the new words should be a statement of principle, and that the question whether those two transactions do or do not fall within the principle shall be determined by the courts. On those understandings, like my right hon. and learned Friend, I am prepared to await the new Clause. As regards my own Amendment, I gather that although it is not being accepted in the form in which I have moved it, the full effect is being accepted. In those circumstances, I imagine that the convenient course would be to ask the leave of the Committee to withdraw my Amendment.

Mr. Pickthorn (Carlton)

On a point of order and procedure, Major Milner, may I ask you this, as I think it might save time; I, like everyone else this afternoon, am devoted to progress. Suppose that the course indicated by the Solicitor-General were followed and these Amendments were withdrawn, what would be the effect upon the opportunity for debating the Amendment, which we were being allowed to debate—we do not know whether it is to be called—in the name of the hon. and learned Member for Hove (Mr. Marlowe). Whether or not one might desire to vote for that Amendment, one might consider it a thing that ought to be debated, and I should like to know whether, if we do not debate it as a continuation of the Debate now drawing to an end, we shall have a later opportunity or not.

Mr. Marlowe

Further to that point of order. I should like to put the same point, Major Milner. It now seems probable that the two other Amendments which we were discussing at the same time as my Amendment are likely to be withdrawn. I should like your Ruling as to the position regarding the selection of my Amendment. I am sure that you will agree, Major Milner, that this new development affects the position considerably. Here is an Amendment, which is supported by a large number of hon. Members, covering an important question The Debate which we have had this afternoon has served the usual purpose of crystallising the difference between the point of my right hon. and learned Friend and that of myself. The real point of important principle upon which we differ is that they are prepared to accept the attitude that when the Great Mogul comes here and says, "I have spoken," that has the effect of law from thenceforth. I am not prepared to accept that principle. I adhere firmly to the view that retrospective legislation is an immoral thing, and therefore I hope that we shall have an opportunity of continuing the Debate.

Mr. Hopkin Morris (Carmarthen)

Further to that point of order. Major Milner. The harmony which appears to be prevailing here this afternoon between the two sides upon the subject of retrospective legislation, by no means represents the view of the substantial number of Members of the Committee who have no agreement with either side.

The Chairman

I am sorry to interrupt the hon. and learned Member, but we cannot have speeches on the merits. It is clear that the fact that the hon. and learned Member for Norwich, South (Mr. H. Strauss) may be satisfied, is no indication that the hon. and learned Member for Hove (Mr. Marlowe) is' equally so. That being so, the hon. and learned Member for Hove is entitled to ask that the Debate on his Amendment may, without repetition, I hope, of the arguments already adduced, be continued and taken to a Division it he so wishes.

Mr. Pickthorn

Does that mean to say, Major Milner, that under your Ruling anybody who wishes to debate the propriety of subsection (3) must debate it in continuance of the present Debate and not later on the Motion that the Clause stand part or in any other form?

Mr. Strauss

May I submit, on the point of order, that the more convenient course, in view of the difference, on which everybody is agreed, between my Amendment and that of my hon. and learned Friend the Member for Hove, will be to allow me to withdraw my Amendment and for the Amendment of my hon. and learned Friend to be called?

The Chairman

Perhaps I did not make myself clear. If the Committee are agreeable to the Amendment in the name of the hon. and learned Member for Norwich, South (Mr. H. Strauss), being withdrawn, I then propose to select the Amendment in the name of the hon. and learned Member for Hove. Is that agreeable?

Sir H. Williams

Before the Amendment is withdrawn, may I say I am not very clear what it is all about. It seems to me that the Solicitor-General has offered us half a grain of that 9tuff Which is put in tea when one has no sugar and is called a pound of sugar—it does not seem to go very far. All the talk has been about restrospective legislation. But some of us think this thing is very bad in respect of the future because it is going to interfere with a lot of very desirable transactions. There is a certain amount of agreement between the right hon. and learned Gentlemen sitting opposite each other, but other aspects of this matter have to be considered. Some people, especially hon. Members who sit behind me, are keen on co-partnership and this will kill every co-partnership scheme. There are other aspects to be discussed besides those to which reference has been made. I want to safeguard the rights of those who want to discuss other aspects of the matter.

4.30 p.m.

Mr. Strauss

May I point out to my hon. Friend, whose views I appreciate, that none of the discussions he contemplates will be in the least prejudiced by the withdrawing of the Amendment in my name?

Amendment, by leave, withdrawn.

Mr. Marlowe

I beg to move, in page 13, line 27, to leave out subsection (3).

I deployed all the arguments in favour of this Amendment when I spoke on Thursday night, and therefore I shall not try to cover that ground again; but I feel that out of this discussion we have had this afternoon some good has come. To this extent and to this extent only, as I said a moment ago, it has crystallised the great danger I prognosticated when I spoke on Thursday night, and, indeed, every event in today's discussion has established the correctness of the principle I was endeavouring to put before the Committee on that occasion.

I thought there was universal agreement on this, that the law of this country is made by the two Houses of Parliament and the Crown, and, as I said when I spoke on this matter previously, I cannot accept the principle that the law of the country is made by the Chancellor of the Exchequer, or by any other Minister coming to the House and making a pronouncement and thereafter creating either an offence or a state of law. That is now the deplorable position to which we have come by accepting the attitude which has been expressed on both Front Benches in this discussion. We are setting up a worse precedent for any Chancellor of the Exchequer to come and say, "I gave warning and therefore this has become the law for the future." That is a principle to which this Committee ought not to subscribe and one on which we should take a firm stand at the moment.

The facts of this case reinforce that argument very strongly. The Solicitor-General does not see any justification for retrospective action in this matter other than the warning given by the Chancellor of the Exchequer. He agrees that retrospection is an undesirable thing, but, he says, it becomes a perfectly proper process of law if the Chancellor of the Exchequer comes here and gives warning. I believe that to be a thoroughly immoral principle and one which is accepted in all the dictator countries of the world. A dictator makes a pronouncement from some soap box or dais at Nuremberg, or wherever he chooses to make his legal processes, and declares the law is to be so and so for the future, without any action being taken by a democratic assembly.

I must take my stand on the principle here that there is no offence created, nor is any tax law created, until it is passed through the proper legal processes of the House. The Solicitor-General sought to distinguish between what he called legislation which carried a penalty and fiscal legislation, but surely in modern circumstances fiscal legislation of this kind is in itself penal. This is a penal tax and is intended to be a penal tax, and what the right hon. and learned Gentleman has done, whether he seeks to admit it or not, is that two gentlemen we know have been put in a position where they will be heavily penalised.

The next complaint I have against this arrangement which has been come to between the two Front Benches is this. My hon. Friend the Member for Oxford (Mr. Hogg), in his speech on Thursday night, quite rightly drew attention to one aspect of retrospective legislation when he said—and my right hon. and learned Friend the Member for West Derby (Sir D. Maxwell Fyfe) agreed and indeed endorsed it when speaking this afternoon—that it is undesirable for legislation to be aimed at any particular person, and still less, of course, is it desirable when it is aimed at two persons, retrospectively. Now, what has been done is that that very principle has been affronted and this accord which has taken place, and which I much regret, has had the effect of admitting the principle of retrospective legislation in terms which hit at two particular offenders. The Solicitor-General made it plain that, whatever alterations the Government made, they would see that these two particular gentlemen were hit.

We have got ourselves into an even worse position. I warned the Committee on Thursday that, if we did not stand up for a principle, this was the kind of difficulty in Which we would find ourselves. We have gone from bad to worse; we have accepted the principle that the Chancellor of the Exchequer may make law by a pronouncement, and we have accepted the principle that we can legislate retrospectively to aim at two persons because they offend the party line, although the thing they did was untaxable at the time they did it. I hold firmly to the view that the principle that one shall not be penalised either by taxation or by any other punishment for an act which was within the law at the time it was done, is one of our basic freedoms. It is one of the freedoms which is being abolished in Eastern Europe. For God's sake let us today stand firm here.

Mr. Derek Walker-Smith (Hertford)

The speech of the Solicitor-General has improved this Clause somewhat and it now appears as a rather less crude form of retrospective legislation and, therefore, as a less direct challenge to our constitutional usage. But there are some hon. Members who still feel disturbed by the contents of this Clause, not because of any tenderness for particular persons or particular transactions, but because of a tenderness for constitutional principle.

There are two great constitutional principles involved in this matter, the principle of retrospective legislation and the principle of discrimination against persons. When he made his first speech on this matter on Thursday night, my hon. and learned Friend the Member for Hove (Mr. Marlowe) enunciated the principle in these words: It is a principle of our law that no one should be penalised for doing a lawful act."—[OFFICIAL REPORT, 15th June, 1950; Vol. 476, c. 703] So far as it goes, I should have thought that was an admirably concise and acceptable statement of constitutional principle.

One difficulty and a considerable difficulty, has, however, appeared. The point is made by the right hon. and learned Gentleman that this is not a penalising Clause He seeks to draw a distinction between punishment and taxation and, if I understand him aright, he says it is wrong to punish retrospectively but it is right and permissible and constitutional to tax retrospectively So the first point to which I think the Committee should address themselves is whether or not in the circumstances of 1950 that is a valid distinction. Is taxation a penalty? The distinction which the right hon. and learned Gentleman draws is not, in my view, a valid distinction, at any rate in the circumstances of the day, and I would suggest two tests by which that proposition can be judged. First, I would remind the Committee—although I am sure it is not necessary to do so—that in the long series of struggles which have built up the constitutional defences of this country against arbitrary action, no single element has loomed so large as that of taxation. The most casual glance at Magna Carta or the Bill of Rights would surely establish that proposition.

