§ 45. Mr. Eric Fletcherasked the Prime Minister to what extent the terms of reference of the Royal Commission on Taxation of Profits and Income were changed on the initiative of Lord Waverley; and whether, in view of Lord Waverley's resignation from the Commission, he will now restore the original terms of reference.
§ 46 and 47. Mr. Douglas Jayasked the Prime Minister (1) how far it was at the request of Lord Waverley that the terms of reference of the Royal Commission on Taxation of Profits and Income were altered;
(2) whether he will now restore the original terms of reference of the Royal Commission on Taxation of Profits and Income.
§ The Prime Minister (Mr. Winston Churchill)I see no occasion to make any further change in the terms of reference. The amendment was made in agreement with Lord Waverley, but the same point had been raised by the former Chairman, Lord Cohen, in a letter to the right hon. Gentleman the Member for Leeds, South (Mr. Gaitskell), then Chancellor of the Exchequer, on 20th April. He did not 649 dissent from the interpretation placed upon the terms of reference by Lord Cohen. This has now been made explicit.
§ Mr. FletcherIs not the change in the terms of reference a sinister and unnecessary attempt to invite the Commission to make recommendations in accordance with Lord Waverley's well-known political views on the amount of revenue raised from taxation; and ought not the Prime Minister now to restore the original terms of reference?
§ The Prime MinisterIt is hardly possible to misrepresent the facts more thoroughly and more patently. The former Chancellor of the Exchequer was addressed in writing by the late Chairman, Lord Justice Cohen, who said that certain things required amplifying and clarifying, and he wrote back expressing his agreement; but no special action was taken then. On a new Chairman taking over the amendments were introduced in accordance with what had been agreed beforehand.
§ Mr. Hugh GaitskellAs the Prime Minister has referred to correspondence between Lord Cohen and myself, would he be good enough to publish that correspondence? I do not myself recall that the proposals in Lord Cohen's letter were by any means identical with the change in the terms of reference made, apparently, at the instance of Lord Waverley.
§ The Prime MinisterI see no objection to the correspondence being published, but it will be necessary to ask the other parties concerned. I have it here. Perhaps the right hon. Gentleman may care to refresh his mind with it before he requires publication. I shall be very glad to have it handed to him after Question time is over.
§ Mr. GaitskellI think that it would be for the convenience of everybody if the correspondence were published, and I hope that the right hon. Gentleman, with the consent of Lord Cohen, will do so.
§ Mr. JayAs the Prime Minister now admits that it was in discussion with Lord Waverley that this particular change in the terms of reference was made, surely it would be more natural now to restore the original terms of reference. Is there 650 any precedent for the Government tampering radically with the terms of reference of a Royal Commission in the middle of its work?
§ The Prime MinisterThis is all an elaborate step to fabricate another mare's nest.
§ Following is the correspondence:
§ ROYAL COMMISSION ON TAXATION OF PROFITS AND INCOME
§ Royal Courts of Justice,
§ London, W.C.2.
§ 20th April, 1951.
§ MY DEAR GAITSKELL,
§ The economic conditions in the country have altered a lot since the Terms of Reference to the Commission were originally approved by your predecessor.
§ I have recently been discussing them with Millard Tucker, one of my colleagues (who will act as Vice-Chairman of the Commission) and we both think that the usefulness of the Commission's work may be seriously diminished if the Commission had to place too literal a construction on that part of the terms of reference which requires that our recommendations should be "consistent with maintaining the same total yield of the existing duties in relation to the national income."
§ On a literal construction, the Commission could make no recommendation containing any concession to the taxpayer generally or to any particular kind of taxpayer, unless (a) it could devise some other tax on profits or income or suggest the imposition of some sort of counter-balancing change, or recommend some increase in rate of an existing tax on profits or income which the Commission could assume would produce the revenue estimated to be lost by the concession or (b) it were to come to the conclusion that the concession would provide such a stimulus to the production of profits or income that the same revenue as before would accrue despite the concession.
§ "(b)"must be based largely on speculation and I am not certain whether it was intended that we should have regard to psychological factors in applying this qualification of our terms of reference.
§ As to "(a)," bearing in mind the increases indicated in your Budget speech, it is difficult to think of any new tax on profits or income which might meet the case (except possibly a tax on capital profits).
§ As to whether we are expected to make up possible deficiencies simply by a bare recommendation of an increase in the rate of tax, is to me also uncertain.
§ Several problems where the qualification of our terms of reference will have to be kept in mind have already been specifically referred to us by the Tucker Committee itself, and in these circumstances it seems to me that we might usefully place a broad construction on our terms of reference and treat ourselves as being at liberty, not only to recommend concessions to which we thought priority should 651 be given and for which we could at once provide compensation, but also to make recommendations as to other concessions which we thought advisable or equitable, even though we ourselves were unable to suggest any means by which any resulting loss of revenue might be made good.
§ In the latter case, we could, of course, if that is necessary, make it clear that we appreciated that the grant of such other concessions might be dependent on an improvement in the economic position of the country or on the Chancellor being able to obtain compensation for any consequent loss of revenue by some other means.
§ Yours sincerely,
§ LIONEL L. COHEN.
§ The Rt. Hon. The Chancellor of the Exchequer,
§ The Treasury,
§ Whitehall, S.W.1.
§ Treasury Chambers,
§ Great George Street, S.W.1.
§ 26th June, 1951.
§ MY DEAR COHEN,
§ You raised with me recently the question of the construction to be placed upon the concluding words of the terms of reference of the Royal Commission on the Taxation of Profits and Income, viz., "to make recommendations consistent with maintaining the same total yield of the existing duties in relation to the national income."
§ The intention of these words was to indicate that the Commission was expected to proceed on the assumption that the revenue from taxation of profits and income is to be maintained at its existing level, and their primary relevance is to any major changes in the tax structure—for instance, a new system of company taxation or a new form of P.A.Y.E.—that the Commission might think fit to recommend. That is to say, if such a change involved, by itself, a substantial reduction in the yield of tax, the Commission would be expected to say how they would propose that the gap should be filled by an increase in yield from tax otherwise levied on profits or income.
§ The words are also relevant in a broad way to the sum total of the Commission's recommendations, but I agree that they should not he interpreted so as to debar the Commission from including recommendations on particular matters that might in the final result bring out a balance on the wrong side. Indeed, if so narrow an interpretation were placed upon them the advice of the Commission on a number of matters that they had had under consideration might be lost.
§ I think, however, that if the final balance should prove to be on the wrong side the Commission should, as you suggested, state in their Report that they realise that the implementation of certain of their recommendations may have to wait until the economic situation allows taxation to be reduced.
652§ You suggested, in this connection, that the Commission might list such recommendations in order of preference, and, if this course could be adopted, it would be most valuable to know in what order the Commission considered that effect should be given to the recommendations when circumstances permit.
§ Yours sincerely,
§ HUGH GAITSKELL.
§ The Right Hon. Sir Lionel Leonard Cohen.