Clause 36.—(RELIEF IN RESPECT OF DEFICIENCIES OF PROFITS.) (Hansard, 22 May 1952)

§ Mr. Mitchison
I beg to move, in page 43, line 11, to leave out "one, two or three," and to insert "up to seven."
Clause 36 provides for relief in respect of deficiencies of profits. The part of it 786 with which I am particularly concerned at the moment is subsection (5), which deals with the circumstances under which there is deemed to be a break in continuity for the purposes of that relief. The circumstances are set out in five paragraphs, of which the first deals with the case where (a) a body corporate comes under the control of another body corporate or of one, two or three individuals, and thereafter there is a substantial change in the nature of the trade or business carried on by it;… I understand what is meant by coming under the control of another body corporate, and I should understand what is meant by coming under the control of a small number of people. What puzzles me is why one, two or three individuals have been chosen as the right size of the group with whom alone this has been deemed to happen. It is for that purpose that my hon. and learned Friend and I have put down the Amendment suggesting the inclusion of up to seven people. After all, if what the Government have in mind is family control, there are provisions in the Income Tax Acts and elsewhere which deal with that kind of provision, and I know of no case—although I am subject to correction on this matter—where the number is restricted in this way to one, two or three individuals.
9.45 p.m.
Statistically, I believe that the average family, even on the basis of parents and children, is rather larger than three individuals; but surely the mischief that is aimed at here—or the circumstance that is to be considere—is control by a small group of people. There would be no difference in principle—and no substantial difference of any sort—if some rather larger figure were taken.
I have already had to call the attention of the Committee to the numerical wanderings of the Government and the Treasury throughout this Bill; but this particular one is really very odd indeed. I can only leave it at that and ask the Government to let us know what is the reason for this curious selection. Surely, if the thing is to be done at all it should be done properly, and a larger number should be taken with a view to getting the maximum of what one reasonably can call a close group of people. One, two or three is hardly sufficient for that purpose.
787 While I am on this point, I hope I shall be in order in pointing out that the whole character of this subsection is curious. Perhaps it would be more in order if I took the opportunity to do that later, when we come to the question of the Clause standing part. In moving this Amendment I should like to know the reason for this curious numerical selection by the Government.

§ The Solicitor-General
I have listened with the greatest attention to the speech of the hon. and learned Gentleman the Member for Kettering (Mr. Mitchison), and I must say that I was a little puzzled to know what particular attraction the figure 7 had for him. The difficulty with regard to this Clause is to know where to draw the line. The hon. and learned Gentleman appears to draw it above the number 7. At the present moment, in the Clause as drawn, it is a maximum of three.
Having listened to what the hon. and learned Gentleman has said, I do not think there is anything between us as to what this particular provision of subsection (5, a) is intended to achieve and, though it may surprise him—and it may perhaps shock him —we are prepared on this occasion to accept the Amendment.

§ The Solicitor-General
I beg to move, in page 43, to leave out lines 26 to 30.
After that victory for the hon. and learned Member for Kettering (Mr. Mitchison), may I suggest that it would be convenient if we discussed together the remaining Amendments on this Clause, the last two of which are consequential? The Amendment which I move corrects something which we think might do hardship in certain cases. Under paragraph (e), as it now stands, the effect of a liquidator carrying on the business would be to make a break in the carrying forward of the deficiency, and that might do hardship to the creditors of the company.
This Amendment was originally down in the name of my hon. Friend the Member for Altrincham and Sale (Mr. Erroll) and other of my hon. Friends, and we have very great pleasure in accepting their suggestion and in moving this Amendment.

§ Sir F. Soskice
The purpose of paragraphs (a) to (d) of subsection (5) are obvious, but what has rather puzzled me is why the Government introduced this argument about a break of continuity, in paragraph (e), dealing with the acquisition of a body corporate's trade by a liquidator, receiver, etc., and then, when they gave the matter further thought, decided to leave it out. What was the point of ever putting it in?
Speaking for myself, I suggest that paragraph (e) is entirely different in its scope from the previous paragraphs, and one cannot help thinking that there was some want of thought in the construction of the subsection, leading to the inclusion of liquidators, receivers, managers, trustees and so on, in the same category as the previous categories dealt with in the earlier paragraphs. I do not want to occupy time on this, but, as a matter of curiosity, I should like to know why the paragraph was included in the first instance.

§ The Solicitor-General
The curiosity of the right hon. and learned Gentleman is insatiable. We have been asked how the Conservative manifesto came to be written and now we are asked why this subsection came to be written. Soon we shall be asked who was the author. I am not sure whether the right hon. and learned Gentleman is in favour of its deletion or whether he wants it retained.

§ Sir F. Soskice
I am in favour of its deletion. I wondered why it was ever included.