The second test, which I commend to the right hon. and learned Gentleman, is a very simple one, no doubt too simple for the Chancellor of the Exchequer because it is based on the authority of Dr. Johnson, an authority who, I can well imagine, is not held in great respect by the present Chancellor of the Exchequer. It will be within the recollection of the Committee that when Dr. Johnson was invited to comment on the theory of Bishop Berkeley, so popular in the 18th century, that things exist only in our imagination, he gave a mighty kick against a large stone and said, "I refute it thus." In other words he appealed to the evidence of the senses. What was good enough for Dr. Johnson should be good enough for this Committee.

It is quite clear that if we take that practical test, that taxation on the scale on which it is levied today is in the nature of a penalty, if vast sums are taken from a person he is surely punished and penalised in any popular sense of the word.

Mr. Sydney Silverman (Nelson and Colne)

Supposing only little sums are taken, is that a punishment too?

Mr. Walker-Smith

The hon. Member puts a characteristic point. If little sums are taken from little people, that is certainly a punishment just as much as if great sums are taken from great people.

Mr. Silverman

I should like to know whether the hon. Member is really committing himself to the proposition that Pay-As-You-Earn is penal legislation?

Mr. Walker-Smith

So far as I know there is no suggestion, even under the present Government, that P.A.Y.E. is at any time to be given retrospective effect. If that is the private policy of the hon. Member for Nelson and Colne (Mr. S. Silverman), I am content to wait until he changes place with the present Chancellor to see what happens then. For the moment I hope that the hon. Member will forgive me if I do not pursue his hare but return to the proposition which is before the Committee.

I suggest that it is a proper constitutional maxim that subjects of the Crown cannot be punished or deprived of their possessions except by due course of the law. If the Committee accept, as generations of Englishmen have accepted, that statement of constitutional principle, the difficulty raised by the Solicitor-General is done away with, because there can be no doubt that under this Clause people will be deprived of their possessions. In my submission, whether that be a penalty or not, there can equally be no doubt that retrospective legislation is outside the due processes of the law.

So far as the question of precedents is concerned, I should like to refer the Committee to an article which appeared in yesterday's "Sunday Times." It was by Mr. Raymond Needham who, as the Committee knows, is a very great authority indeed on Income Tax law. Mr. Needham wrote: Two previous Chancellors had, it is true, indulged in retroactive income tax legislation of a general character, but those examples lacked both the distortion and the 'personal touch' which distinguishes the latest example. It is, of course, true that in a general sense there are probably no crimes in the calendar which cannot be justified by finding a precedent from some Act of some Government or other in the last 800 years or so, but the precedents quoted by the Solicitor-General are not authorities for the proposition which is now advanced.

4.45 p.m.

I turn to the other constitutional principle involved, the principle that legislation should not discriminate against persons. I could certainly satisfy the itch of the right hon. and learned Gentleman for precedent in this matter. I would commend to him the precedent of King James II, who lost his throne because he sought to vary the operation of the law in favour of particular persons. How much more reprehensible it is to seek to vary the operation of the law against particular persons. That is what in effect this Clause seeks to do, as my hon. Friend the Member for Oxford (Mr. Hogg) made clear on Thursday night.

I believe that this Committee is not concerned with the particular transactions of the particular individuals except in this respect: those transactions may be and no doubt were tactless, they may be and no doubt were socially inconvenient, but the point with which this Committee is concerned is a question of constitutional principle is that they were lawful.

Mr. Pannell (Leeds, West)

Will the hon. Member state whether those transactions were socially undesirable or desirable?

Mr. Walker-Smith

I have made it quite clear that they were no doubt tactless and socially inconvenient but they were lawful. If transactions which are lawful are to be penalised because they are unpopular, then the rule of law is at an end. That is the constitutional proposition with which this Committee is faced. I cannot and do not accept the principle that the law should be retrospective to the time of the Chancellor's warning. If the ipse dixit of the Chancellor—not only this Chancellor but any Chancellor—should govern the time as to when the law comes into effect, then Parliament is relegated to the menial function of the rubber stamp of the Executive's decision. This House would be going back on centuries of its tradition and its constitutional development; and the question might well be asked: if the Chancellor is to make laws by his pronouncement, why have a Parliament at all?

I urge the Committee in this matter to take the broad view and the long view. Black, Lord and Plummer, and all the party prejudices or passion which might be excited by the canvass of the merits of these transactions on the hustings—these are things of the moment; but the things which are permanent are the traditional hostility to the principle of retrospective legislation and the hostility to the principle of discrimination against persons. These are part of the closely-knit constitutional fabric of this country. I say that it should not be rent assunder in this House of Commons, at least without the voice of protest being heard.

As we all know the twin pillars of our constitutional fabric are the rule of law and the sovereignty of Parliament. Put at its very highest, the action which it is proposed to take would be to emphasise the sovereignty of Parliament at the expense of the rule of law. I believe that is putting it a great deal too favourably. I believe that we jeopardise the sovereignty of Parliament as soon as we try to make Parliament function otherwise than in harmony with the rule of law. I believe that the sovereignty of Parliament as well as the rule of law is automatically debased when constitutional principles are infringed. Therefore, respectfully, I ask hon. Members to rise above the party passions and preoccupations of today. I ask them to remember that the House of Commons exercises a continuing function over the generations. I ask them to remember in our deliberations here that we owe a debt to the past, and that we have to have regard to the future. I ask hon. Members to see to it that it cannot be said in the future that this House of Commons lightly abandoned the constitutional principles which our ancestors vindicated at the peril of their lives.

Mr. Douglas Houghton (Sowerby)

The two speeches to which we have listened are, I suggest, carrying this argument to a point of exaggeration in relation to constitutional law and the rule of law. I should have thought that the hon. Member for Oxford (Mr. Hogg), in his speech on Thursday evening, demolished the argument that in this Clause lies penal legislation. What was lawful before remains lawful now. Nothing in this Clause makes any difference to the law of restrictive covenants. What the Clause does propose to do is to make a difference to the taxable nature of the payments made under them.

We have heard a great deal about the rule of law, but we have heard very little from the benches opposite about what I would describe as distributive justice. After all, what is the purpose of taxation? It is to see that all citizens bear their proper share of the national expenditure; and if we find that ingenious persons are dressing up payments which are alleged to be of a capital nature in order to escape the taxation which would be levied upon them as income, then surely the legislature is entitled, not only to check those evasions, but to check them retrospectively. I rely for this argument upon the late Mr. Neville Chamberlain who, when speaking on the Finance Bill of 1936, said: Do not, however, let us make a fetish of this idea about retrospective legislation. Mr. Chamberlain then referred to an intervention by the hon. Member for Croydon, East (Sir H. Williams) and said: But when my hon. and gallant Friend says you ought not to change the rules in the middle of the match, I think he is carrying the analogy rather beyond the facts of the case. Mr. Chamberlain went on to say: What are the rules and who is observing the rules in this case? He concluded: … if it were laid down that, whatever happens, there would never be any retrospective legislation that would really be an invitation to devise further and still more ingenious methods which would be very undesirable."—[OFFICIAL REPORT, 1st July, 1936; Vol. 314, c. 441–442.] The truth of the matter is that although retrospective legislation has formed part of the Finance Bills since 1936, this is the first occasion upon which the Chancellor of a Labour Government has proposed it in the Finance Bill.

Sir D. Maxwell Fyfe indicated dissent—

Mr. Houghton

I think I am right in saying that. In any event, there are repeated occasions in the past when retroactive legislation has been proposed in the Finance Bill and, what is more, hon. Members on the other side of the Committee have supported the principle of retrospective legislation to check obvious abuses of our fiscal system. I suggest that if hon. and right hon. Gentlemen opposite are going to elevate the rule of constitutional law to the height of their eloquence, they must come prepared also to defend the abuse of our taxation system which these and other methods undoubtedly are.

It seems to me that there is no question of these arrangements being in any way genuine. The hon. and learned Member for Hove (Mr. Marlowe), in his speech on Thursday, said: But I hold strongly the view that where a penalty is imposed—in this case upon a person who has acted within the law perfectly innocently—it is utterly wrong to go back and punish the man for something which was lawful at the time he did it."—[OFFICIAL REPORT, 15th June, 1950; Vol. 476, c. 703.] Do we really believe that these retroactive covenants which Clause 20 seeks to check retrospectively were entered into innocently? Can we really say that those concerned acted in good faith?—[HON. MEMBERS: "Why not?"] Can we really believe that gentlemen of the position of Mr. Lord and Sir John Black were seeking to go elsewhere and sell their services to another undertaking and that their present firms were so anxious to retain them that they offered them these huge sums?

Sir Peter Bennett (Birmingham, Edgbaston)

Yes, one or other of these gentlemen was going to America.

Mr. Houghton

I suggest that if there is any attempt to compensate these gentlemen for remaining in their present posts, it should be done by an increase in their salaries which is subject to taxation, and not indulge in a bogus capital payment—

Sir H. Williams

Would the hon. Member apply the same principle to the motor cars which Ministers have, free of taxation? Their £5,000 a year would have to be raised to £8,000 at least in order to enable them to pay for the motor cars they get tax-free.

Mr. Houghton

Ministers of the Crown in their official cars are in no different position from other executives and directors. They are being provided with transport in the discharge of their duties.

Sir H. Williams

What about the Prime Minister's £4,000 a year tax-free?

Mr. Houghton

If there are bona fide expenses incurred wholly, necessarily and exclusively in the performance of an office, then it is open to a director, or any other person, to claim allowances for those expenses as a set-off against their Income Tax.

Mr. Walker-Smith

As the hon. Minister is an authority in these matters, could he state any instance other than that of the Prime Minister where a declared sum is comprehensively allowed?

Mr. Houghton

I am not in a position to give details of all cases which the Inland Revenue may deal with on similar lines to those on which the expenses of the Prime Minister are dealt with. I happen to be one of those for whom the Inland Revenue some long time ago agreed on a sum which should be admissible as a set-off for expenses, and I see no difference in principle between that, and what was done for the Prime Minister, and what is done for every person for whom there is an ascertainable level of expenditure in the performance of their duty.

But we return to the issue here. These restrictive covenants are not confined to the two which have received so much publicity. It should not be assumed that this is legislation discriminating against two main persons. It is legislation proposed to check similar kinds of retroactive covenants which other persons are finding it very convenient to enter into as a means of avoiding taxation and of getting a large sum of money free of Income Tax and Surtax. That is what this Clause is seeking to check and the concession mentioned by the learned Solicitor-General takes away some of the criticisms made by hon. Members on the other side of the Committee. I do not think that the Committee will support the hon. and learned Member for Hove (Mr. Marlowe) or the hon. Member for Hertford (Mr. Walker-Smith). Their own side, their own previous Chancellors of the Exchequer, and the right hon. and learned Member for West Derby (Sir D. Maxwell Fyfe), are all too far committed on the principle of retroactive legislation in these cases, to make the puritan doctrine of no retroactive legislation in any circumstances acceptable in this Committee.

5.0 p.m.

Mr. Maudling (Barnet)

I have listened with care and interest to the many arguments put from both sides of the Committee on the principle of retrospective legislation. I should like to deal with two arguments in favour of retrospective legislation which seem to me to be most dangerous arguments to employ. The first is the argument from precedent—that because this has been done before if is right to do it again. I do not think that that argument can hold. It may be politically convenient to pin on one's opponents the fact that they did it first. It may be a politically strong argument, but it is not a strong argument in justice or law, and it is dangerous to push it too far. Then there is the further argument—

Mr. Eric Fletcher (Islington, East)

If the hon. Gentleman says that precedent is not an argument to establish principle, would he say to what authority he refers for establishing principle?

Mr. Maudling

I thought that it was the authority of the House of Commons which would establish principles of this kind.

The second argument was to the effect that what is called distributive justice, or social justice, should be able to override the real law. I know that argument is advanced with much sincerity by hon. Members on both sides. But, here again, it is a most dangerous argument to pursue, because it leads us into the position where we find ourselves arguing about the merits or demerits of the actions of individual taxpayers. The point was made by the hon. Member for Sowerby (Mr. Houghton) that the two gentlemen about whom there has been so much publicity, acted in this matter in a deliberate attempt to avoid taxation. It was argued from this side of the Committee that that was not true. I do not know whether or not it is true. My point is that it is not for this Committee to decide in an individual case.

I thought that the Solicitor-General gave rather too much support to that point of view when he talked about the Government being unable to exclude from their new provisions cases of the type to which publicity has been given. Surely, it is not for us, the Solicitor-General or the Government to decide whether individual cases fall within a class. I gathered from the way the Solicitor-General nodded in response to my hon. and learned Friend the Member for Norwich, South (Mr. H. Strauss), that he would accept that point and would agree that the question whether individual cases fell within a class or not is a matter solely to be determined by the courts and not by the legislature.

Mr. Pannell

Is it not a fact that the statement of the Chancellor was made first as a warning that certain consequences would follow and that these payments were made after that warning? Would not the hon. Gentleman agree that the Chancellor himself had in mind no names at all at that time? If names have come into the matter, it is because the evasions followed the warning. We are not proceeding against individuals. We are proceeding in furtherance of the original warning by the Chancellor.

Mr. Maudling

I am grateful to the hon. Gentleman. He has made my next point. Whether we are proceeding against individuals or not, speeches are being made against them. The implication is being brought in that this Committee should act on the supposition that certain individuals have done a certain thing for particular motives. I come next to the point about the warning. The Government have made some concession in this matter to the effect that the Clause shall not extend to arrangements made before April, 1948. Naturally, I welcome that, but I think that it has given rise to a certain amount of confusion.

I do not think that the imposition of retrospective legislation can be justified solely on the ground of a warning. I thought that the Solicitor-General made that point himself when he said that the fact that the Government were accepting that proposition did not mean that they bound themselves in future never to take retrospective action without a warning. If they claim the right to take retrospective action without a warning, surely the corollary must follow that a warning alone is not adequate without other grounds on which to take action. It is most important that we should not accept that a warning by the Chancellor, in itself and by itself, can constitute grounds for legislative action of a retrospective kind.

It is important that the Committee should bear in mind that we are dealing not with tax evasion but with tax avoidance. There is no question whatever of declaring that the actions taken by people who enter into this type of covenant are tax evasion. No question of illegality arises, and no question arises of making unlawful now an act that was lawful at the time it was done. The action of the Government boils down to action against certain forms of tax avoidance. Tax avoidance is the action taken by any taxpayer who wishes, without infringing the law, to minimise the amount of tax he has to pay. After all, we all do that, and it is recognised that it is the right of every citizen so to arrange his affairs as to attract the minimum amount of taxation.

I do not think that principle can be applied without some form of reservation. There are many different degrees of this type of arrangement. For my own part, I accept the principle enunciated by the hon. Member for Oxford (Mr. Hogg) and my right hon. and learned Friend the Member for West Derby, that it is proper for this Committee retrospectively to repair breaches made in legislation by individuals, or by classes of people, who are deliberately trying to thwart the will of Parliament. I should have thought that there is evidence to show that in some restrictive covenants a deliberate attempt had been made to evade, or rather to frustrate, the will of Parliament by dressing up as remuneration what is really a capital payment. It is the will of Parliament that income should be taxed. If people dress income up in the form of capital payments, Parliament is entitled to act against them retrospectively, but I do not think that a penalty should be imposed retrospectively.

My last point is that there seems to be some disagreement whether the payment of tax at a very high rate, or involving a very high proportion of one's income, is penal It is unpleasant and perhaps it may loosely be called penal, but it is not penal in the sense of being a punishment. I will give an example. Suppose someone was trying to pass a bottle of brandy through the Customs when on the way back from a holiday, and he was detected by an officer. The person carrying the brandy might be compelled to pay the full rate of duty. That is not a penalty, but if subsequently he is fined for bringing in the brandy, then he has been punished for what he has done.

I should be prepared to accept retrospective action again deliberate tax avoidance if it can be shown that they are cases of tax avoidance, with the condition that there should not be a penalty. This Clause contains a penalty. One must not look only at the position of the recipient, but also at the position of the payer of the sums of money. If we take together the company employing the person and the individual himself, both of whom are parties to the contract, we must look at the effect of this action on the two together. As I understand it, the argument of the Government is that payments of this kind in many cases have been really payments of remuneration, which should have been taxed as remuneration, but, if that is the case, that principle should apply the whole way through, and, if the recipient individual has to pay tax on the money, then the paying company should be able to charge that payment as a legitimate expense. Instead of that, the method has been adopted of grossing up the payment and charging Surtax on it deliberately in order to prevent the company concerned from being able to charge this payment as a legitimate expense, which they would have been able to do if it had been remuneration.

I believe that there is no question of tax evasion or of rendering unlawful an Act which was lawful at the time it took place. I believe that Parliament is entitled to repair retrospectively breaches in the taxation law by deliberate actions of individuals if they have sought to defeat the law by fictitious transactions, or if it can be shown clearly that such payments are merely excuses to avoid the sums involved being treated as remuneration.

Mr. Moeran (Bedfordshire, South)

I suppose that one thing upon which both sides of the Committee would be agreed is that retrospective legislation as a general principle is repugnant to us all, but what this Amendment asks us to do is to dismiss retrospective legislation in any circumstances whatever. It has always been understood by those concerned in the process of law that we do not make our laws rigid in the continental fashion, but that we make them in such a fashion that they may be varied to deal with special circumstances.

The fact that the present legislation is to deal with special and particular circumstances fully justifies these provisions, because of the fact that the particular transactions involved not only substantial payments to certain individuals, which in themselves were contrary to the Government's policy of pegging the cost of living and keeping inflation at bay, but, by reason of the indignation which they have caused amongst the wage earners in the community, threatened the whole structure of voluntary personal income limitation by members of trade unions and others.

In these circumstances, the transaction itself, whatever moralistic merits it may have, was carried out after the clearest possible warning had been given by the Chancellor of the Exchequer, and, because of its effect upon the public conscience, the whole structure of voluntary income limitation was endangered, and, with it, the whole principle of freezing the cost of living and restraining any inflationary tendency. It is in these circumstances that this legislation and this Amendment must be judged, and, in these circumstances, where so much is at stake, it is completely in the interests of the public that this proposal should be made.