§ The Solicitor-General
I am afraid I must leave the right hon. and learned Gentleman to wonder still further, as I cannot assist him with his historical researches.

§ Mr. Frederic Harris (Croydon, North)
I wanted to raise this point, too, and I am rather surprised that the Solicitor-General cannot answer it. In its drafting, the paragraph clashes with Clause 52, which makes one think that there must have been some great carelessness when the Clause was drafted.

§ Mr. Gaitskell
I had no intention of intervening in this legal debate, but if the Solicitor-General wishes to prolong the proceedings, then he is going just the right way about it. He was asked a perfectly reasonable question by my ever 789 courteous right hon. and learned Friend, who at one time was his predecessor, and, after being rather offensive to us about our curiosity, all he can, say is that he simply does not know. We cannot have that. We know that there are a lot of admirable advisers not very far away, and surely the right hon. and learned Gentleman could have found out the answer.
Even now, I am prepared to go on talking until the information comes. It is a most extraordinary thing if the Solicitor-General cannot answer the question. I have no doubt that the message is waiting for him, and I must say that if the right hon. and learned Gentleman had sent for it straight away we should have saved ourselves two or three minutes. Now that I see that the message is beside him, I will resume my seat, and perhaps he will at least give himself the trouble of reading it out to us.

§ The Solicitor-General
I shall certainly not read it out to the right hon. Gentleman, for the simple reason that I cannot add more than I said before. On reflection, we thought it better out. That is what we have done—we have taken it out. We are not considering—although it is very easy to take prolonged time on historical researches—how it originally came in. What we have to consider now is whether it should stay in or go out, and on that, I understand, we are all agreed. I am not in a position to satisfy the right hon. Gentleman's curiosity.

§ Mr. Gaitskell
The hon. and learned Gentleman has the answer written down.

§ The Solicitor-General
I have not got it written down. I will read out exactly what I have received. The right hon. Gentleman will see that it is exactly what I said in the first place. [HON. MEMBERS: "Read it out."] Of course I will: "On reflection we think this would be wrong."

§ Sir F. Soskice
I can assure the hon. and learned Gentleman that I do not want to take time over this, but really I think he wants to be discourteous. We quite naturally thought, and we still like to think, that consideration was given to this Clause before it was put in that form in the Bill. If that is not the case, it is very deplorable. Surely the hon. and learned Gentleman must have been consulted about this, and there must have been a good and solid reason for putting 790 this particular category of person into the subsection.
All I was asking—and I really do not think I deserved the scorn I got from the hon. and learned Gentleman—all I was asking was what was the motive behind it. No doubt there was a good motive. I simply asked the hon. and learned Gentleman to acquaint himself with it—to ask, if he does not carry the answer in his mind. I know one cannot carry all these points in one's mind, but if he is not carrying it in his mind, surely one of his advisers could tell him why it was originally introduced. That is all I want to know. It seems to me a perfectly reasonable request. We hope he will do us the courtesy of trying to get the information.

§ The Solicitor-General
I am sorry if I was in the least bit, discourteous to the right hon. and learned Gentleman. It was not my intention to be so. If I were able to tell him, I should, of course, tell him. I have no doubt that it is the case that this Clause was considered in its original drafting, but now it is considered that it is well to make this change. On reflection, it is thought this will be for the better, and I gather that the right hon. and learned Gentleman agrees that the Bill will be better if this is out. If I could tell him the actual motives that led to its inclusion in the Clause, of course I should tell him, but I am not in a position to tell him. All I can tell him is that, on reflection, we are satisfied—and I gather he agrees with us—that it is better that this should come out of the Bill.

§ Mr. Roy Jenkins
If the Solicitor-General is not able to add anything to the most unhelpful reply he gave us before, perhaps some more consistently courteous and better informed member of the Government would tell us and redeem the promise that the Financial Secretary gave us earlier that the Minister of State for Economic Affairs would ex plain. Many of us are very worried about the position of the Minister of State for Economic Affairs.
We have noted not only the fact that he has not joined in our discussions, but the expression of doubt and distaste on his face when his hon. and learned Friend has been replying to the arguments from this side of the Committee, and we do 791 feel very worried that he must be on the point of resignation. We know well his views on the general subjects. We are now getting on to the more detailed aspects of the Excess Profits Levy, to detailed matters of machinery, and I hope very much that we can hear from him on these matters, because otherwise many of us on this side of the Committee, who have great sympathy for him, will feel that he is in the impossibly difficult position of not being able to support his hon. and learned Friend.

§ Mr. Erroll
I think I should mention that the hon. Member for Stechford (Mr. Roy Jenkins) was not in the Chamber when the Minister of State for Economic Affairs gave a very full and complete reply to the case for the Amendment I moved.