The hon. and learned Member for Norwich, South (Mr. H. Strauss) suggested that there were two conditions under which retrospective legislation might be tolerated. One was by giving clear warning of the intention, and the second that the resulting legislation should be in accordance with that warning. I suggest that there might well be a third safeguard which should be observed in regard to retrospective legislation, and that is when it is clearly in the public interest that such legislation should be introduced. In the present circumstances, it is clearly in the public interest, because the public conscience was affronted by these transactions, and needs to be satisfied that the penalties for such actions are adequate, in view of the fact of their effect on the whole system of voluntary income limitation.

I should have thought that, when that principle is weighed against the principle enunciated by the hon. and learned Member for Hove (Mr. Marlowe) that retrospective legislation should not be indulged in under any circumstances, that there would have been no great difference in point of view on this question, and I am surprised to learn that a proportion of something like one hon. Member in three on the opposite benches is not in favour of that particular principle. I am surprised that there has been no unanimous welcome for this rather courageous action by the Chancellor of the Exchequer, which has been taken in the interests of the greater need involved, which would be sacrificed if my right hon. and learned Friend had not taken a clear and firm attitude against those persons whom it is the object of this particular proposal to bring within the Income Tax law.

5.15 p.m.

Mr. Pickthorn

I address the Committee with considerable reluctance on this matter, because so far, although I am not quite sure about the hon. Member for Bedfordshire, South (Mr. Moeran), all the speakers have been persons of great professional experience in the matter, either legal or fiscal, and I come out as a mere amateur, in both senses, because I have not had the experience of receiving sums of this sort, nor have I any experience in dealing with the rules about receiving them. Yet I do ask the Committee to bear with me while I offer one or two considerations, which I think have not been put to it yet in the way in which I am trying to put them, and, indeed, some of them have not been put before it at all.

I should like, for instance, to ask the learned Solicitor-General to consider the distinction which he drew between retrospective legislation of a punitive kind and retrospective legislation of a taxative kind. I thank the Solicitor-General for drawing the distinction; I was fully aware of it, and indeed before this Bill was introduced. With great respect, that distinction is not absolute. It is not a line that can be drawn in any rigid or concrete way, and I do not ask the Committee to take that merely upon my dogmatic assertion. I venture to say that a considerable number of the best academic lawyers would subscribe to that, a number of what in other countries would be called jurisconsults.

We really cannot make this distinction with clearness and exactness; there must be some reality in the words that are used—words are the daughters of I have forgotten what, but facts are the sons of God—words must be used which have some relation to actual meaning, and to say that really something is punitive which submits His Majesty's subjects to the risk that a court might fine them 5s., but that it is not punitive when what it does to certain of His Majesty's lieges is to deprive them of the greater part of £100,000, or of more than £100,000, because I understand that one of these two individuals has to pay more than £100,000 for taking this sum—to make that distinction is absurd.

I appeal to the Committee to accept that argument on remembering what was said by an hon. Gentleman for whom I have great respect—the hon. Member for Oxford (Mr. Hogg). He sought to make this distinction, and hon. Members of the Committee will bear me out that, in general, he is as clear in his line of argument and as precise in his use of language as any legal hon. Member of this House; secondly, I think the Committee will bear me out when I say that in particular the hon. Member's speech was much praised by the pundits on both sides of the Committee this afternoon.

Therefore, I hope the Committee will think it ought to think twice about this distinction, between punitive and taxative, when it reads his speech. If hon. Members will do me that honour they will see that the second paragraph seeks to make this distinction: people should not be punished for doing that which is lawful at the time …there is a great distinction between what is lawful and what is taxable and between what is a punishment and what is a tax."—[OFFICIAL REPORT, 15th June, 1950; Vol. 476, c. 708.] That is the principle he lays down, and the principle upon which he bases the argument of his speech. What did the hon. Member for Oxford do when he came to the conclusion of his speech? He said what is always odious is when the legislature picks out individuals for punishment and contumely—"these provisions are in fact directed as a punishment against two named individuals." The hon. Gentleman having slipped into that confusion in the course of an eleven-minutes speech, anybody here who is not certain of being clearer thinking and more exact in the use of language than the hon. Member for Oxford had better think twice or three times before he accepts this distinction between punitive and taxative. I hope I have made that point clear, and I pass to one or two others.

First, I wish to indicate a comparatively small point, indicated just now by an hon. Gentleman in front of me, that anyway things ought to be the same for the payer as for the payee, for the company making the payment. We ought to have an answer to that. Then I was very grateful to some hon. Gentlemen opposite—I was going to say from the Solicitor-General downwards, but, as this is an egalitarian democracy, I will say from the Solicitor-General physically, geographically, upwards—who pointed out that what was now being questioned has always hitherto been done by non-Socialist, and generally by Tory, Chancellors of the Exchequer. I was extremely grateful to them for that, so I hope nobody will say this is a party line which we are taking or that we have any party prejudice in this matter. This is a line about which every private hon. Member—I will not say ought to have no doubts because it is a difficult question; I am not even sure that I shall vote myself if there is a Division—but every private member ought to insist that the case must be clear, and, not have the usual contentment to come down whichever way the Whip points.

I am very anxious not to slip into using Buzfuz language about this, or to blow the thing up as if it were more important than it is. But I am not sure that one can make it out to be of greater importance than it is. I would first like to ask the Solicitor-General and the Chancellor of the Exchequer to listen to this point. I had not known till just now that Mr. Law or Sir John Black received an offer from the United States. I do not fully understand what it is that they have been doing or what the Treasury, if this subsection passes, proposes to do to them. I admit all that. I wonder how many hon. Members do fully understand those things. I believe hardly any. I think there is an onus upon the Treasury Bench to make sure that everybody who endeavours to take part in this Finance Bill, not necessarily by speaking, but by understanding the critical questions, should understand exactly what it is that these people did, and exactly why it is objected to.

That really has not been done yet; and incidentally this stuff about the public conscience is enough to make any man with a conscience, or whoever tries to have a conscience, ashamed ever to take part in any public discussion again. When the right hon. and learned Gentleman made his Budget speech, the one passage in it which was cheered was that about these payments That was the one passage which was really cheered. I challenge any hon. Member opposite who has really reflected, and is sure he is speaking honestly, to deny this. And it was quite obvious from the quality and tone of those cheers what was being cheered. It was not the fact that the Treasury was going to get an extra 150,000 quid and that therefore the rest of us were to pay a farthing less each; what was being cheered was the fact that somebody was not going to have something which he thought he was going to have, that somebody was not going to have oysters who had thought he was—

Mr. Pannell rose—

Mr. Pickthorn

No, I am sorry; I am making a difficult speech without a prepared scenario, so I dare not give way. I think the Committee will agree that, as a rule, I am very generous in giving way, but not today, if I may be forgiven for once. That argument really will not do.

Mr. Hector Hughes (Aberdeen, North)

On a point of order. Is it in order, Sir Charles, for the hon. Gentleman opposite to ask a question and challenge an answer from these benches, and then refuse to give way?

The Deputy-Chairman

That is not a point of order.

Mr. Pickthorn

If that is it, go ahead.

Mr. Pannell

I wish to ask the hon. Gentleman this question—

Mr. Pickthorn

I was told the intention was to answer something, but if the hon. Gentleman merely wishes to ask a question, then no.

What is being attempted here is to get away from the basis of Law, with a capital L, on to a basis of morality. That is an immensely difficult thing to do in a society which quite rightly attempts to give equal rights to persons whatever their moral or political principles, any or none. In any such society that is an immensely difficult thing to do. This which might have been a possible thing to do 100 years ago, is much more difficult to do now, and that is another reason why we ought to think three or four times about it.

A quotation was used on Friday from a letter written by Mr. Hamson which I think might mislead. It is not that I cleverly spotted that it might be misleading, he pointed it out to me. If the impression was given by that passage from his letter that this would certainly be ruled unconstitutional in the supreme court of the United States or that this retrospective provision would certainly be made ineffective by the courts in France—because I think that impression might have been given by Mr. Hamson's letter—I think it fair to say that if anybody was affected by that impression, it is hardly maintainable. But how much we need a norm of law, even more than France or U.S.A., was clearly illustrated today by the hon. Member for Islington, East (Mr. E. Fletcher) how much more profoundly in this country we need a norm of law if we are to preserve any civilisation at all, than do other people, because in this country legislation can do anything, even retrospectively, and in matters of taxation by a single House. And parallel to that is the national habit. We all have the habit of mind, the English habit of mind contrasted with the Continental, of not being able to conceive that what is often done may be wrong in principle. The Member for Islington, East, said if principle does not come from precedent, where does it come from? He could not more neatly have illustrated the suicidal nature of the argument from precedent for retrospection, because it is obvious that every time one permits another precedent against an admitted general principle, one endangers the principle.

5.30 p.m.

I think incidentally that the hon. Member for Bedfordshire South (Mr. Moeran) need not have been as depressed as he was. If my hon. and learned Friend is successful and this subsection is deleted the effect will not be that there can never be retrospection again. Parliament cannot bind its successors. That is one of the difficulties we are in. We all should be, surely, profoundly penetrated with the necessity that the House of Commons should not assent to any retroactive taxation unless it is overwhelmingly true that it is absolutely necessary in the public interest, and that the persons against whom it is aimed do morally deserve something which is in fact a penalty. I say these are necessary conditions, as well as the necessary condition of warning.