Mr. Glenvil Hall
It must be quite obvious from the number of my hon. Friends who wish to speak that we are not satisfied with the explanation and, perhaps I might say, apology offered to the Committee by the Solicitor-General. We have had a very amicable discussion on a very large number of Amendments, both today and earlier this week. As has been said, there have been many dozens of Amendments put down, and all except one or two have been moved by hon. Gentlemen opposite. I, for one, think it quite unfair, when we do put what, after all, is a reasonable question to the Treasury Bench, that we should be treated as we have been this evening by the Solicitor-General. In the end, when he gave the explanation he only half gave it.
The explanation of the hon. and learned Gentleman was that on reflection it was considered that this paragraph should come out. He has not told us who did the reflecting, and what we and the rest of the Committee want and are entitled to know is who it was on the Government Front Bench, if it was someone on that Front Bench, who reflected on this matter and in the end came to the conclusion that these words were better deleted.
We have said on more than one occasion during the passage of this Bill when, time after time, we have had to take out words, sentences and even whole Clauses, that it is a pity the Government 792 did not think a little more before they introduced the Bill. This is a time for us to pause and help the Government Front Bench to reflect that it would be much better if they did their thinking before they brought a Bill to the House rather than during its Committee stage.
I, for one, protest, both at the conduct of the Solicitor-General, who for once in a way has not been his usual courteous self to the Committee tonight, and also for the fact that he has not yet answered the question put to him, which before we pass on my hon. Friends will try their best to find out from some Government spokesman. We hope it will be the Minister of State, who obviously is used to reflecting and has done a great deal of reflecting in the course of a long and very studious life. If the Solicitor-General feels himself unable to speak again, perhaps the Minister of State will indicate to us who it was who, at almost the 12th hour, came along and did some reflecting, as a result of which this Amendment was put on the Order Paper.

§ Mr. Jay
In order to give the Solicitor-General more time for reflection, may I just add this to what my right hon. Friend has said? We are being asked to delete this paragraph, and the Solicitor-General said that the only question before us was whether we should delete it, and that therefore it was quite irrelevant how it ever came to be put in the Bill at all. But unless we know why the Government put it in the Bill we cannot be sure that we are right to delete it. For all we know, it may be that there was some substance, some validity, in the Government's original reason for putting it in the Bill. Therefore, if the Solicitor-General will just take the opportunity of the time we are giving him for reflection and investigation, it will enable us to decide whether or not to delete this paragraph.
Perhaps the Committee might like to know exactly what this paragraph is that we are talking about. It reads as follows: If a body corporate's trade or business comes to be carried on by a liquidator, receiver, manager, trustee or judicial factor "— no doubt the Solicitor-General could explain what that is— or by any person acting in any capacity similar to the capacities aforesaid. That is what we are being asked to delete.
793 We have been told—and this is all the information we have had from the learned Solicitor-General—that the Government decided on reflection that it would be better to delete this paragraph. Are we to infer from that that the process of reflection within the Government only began after the Bill had been drafted? Was there no reflection at all when somebody decided to insert this paragraph in the Bill? That is what we should like to know. I hope that the Solicitor-General will now relent and give us the answer we are clearly entitled to have.

§ Viscount Hinchingbrooke (Dorset, South)
Does the Chancellor of the Exchequer not now feel compelled to say on behalf of the Leader of the House that it has been decided to resume the Sitting of the House on Monday, 9th June, as a result of the filibustering that is going on opposite?

§ Mr. Harold Wilson (Huyton)
I think that the remarks of the noble Lord come very badly from that side of the Committee. If the Solicitor-General is willing to pursue historical researches throughout the Finance Bills, I do not think he will find an Opposition which has been more constructive and cooperative in dealing with a difficult and technical Bill than we have been during the last few weeks. The noble Lord was probably not with us when we were discussing Purchase Tax, but I will not go into that.

§ Viscount Hinchingbrooke
It is pure delaying and obstructive tactics.

§ Mr. Albu
Is it in order, Sir Charles, for the noble Lord to make these remarks in view of the fact that he has not been at our proceedings during the whole of the Committee?

§ The Chairman
I had called on the right hon. Member for—

§ Mr. Jay
On a point of order, Sir Charles. We were not referring to my right hon. Friend whom you called, but to the noble Lord.

§ The Chairman
I thought that reference was being made to the speech which the right hon. Gentleman was making.