These conditions have not been shown to have been fulfilled. For all I know to the contrary Lord and Black have behaved more wickedly than any other people in history, for all I know to the contrary the right hon. Gentleman's finances will be hopelessly "bust" unless he gets back this money from Lord and Black. Both propositions may be proved. Those propositions have not been demonstrated; the necessary fraction of them ought to be demonstrated to this House before this House accepts this subsection.

Lastly, we have heard a lot opposite about public interest and distributive justice. I wish to heaven we might have a little plain justice. It was not social justice, it was distributive justice this afternoon. I remind the Committee that the poet said only God can enjoy the vision of justice; approximations and no more are the best that men can hope for, and Law is the great approximation. It is intolerable to hear from any Ministers the assumption that they are infallible, that they infallibly perceive what is the public interest, social justice, distributive justice, or such phrases. It is specially intolerable from Ministers many of whom, and more of whose supporters, were not always sure whether it was in the public interest that their country should be victorious in war. Not even the ministers of the Almighty should be permitted such assumptions. Let us remember the prayer of the good Bishop of Sodor and Man in the time of Queen Anne who prayed as follows: Lord, so prepare our hearts that no affliction may ever so surprise us as to overbear us. Dispose us at all times to a readiness to suffer what Thy Providence shall order or permit. Grant that we may never murmur at Thy appointments nor be exasperated by the Ministers of Thy Providence. We should always have that prayer in our mind, and, by heaven, Ministers should. They should never cease to remember that if this House permits itself to be dubious about the necessity of Law, with a capital "L"—I do not mean laws on the Statute Book but natural law, the norm of law, the things human beings take for granted as the permanent rules, and that is certainly against retrospection except in the most extreme cases—if this House permits itself to be anything but respectful of Law with a capital "L" the effect is certainly not going to be Justice with a capital "J", and the risk is going to be that nothing is left between us and chaos but the discretion of the right hon. Gentleman upon the Treasury Bench, and if that begins by being exercised mildly and without scandal, then that is a great deal worse for us, in a very short long run, than if it were brutal and outrageous.

Miss Burton (Coventry, South)

I am happy to catch your eye, Sir Charles, because, as most of us in this Committee and outside are aware, this Clause has arisen in connection mainly with payments made to two men. One of those men, Sir John Black, lives in my constituency and has also his largest factory there. I have, therefore, had some chance of finding out public opinion on this matter.

The other point I should like to make in introduction is that those of us who listened to a broadcast on Saturday night, will recall that it was said that during the Debates on the Budget and on the Finance Bill the supporters of the Government Front Bench had to be on the defensive, whereas the Opposition would be on the attack. I do not feel in the least on the defensive about this Clause. Indeed, I wish to speak very strongly against the Amendment and in support of the Clause. In company with many others of this Committee, I sat through very nearly the whole five days of the Debate on the Budget. During those five days, here and in the Press outside, and during Thursday night's Debate and today, I believe that there have been four main groups or sections in the party opposite which object to this Clause.

The hon. and learned Member for Hove (Mr. Marlowe) brought in three of these objections this afternoon- I believe the first objection is that this interferes with freedom. The second, which the hon. and learned Member for Hove did not bring in, but which was just mentioned by the hon. Member for Carlton (Mr. Pickthorn), was the effect upon industry and the moral effect upon this country. The third is legal, and the fourth is political.

If I may go back to the first one—that it is an interference with freedom—I remember that on 9th March the Control of Engagement Order was revoked in this House. I remember, in the years before I became a Member of the House of Commons, the propaganda of the Opposition about this Order and its effect upon the freedom of the individual. I remember how they tried to deride the Minister when the Order was revoked. Older Members opposite should know better; the younger ones are perhaps not old enough to do so. The Control of Engagement Order did offer anybody who came within its scope an average of four jobs before they were directed. [An HON. MEMBER: "What has this to do with it?"] It has something to do with it. I merely wish to point out that, before that many people, perhaps even Members of this Committee, had not the chance of one job—never mind four.

On 9th March hon. Members opposite came here with their story of freedom for the individual in relation to this Order. I should now like to ask them their position in connection with these payments to Sir John Black and Mr. Lord. I would refer them to 14th December, 1949, when the Deputy-Chairman of the Austin Motor Company was speaking on this gift to Mr. Lord. I have his exact words here. He said: The award was not for services. We are buying the freedom of action of a young man. So I ask the Opposition if they approve of a Control of Engagement Order which restricts a man to one job for the rest of his life. Apparently, if a payment of £100,000 is involved that is all right. They are not against something like that, but if an Order offers somebody a choice of three or four jobs—

Mr. Marlowe

Does not the hon. Lady appreciate the difference that, in these two cases, Sir John Black and Mr. Lord have entered into this engagement perfectly voluntarily, to curtail their own freedom? They acted freely. Surely, the Control of Engagement Order was imposed on people whether they liked it or not.

Miss Burton

I shall come to that in a minute. [Laughter.] It does not matter; I am going on. I am sorry; I am not a lawyer, but on this matter I do not believe that it is right to buy the freedom of action of anybody, and I am not going to deviate from that.

I should like to come to the question of the deterrent to enterprise, or the moral effect, or the effect on the country. I have said that the Standard Factory is in my constituency. It is a first-class factory with first-class conditions, and it has turned out first-class work. I think that Sir John Black would be one of the first to admit that the reason that the factory has turned out such excellent work is because the workers, the shop stewards, the managers and he himself have done a first-class job. It has been a co-operative effort, and I believe that hon. Members opposite are at times inclined to forget that the first-class production efforts of this country over the past few years have been due to workers as well as to management, and not only to the latter. The effect of giving that money to the man at the top of the firm, however efficient he was—and I am speaking of workers who live in my constituency, and whom I know—had a very bad effect on those workers.

I believe that hon. Members opposite are convicted out of the mouths of their own Front Bench on this matter. On 19th April the right hon. Member for Saffron Waldon (Mr. R. A. Butler), speaking of these two gifts, said: the Chancellor has a certain amount of right on his side in dealing with this question,"—[OFFICIAL REPORT, 19th April, 1950; Vol. 474, c. 146.] On 21st April the right hon. Member for Leeds, North (Mr. Peake), whose absence we all regret, said: There is one detail of the Budget proposals I should mention, the question of charging Surtax upon those large payments made to business executives under what are known as restrictive covenants. I heartily disapproved of those payments, and, consequently, I approve of the action of the Government in this matter."—[OFFICIAL REPORT, 21st April, 1950; Vol. 474, c. 491.] On 24th April the right hon. Gentleman the Leader of the Opposition said: It is not a case of sympathising with these gentlemen, or with the action of the firms concerned. Indeed, I share the general feeling that such a transaction was unworthy of a time when the trade unions were loyally endeavouring in the national interest to prevent wage increases, justified by the ever-increasing cost of living."—[OFFICIAL REPORT, 24th April, 1950; Vol. 474, c. 619]

Mr. H. Strauss

I would point out to the hon. Lady, who, I know, wishes to be fair, that all the speeches from which she has quoted were made at a time when nobody had seen the Clause which we are now discussing, and, although the speeches may have been relevant to the Budget proposals, they are in no way a justification of many of the things which are being criticised in this Clause.

Miss Burton

I certainly wish to be fair, but I believe that the quotations are a condemnation of the principle which I am discussing.

We now come to the question of the legal angle. During this week-end, when I realised that I would try to catch your eye today, Sir Charles, I read through the speeches made in Thursday's Debate. Although the House is always very lenient, I wondered whether I would dare to speak today. I know, however, that if one realises one's own limitations—and we cannot all be learned Members—it is worth while having a try. As I read those speeches made on Thursday, and listened to today's Debate, including the speech of the hon. and learned Member for Hove, who does not believe in retrospective legislation at all, I formed the opinion that we have some legal Members who believe that if we have retrospective legislation, it should be only in certain exceptional circumstances and if warning has previously been give.

5.45 p.m.

I will not weary the Committee by repeating the warning by the Chancellor of the Exchequer on 6th April, 1948, which was quoted on Thursday night and mentioned again this afternoon. Everybody knows it now, but after that warning I cannot believe that either of the two men or the firms concerned could possibly say they did not know what might happen. I have always been told that in this country ignorance is not accepted as an excuse in a court of law, and I believe that when the Chancellor spoke as he did—if Members read Thursday night's Debate they will see the exact words used—anybody might have suspected what might happen.

I want to come to the political aspect, as raised by the hon. and learned Member for Hove and the hon. Gentleman the Member for Oxford (Mr. Hogg). A lot of political questions have been bandied about. It seems to me very strange that today we have this outburst of indignation from the party opposite over this retrospective legislation, but that there was no such outburst when, on 20th April, 1937, Mr. Neville Chamberlain used these words: If people persist in devising these ingenious contrivances for defeating the intentions of the Legislature, they must not expect that they would escape retrospective legislation."—[OFFICIAL REPORT, 20th April, 1937; Vol. 322, c. 1610.] On 25th April, 1939, Sir John Simon, when he was Chancellor of the Exchequer, said: These schemes of tax avoidance are so flagrant and are so deliberately devised to get round the legislation of 1936 and 1937 that I shall have no hesitation in recommending that retrospective effect shall be given to them, as far as necessary, in accordance with the very clear warning I gave last year."—[OFFICIAL REPORT, 25th April, 1939; Vol. 346, c. 993.] These examples have not been uncovered by my diligence, but I am indebted to my hon. Friend the Member for Islington, East (Mr. E. Fletcher) who, in "The Times" on 22nd May, published an excellent letter. What I want to know without any legal quibbles or anything of that nature because I was not in the House at either of those times, is whether there was any outburst of indignation from the present Opposition. I do not remember any, and I think we can take it that it is correct to say that there were no outbursts.

Sir H. Williams

I remember one hon. Member on the Government side being indignant in 1937.

Miss Burton

And the hon. Member is always indignant.

Sir H. Williams

But always right.

Miss Burton

I will not argue that one.

Before today's Debate I went into the Library and looked through "The Times" of that period. "The Times" is not a Labour paper, and I do not think hon. Gentlemen would ever say it was. "The Times" leader of 19th April, recognises that retrospective legislation for this particular method of tax avoidance was inevitable. The actual words were: … which, though legal, was clearly indefensible under present conditions of taxation.

Mr. Marlowe

Is the hon. Lady quoting "The Times" leader of last month?

Miss Burton

Of 19th April, 1950.

Mr. Marlowe

But that leader utterly condemned the whole idea of retrospective legislation.

Miss Burton

Though the hon. and learned Gentleman is "learned" I can read too, and the phrase that I read out comes in this leader. It is a condemnation of these two particular covenants.

The hon. Member for Oxford said he could not see any difference between Lord, Black and Sir Leslie Plummer. I can see a great difference between Lord, Black and Sir Leslie Plummer. [Laughter.] I hope hon. Gentlemen will be as cheerful when I am finished. The sum in question in Sir L. Plummer's case was £8,000. We do not know—hon. Gentlemen opposite claim that they do know—whether that will be subject to taxation or not, but the sum is £8,000. The period of contract was seven years at a salary of £5,000 a year. When the engagement ends, on 30th June, a little more than two years and four months will have elapsed, and the compensation has been estimated at £1,714 per annum. I see all the difference in the world between compensation for the determination of a contract at £1,700 a year and an authority to make a tax free gift of £100,000. The Opposition have not got a leg to stand on this afternoon, however hard they look for it. Whether we look at the matter in the interests of the country, or the effect on the country, or whether we look at it politically or legally, I hope that the Committee will reject this Amendment.

Mr. Manningham-Buller (Northants, South)

I must congratulate the hon. Member for Coventry, South (Miss Burton) on the wide field she covered on this rather narrow Amendment. She ranged from the Control of Engagements Order into many other spheres until she got on to rather delicate ground when she talked about compensation for loss of office payable to Sir Leslie Plummer. If she had read the warning given by the Chancellor of the Exchequer on 6th April, 1948, she would have seen that two things were mentioned—one was restrictive covenants and the other was compensation for loss of office. The right hon. and learned Gentleman issued a warning, which he repeated quite recently, that he would introduce retrospective legislation with regard to compensation for loss of office.

This is a very narrow Amendment. It is only as to the question whether this Clause should be retrospective or not. We are not discussing the contents of the Clause because it is going to be varied considerably. It is a very narrow issue, but an important one nonetheless. Nearly everything that can be said on both sides of the Committee has been said, but I should like to state quite clearly how I regard this matter.

First, I put this forward, that it is the view of almost everyone that retrospective legislation should, wherever possible, be avoided. I personally do not believe that we could ever tolerate retrospective legislation with regard to our criminal law, and in that sense there is a very clear distinction between retrospective legislation of a penal and criminal character, and retrospective legislation with regard to taxation. With regard to taxation, I feel the position is that it ought in every possible case to be avoided if it can be avoided, and I take the view that the Chancellor of the Exchequer's statements ex cathedra, as a warning, are no substitute for statute law. If at the time the warning is given the law could be changed then it ought to be so changed.

When my hon. and learned Friend the Member for Hove (Mr. Marlowe), for whose views I have great respect, says that in no case whatsoever can retrospective legislation be justified, I must confess I part company with him. I recognise on occasions that it is possible to justify a departure from the principle of no retrospective legislation, and it is for the Chancellor to justify it. The onus is on him pretty heavily. Reference has been made to the question of Whelan against Henning. That was a case decided in 1926, and following it this House put the law back to what hon. Members thought it was. Similarly in this Finance Bill an attempt is being made to reverse the decision in the Fitzwilliam case, in order to put the law into the state which nearly everyone thought it to be in. I should be surprised, indeed, if my hon. and learned Friend did not recognise that that is a legitimate exception to the principle he declared.

Retrospective legislation may be justified where the Chancellor of the Exchequer puts forward a lot of legislative proposals designed with one end in view, and accompanies those proposals with a statement to this effect: "I am erecting these obstacles against tax avoidance, but if someone finds an ingenious method of getting round them I will come back and stop it with retrospective legislation." He may be entitled to do that, but what he is not entitled to do is to give a warning about something not related to the Finance Bill of that particular time. The warning of 6th April, 1948, was tacked on to a chapter in a long speech dealing with expense allowances. It was, therefore, at the end of his legislative proposals directed to alterations of the tax law with regard to other forms of expenses, and in my mind it is closely linked with the proposals made in 1948. In my belief this warning will carry him over on this occasion, but I do not accede to the proposition that warnings could last indefinitely.

For those reasons and because the point is a narrow one, I do not agree with my hon. and learned Friend the Member for Hove in the view he has expressed that there should be no retrospective operation, and that this Clause should in no event be retrospective as far back as the Chancellor's warning.

Several Hon. Members rose—

The Deputy-Chairman

I had hoped that the Committee would now be prepared to come to a decision on this matter. We have had an hour and a half's discussion on it.

Mr. Grimond (Orkney and Shetland)

I shall be very brief, but no one has expressed the view of the party to which I belong and it is reasonable in those circumstances that I should say something. I make no moral defence of the agreements under discussion, but it is very proper that it should have been pointed out that this Clause will have important effects on these agreements and will also affect what has been done by the shareholders. The gentlemen who are primarily in question have given up some of their freedom for a consideration which will be greatly altered. The shareholders on their part have taken action which probably they would not have taken had they known that the law would have been altered in the way it is proposed.

I want to support the Amendment of the hon. and learned Gentleman the Member for Hove (Mr. Marlowe) largely on the grounds which he has put forward. The legislation in our view is objectionable, because it is retrospective and also because it is aimed at individuals. It does not make what was done illegal, but, what it does, is entirely to change the relationship between the individual and the State. It changes it in this very important matter of taxation, a matter of great importance today because today the modern state, by its taxation policy, can exercise the uttermost control over all individuals.

Personally I have found it difficult to believe that retrospective legislation aimed at worsening the position of individuals can ever be justified, but if it can be justified, then not only must clear warning have been given, but it must be clearly shown—and the onus is on the Government to show it—that by bringing in this legislation there will be substantial benefit to the country or else the country will avoid some substantial harm.

6.0 p.m.

I do not think that the reasons the Chancellor of the Exchequer has given go anywhere near discharging that onus. So far as I know there have been only four arguments put forward either in or out of this Chamber. The first is that a warning has been given. Yet it has been said again and again—and I entirely agree—that the Government of this country is not carried on yet by warnings, lectures, admonitions or threats. Moreover, it is more than ever necessary that the position of Parliament should be made clear. Just because the State today is so powerful, and interferes so widely—as it must interfere—in our lives, for that very reason it is all the more necessary now that the position of Parliament should be established.

Secondly there is the argument of precedents. I entirely agree with those who have stated that no number of precedents will make something which is bad into something which is good. I would go further and say that in respect of Income Tax, in connection with which so many of the precedents have been drawn, the inevitable effects of retrospection, or of so-called need for retrospective legislation, are one of the drawbacks of the Income Tax system. The question of acts of indemnity is a precedent on quite a different footing, because in those acts we do not worsen the position of the individual vis-à-vis the State, but improve it. The third argument I have read is that while there should be no retrospective criminal legislation it is permissible to have civil retrospective legislation. It seems to me equally important not to create uncertainty in the civil law as it is not to create it in the criminal law, and to my mind that argument must fail.

Lastly we are left with the psychological argument that today, when a wage freeze is being imposed and people are being asked to restrain their spending and not to seek increases in income, it creates a very bad effect if we have people of some wealth and position entering into this sort of agreement. I quite agree that irritation may be caused by reason of these agreements, but I do not think it is a good thing that we should legislate from irritation or that we should encourage feelings of irritation that may be stirred up by foolish acts of individuals.

To underline the consequences of this we have already the case of Sir Leslie Plummer. There was a man who, I believe—I know nothing about him—went out to the groundnut scheme from a very good job in this country. Personally, I have always attacked the groundnut scheme, but the shortcomings of that scheme make his action, to my mind, all the braver; it was all the braver of him to have anything to do with it whatsoever. In due course his contract was terminated. That is a thing which frequently happens. He is to be given a payment. That is quite normal.

It seems to me that the question whether the payment is liable or not to Income Tax should be left between him and the Income Tax Commissioners. I very much deplore that his affairs and those of Sir John Black or any other individual should be perpetually debated here with some party feeling, but that is the situation we inevitably get into if we have legislation of this sort.

It seems to me a serious precedent is being created here, when we have unanimity between both Front Benches in this Chamber on this, that after a warning has been given we may have retrospective legislation. Really, people cannot know where they stand. It may be that people who now sympathise with the Labour Party may one day come to harm as a consequence of this precedent. None of the reasons advanced in defence of the Chancellor's policy comes anywhere near discharging the onus of proving the necessity of this legislation—the necessity which only would justify it. We cannot say that this money is needed. We cannot say that the country is going to gain by this legislation. The country will gain very little from it. By all means make these agreements illegal for the future, but I do not think the Government have come anywhere near discharging the onus which lies upon them to show that it is necessary to make legislation of this sort retrospective in this case.

Mr. E. Fletcher

I shall detain the Committee for only a few minutes, because we have had a long Debate on this subject; but in view of the fact that references have been made to me, perhaps I may be permitted to make one or two observations, which, I think, have not yet been made in the Debate. Having listened to all the speeches made in this Committee, it seems to me impossible for any hon. Member to support the Amendment proposed by the hon. and learned Member for Hove (Mr. Marlowe) unless he is prepared to say that in no circumstances is retrospective legislation justified, and that case, I think, has been given away over and over again by practically every hon. Member who has spoken, because one after another hon. Members, all careful in their choice of language, have all said that in exceptional cases retrospective legislation is justified.

I do not think it is irrelevent to consider what the right hon. and learned Member for West Derby (Sir D. Maxwell Fyfe) said. He said—and I agree with him—that there is a great distinction between retrospective legislation in the criminal sphere and retrospective legislation in the civil sphere. I also agree with what has been said by some hon. Members, that it is a well recognised principle of our law that nobody should be condemned or punished for doing something which was lawful at the time when he did it. We all agree that it is quite repugnant and obnoxious to have retrospective criminal legislation, of the sort that the House of Commons used to pass in the days when acts of attainder were regularly passed.

It seems to me however that we got very near to that at the War Crimes Trials at Nuremberg. Those trials did not involve the passing of any Act by this Parliament. They took place as the result of an act of privilege, an act of State approved by the nation. However, do not let us forget that it did involve, at any rate, a very considerable element of retrospective retribution.

Mr. Hogg

I think it is rather unfortunate that the hon. Gentleman has raised that case. Surely, the point there was that no new rights or obligations were enacted, but only a new tribunal, for the trying of something which had been universally admitted to be a crime against the common law of nations.

Mr. Fletcher

Opinions differ, in this country and elsewhere, as to whether the War Crimes Trials at Nuremberg were justifiable or not, but I think a great many people, including some who supported them, felt that there was an element of retrospective legislation about them. I can only make that point, and say that even in the criminal sphere on the international plane in some circumstances world opinion feels justified in taking unprecedented steps of the kind taken at Nuremberg.

In the civil sphere, with which we are concerned today, Member after Member has accepted the view that, where the public interest justifies it, there are permissible exceptions to the general rule against retrospective legislation. I have never been able to understand the argument which is put forward by some hon. Members opposite that, though there are the numerous precedents, which have been quoted, set by previous and Conservative Chancellors of the Exchequer—Mr. Neville Chamberlain, Lord Simon before he was a peer, and others—they do not justify retrospective legislation for the purpose of correcting tax evasion after due warning has been given. Why not? There is no absolute principle enshrined in any of our jurisprudence that there should never be any retrospective legislation. The hon. Member for Hertford (Mr. Walker-Smith) recognised that. What is a universally recognised principle is the absolute supremacy of Parliament—

Mr. Walker-Smith

And the rule of law.

Mr. Fletcher

And the rule of law. But that is not a limitation on the omnicom-petence of Parliament. What secures our liberties is the absolute sovereignty of Parliament, so that the people, through their elected representatives in Parliament, can in all matters express the public view, and enact any Measure necessary to promote social justice—and, where necessary, by retrospective methods, as in the case of the Indemnity Acts, and as in the case in the last Parliament of the Landlord and Tenant (Rent Restrictions) Act, which was generally accepted as desirable to correct anomalies that had arisen in the law.

What I think is also important to add is this. The reason which makes retrospective legislation generally obnoxious and therefore always requiring specific justification, is that people are entitled to know what the law is and so to arrange their affairs that they are not afterwards taken by surprise in finding the law changed to their disadvantage. That is the principle which makes retrospective legislation generally undesirable and requiring justification. Where a warning is given, as it was given in this and in previous cases, the fact that the warning had been given deprives any citizen of saying that he has been taken by surprise. Because a clear warning was given, Sir John Black and others affected by this Clause cannot say that there was no risk of the law being changed; they knew, because of the warning, of the probability that the law would be changed, and changed retrospectively. Therefore, they are deprived of any complaint.

Mr. Marlowe

I think the hon. Gentleman, has done less than justice to my case when he says that nobody who accepts any degree of retrospective legislation could support my Amendment. That, of course, is not the case. It is perfectly true that I take the view that there should be no retrospective legislation, but it is perfectly open to those who think that retrospective legislation is sometimes justifiable to say that they do not think it is justifiable in this particular case, and therefore to support this Amendment. It is on that ground that I think the hon. Gentleman has not done justice to my argument. I have agreed that there are two kinds of retrospective legislation: that which is an indemnity is always justifiable; that which carries a penalty in my opinion is not.

Mr. Fletcher

I am sorry if I have not done justice to the hon. Gentleman's argument. I will conclude with this observation. I am very glad that the Solicitor-General has accepted the Amendment of the hon. and learned Member for Norwich, South, and has accepted the principle that the Clause should be made to fit in with the terms of the warning given. By accepting that principle the Government have shown that they are fully conscious of the necessity of scrupulously preserving as part of our constitution the strict limitation within which retrospective legislation is justified.

Mr. Oliver Lyttelton (Aldershot)

I do not know whether it would be for the convenience of the Committee to end this discussion now and get on, but I should just like to say this. I feel great difficulty myself in making any useful intervention until I have seen the new Clause which the Government propose. You will correct me if I am wrong, Sir Charles, but I do not think that many of the things which are now being said would be out of order on the Report stage of that new Clause. We have a

lot to do and I am sure hon. Members do not want to sit up all night, and if there is to be a new Clause I should be content to wait to see what it looks like.

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

The Committee divided: Ayes, 296; Noes, 77.

Division No 30.]	AYES	[6.15 p.m
Acland, Sir Richard	Deer, G.	Hynd, J. B (Attercliffe)
Adams, Richard	Delargy, H J	Irvine, A. J. (Edge Hill)
Albu, A. H.	Diamond, J.	Irving, W. J (Wood Green)
Allen, A. C. (Bosworth)	Dodds, N. N.	Janner, B.
Anderson, F. (Whitehaven)	Donnelly, D.	Jay, D. P. T.
Attl[...]e, Rt. Hon. C. R	Donovan, T. N.	Jeger, G. (Goole)
Awbery, S. S	Driberg, T. E. N.	Jeger, Dr. S. W. (St. Pancras, S.)
Ayles, W. H.	Dugdale, Rt. Hon. J. (W. Bromwich)	Jenkins, R. H.
Bacon,. Miss A	Dye, S.	Johnson, J. (Rugby)
Baird, J.	Ede, Rt. Hon. J. C.	Johnston, Douglas (Paisley)
Balfour, A.	Edelman, M.	Jones, D. T. (Hartlepool)
Barnes, Rt. Hon. A. J	Edwards, John (Brighouse)	Jones, Frederick Elwyn (West Ham, S)
Bartley, P.	Edwards, Rt. Hon. N. (Caerphilly)	Jones, Jack (Rotherham)
Bellengor, Rt. Hon. F. J.	Edwards, W. J. (Stepney)	Keenan, W.
Benson, G.	Evans, Albert (Islington, S. W.)	Kenyon, C.
Beswick, F.	Evans, E. (Lowestoft)	Key, Rt. Hon. C. W
Bevan, Rt. Hon. A. (Ebbw Vale)	Evans, S. N. (Wednesbury)	King, H. M.
Bing, G. H. C.	Ewart, R.	Kinghorn, Sqn.-Ldr. E
Blackburn, A. R.	Fernynough, E.	Kinley, J.
Blenkinsop, A.	Field, Capt. W. J.	Kirkwood, Rt. Hon. D
Blyton, W. R.	Finch, H. J.	Lee, F. (Newton)
Boardman, H.	Fletcher, E. G. M. (Islington, E.)	Lee, Miss J, (Cannock)
Booth, A.	Follick, M.	Lever, L. M. (Ardwick)
Bottomley, A. G.	Foot, M. M.	Lever, N. H. (Cheetham)
Bowden, H. W.	Forman, J. C.	Lewis, A. W. J. (West Ham, N.)
Bowles, F. G. (Nuneaton)	Freeman, J. (Watford)	Lewis. J. (Bolton, W.)
Braddock, Mrs. E. M.	Freeman, Peter (Newport)	Lindgren, G. S.
Brockway, A. Fenner	Gaitskell, Rt. Hon. H. T. N	Lipton, Lt.-Col. M
Brook, D. (Halifax)	Ganley, Mrs. C. S	Logan, D. G
Brooks, T. J. (Normanton)	Gibson, C. W.	Longden, F. (Small Heath)
Broughton, Dr. A. D. 0	Gilzean, A	MacColl, J. E.
Brown, George (Helper)	Glanville, J. E. (Consett)	McGhee, H. G.
Brown, T. J. (lnce)	Gooch, E. G.	Mclnnes, J.
Burke, W. A.	Gordon-Walker, Rt. Hon. P. C.	Mack, J. D.
Burton, Miss E.	Greenwood, A W. J. (Rossendale)	McKay, J. (Wallsend)
Butler, H. W. (Hackney, S.)	Greenwood, Rt Hon. A. (Wakefield)	Mackay, R. W. G. (Reading, N.)
Callaghan, James	Grenfell, D. R.	McLeavy, F.
Carmichael, James	Grey, C. F.	MacMillan, M. K. (Western Isles)
Carson, Hon. E.	Griffiths, D. (Rother Valley)	McNeil, Rt. Hon. H.
Castle, Mrs. B. A.	Griffiths, Rt. Hon. J. (Llanelly)	MacPherson, Malcolm (Stirling)
Champion, A. J.	Griffiths, W. D. (Exchange)	Mainwaring, W. H,
Chetwynd, G. R.	Gunter, R. J.	Mallalieu, E. L. (Brigg)
Clunie, J.	Hale, J. (Rochdale)	Mallalieu, J. P. W. (Huddersfield, E.)
Cocks, F. S	Hale, Leslie (Oldham, W.)	Mann, Mrs. J.
Coldrick, W.	Hall, J. (Gateshead, W.)	Manuel, A. C.
Collick, P.	Hall, Rt. Hon. Glenvil (Colne Valley)	Marquand, Rt. Hon. H. A.
Collindridge, F.	Hamilton, W. W	Mathers, Rt. Hon. George
Cook, T. F.	Hardman, D. R	Mellish, R. J.
Cooper, G. (Middlesbrough, W.)	Hardy, E A.	Messer, F.
Cooper, J. (Deptford)	Hargreaves, A	Middleton, Mrs. L
Corbet, Mrs. F. K. (Peckham)	Harrison, J.	Mikardo, lan
Cove, W. G.	Hastings, Dr. Somerville	Mitchison, G. R
Craddock, George (Bradford, S.)	Hayman, F. H.	Moeran, E. W
Crawley, A.	Henderson, Rt. Hon. A. (Rowley R.)	Monslow, W.
Cripps, Rt. Hon. Sir S.	Herbison, Miss M.	Moody, A. S.
Crosland, C. A. R.	Hewitson, Capt, M	Morgan, Dr. H. B
Crossman, R. H. S.	Hobson, C. R	Morley, R.
Cullen, Mrs. A.	Holman, P.	Morris, P. (Swansea, W.)
Daggar, G.	Holmes, H E. (Hemsworth)	Morrison, Rt. Hon. H. (Lewisham, S.)
Daines, P	Houghton, Douglas	Mort, D. L.
Darling, G. (Hillsboro')	Hoy, J.	Moyle, A.
Davies, A. Edward (Stoke, N.)	Hubbard, T.	Mulley, F. W.
Davies, Ernest (Enfield, E.)	Hudson, J. H. (Ealing, N.)	Murray, J. D
Davies, Harold (Leek)	Hughes, Emrys (S. Ayr)	Nally, W.
Davies, R. J. (Westhoughton)	Hughes, Hector (Aberdeen, N.)	Neal, H.
Davies, S. 0. (Merthyr)	Hughes, R. M. (Islington, N.)	Noel-Baker, Rt. Hon. P. J.
de Freitas, Geoffrey	Hynd, H. (Accrington)	Oldfield, W. H.
Oliver, G. H	Shinwell, Rt. Hon. E	Viant, S. P,
Orbach, M.	Shurmer, P. L. E.	Wallace, H. W
Padley, W. E.	Silverman, J. (Erdington)	Watkins, T. E.
Paling, Rt. Hn. Wilfred (Dearne V'lly)	Silverman, S. S. (Nelson)	Webb, Rt. Hon. M. (Bradford, C.)
Paling, Will T. (Dewsbury)	Simmons, C. J.	Weitzman, D.
Pannell, T. C.	Slater, J.	Wells, P. L. (Faversham)
Pargiter, G. A	Smith, Ellis (Stoke, S.)	Wells, W. T (Walsall)
Parker, J.	Snow, J. W.	West, D. G.
Paton, J.	Sorersen, R. w.	Wheatley, Rt. Hon. John (Edinb'gh, E.)
Pearson, A.	Soskice, Rt. Hon Sir F	White, Mrs. E. (E. Flint)
Peart, T. F.	Sparks, J. A.	White, H. (Derbyshire, N. E.)
Poole, Cecil	Steele, T.	Whiteley, Rt. Hon. W
Popplewell, E	Stewart, Michael (Fulham, E.)	Wigg, George
Porter, G.	Stokes, Rt. Hon. R. R.	Wilkes, L.
Price, M. Philips (Gloucestershire, W.)	Strachey, Rt. Hon. J.	Willey, F. T. (Sunderland)
Proctor, W. T.	Strauss, Rt. Hon G. R. (Vauxhan)	Willey. O G (Cleveland)
Pryde, D. J.	Stross, Dr. B.	Williams, D. J. (Neath)
Pursey, Comdr. H.	Summerskill, Rt. Hon. Edith
Rankin J	Sylvester, G. O.	Williams, Ronald (Wigan)
Rees, Mrs. D.	Taylor, H. B. (Mansfield)	Williams, Rt. Hon. T. (Don Valley)
Reeves, J.	Taylor, R. J. (Morpeth)	Williams, W. T. (Hammersmith, S.)
Reid, T. (Swindon)	Thomas, D. E. (Aberdare)	Wilson, Rt. Hon. J. H. (Huyton)
Reid, W. (Camlachie)	Thomas, l. 0. (Wrekin)	Winterbottom, I. (Nottingham, C.)
Richards, R.	Thomas, I. R. (Rhondda, W.)	Winterbottom, R. E. (Brightside)
Robens, A.	Thomas, T. George (Cardiff)	Wise, Major F. J.
Roberts, Goronwy (Caernarvonshire)	Thorneycroft, Harry (Clayton)	Woodburn, Rt. Hon. A.
Robertson, J. J. (Berwick)	Thurtle, Ernest	Woods, Rev. G. S.
Robinson, Kenneth (St. Pancras, N.)	Timmons, J.	Wyatt, W. L.
Rogers, G. H. R. (Kensington, N.)	Tomlinson, Rt. Hon. G	Yates, V. F.
Ross, William (Kilmarnock)	Tomney, F.	Younger, Hon. Kenneth
Royle, C.	Turner-Samuels, M
Shackleton, E. A. A.	Usborne, Henry	TELLERS FOR THE AYES:
Shawcross, Rt. Hon. Sir H	Vernon, Maj. W F	Mr. Hannan and Mr. Wilkins
NOES
Amory, D Heathcoat (Tiverton)	Hill, Dr. C. (Luton)	Orr, Capt. L. P. S.
Baldwin, A. E	Hirst. Geoffrey	Orr-Ewing, Charles Ian (Hendon, N.)
Bell, R. M.	Hornsby-Smith, Miss P	Perkins, W R. D
Bennett, Sir P. (Edgbaston)	Hyde, H. M.	Peto, Brig. C. H. M
Bossom, A. C.	Jeffreys, General Sir G.	Pickthorn, K.
Bowen, R.	Johnson, H. S. (Kemptown)	Powell, J. Enoch
Bullus, Wing-Commander E. E	Lambert, Hon. G	Raikes, H. V.
Cranborne, Viscount	Legge-Bourke, Maj. E. A. H.	Rayner, Brig. R.
Cundiff, F. W.	Longden, G. J. M. (Herts. S. W.)	Roberts, Emrys (Merioneth)
Cuthbert, W. N.	Lucas, Major Sir J. (Portsmouth, S.)	Savory, Prof. D L.
Darling, Sir W. Y. (Edinburgh, S.)	Macdonald, A. J. F. (Roxburgh)	Smithers, Peter (Winchester)
Davies, Rt. Hn. Clement (M'tgomery)	Maclay, Hon. J. S.	Smithers, Sir W (Orpington)
Deedes, W. F.	MacLeod, I. (Enfield, W.)	Stevens, G. P.
Donner, P. W.	MacLeod, J. (Ross and Cromarty)	Taylor, C. S. (Eastbourne)
Fisher, Nigel	Macpherson, N. (Dumfries)	Wade, D. W.
Fraser, Hon. H. C. P. (Stone)	Marlowe, A. A. H.	Wakefield, E. B (Derbyshire, W.)
Gage, C. H.	Marshall, D. (Bodmin)	Walker-Smith, D. C
Garner-Evans, E. H. (Denbigh)	Marshall, S. H. (Sutton)	Watt, Sir G. S Harvie
Gates, Maj. E. E.	Maude, A. E. U. (Ealing, S.)	Webbe, Sir H. (London)
Glyn, Sir R	Mellor, Sir J.	Williams, C. (Torquay)
Grimond, J.	Moore, Lt.-Col. Sir T.	Williams, Sir H. G. (Croydon, E.)
Grimston, Hon. J. (St. Albans)	Morris, R- Hopkin (Carmarthen)	Wood, Hon. R.
Harden, J. R. E.	Nabarro, G.	York, C.
Harris, F. W. (Croydon, N.)	Nicholls, H.
Harvey, I. (Harrow, E.)	Odey, G. W.	TELLERS FOR THE NOES:
Higgs, J. M. C.	O'Neill, Rt. Hon. Sir H.	Mr. Keeling and
Hill, Mrs. E. (Wythenshawe)	Ormsby-Gore, Hon. W. D	Mr. Michael Astor

Question put, and agreed to

Clause ordered to stand part of the Bill.