§ Mr. Wilson
I should like to support the plea made by my hon. Friend the Member for Stechford (Mr. Roy Jenkins) 794 and supported by my right hon. Friend the Member for Colne Valley (Mr. Glenvil Hall), that we might have an intervention from the Minister of State for Economic Affairs on this very important deletion. There is obviously a matter of confusion about his attitude, not only to this Clause but to other parts of the Bill. The hon. Member for Altrincham and Sale (Mr. Erroll) does not even know what is the right hon. Gentleman's title. He keeps calling him the Economic Secretary. And although he made a powerful contribution on this point only a moment ago, he has since left the Chamber and has not had a chance of getting a reply from the Minister of State.
I think that the views of that Minister of State should be known to the Committee. There has been an important article by the hon. Member for Southgate (Mr. Baxter) today. He says that the views of the Minister of State for Economic Affairs are always too obstruse, ponderous, high up in the clouds and metaphysical for him to understand. I should like to correct the hon. Member for Stechford, who was anticipating the right hon. Gentleman's resignation, because we have had it on the authority of the hon. Member for Southgate that he is about to be promoted to a higher place.
I hope that the Minister of State for Economic Affairs is going to intervene, because there is a very important point in the original Clause. We have not been told why it was put in and, even more important, we have not been told why it is proposed to leave it out. The references in the Clause to receivers and liquidators, not to mention "judicial factor," do raise fundamental points. I am not very clear what is a judicial factor, and I think the Solicitor-General ought to tell us. References to liquidators and receivers, and the fact that the Chancellor of the Exchequer thought it necessary to make these references to them in the first place, when he drafted the Bill, is in keeping with the general financial policy of the Government, which seems to be to promote the greatest number of bankruptcies in the shortest possible time.
I am afraid that before this year is out we are going to see a very large 795 number of them, far more than in the whole of the last five or six years since the war.

§ Viscount Hinchingbrooke
As a result of what the Labour Government have been doing in the last five years.

§ Mr. Wilson
The noble Lord may laugh, but I assure him that these figures have been very low and many firms are now facing the danger of imminent bankruptcy as a result of the right hon. Gentleman's policy. If that is not the position in South Dorset it is certainly the position in Lancashire and Yorkshire at the present time.
I do not intend to bandy words with the noble Lord about the textile industry, about which he knows even less than he knows about most other things. The Chancellor of the Exchequer has now decided to delete this Clause. Does he think that it is not relevant to the Bill? I hope the Minister of State for Economic Affairs or the Chancellor of the Exchequer will tell us exactly why this Clause was put in relating to bankruptcy, receivers and so on, and why it has now been taken out. The Solicitor-General's answer to my right hon. and learned Friend the Member for Neepsend (Sir F. Soskice) was thoroughly unsatisfactory.

§ The Chancellor of the Exchequer (Mr. R. A. Butler)
Perhaps it will be useful if I intervene for a moment. The original object of the subsection was to prevent a liquidator or receiver from reclaiming Excess Profits Levy which a company has paid on its past profits, by reason of deficiencies incurred while the company was in liquidation. The reason why we decided to delete this was—strange to relate to hon. Members opposite—that this matter is fully understood by the Chancellor of the Exchequer. I really do try to follow all the details of a Bill. I do not intervene all the time because I have so many trusty lieutenants.
We were not absolutely sure on reflection that the Clause was fair to creditors. I do not believe that this provision was fair to creditors, and that is the reason why I gave my own authority for its deletion. I am perfectly ready to tell the Committee that if I am wrong, as a result of the discussion today, we will certainly look at it again before the next stage. I 796 think my judgment will prove to be right, but if it is not right I give an undertaking that we will look at the matter before the next stage. Perhaps, on that undertaking, we might make a little more progress.
There is no question but that hon. Members have tackled the Bill throughout this sitting in a purely businesslike manner, which I do not think it is a bad thing for the House of Commons or this Committee to do. I have absolutely nothing but gratitude for the way in which hon. Members on all sides have tackled their work.
As for my dear friend the Minister of State for Economic Affairs, he has taken part in the debate today. He takes part rather more than I have done. The Minister of State's duties are not confined to taking part on Amendments here, but they are also to advise me on many of these subjects in a way that his lifelong experience makes quite vital to me.
I will give the Committee an example connected with a recent visit to the O.E.E.C. I not only found that my right hon. Friend knew a great deal more about the subject than I did, but he knew more than almost all of the European statesmen present. The senior statesman of Belgium did not rush to welcome me. He rushed to welcome the Minister of State. With the Minister of State he had restored the Austrian finances after the war of 1914 –18, and he said that that was how he had learned to understand these problems.
That is why the Minister of State is so vital to us. He takes part not only in these debates but in helping me in every way. The apocryphal stories about him, although they may give pleasure to the right hon. Member for Colne Valley (Mr. Glenvil Hall), do not mean the immediate translation of my right hon. Friend anywhere else. I hope that he will always remain by our side.

§ Mr. Gaitskell
I am sure that the Committee would wish me to thank the Chancellor for his courtesy and lucidity, for putting the noble Lord the Member for Dorset, South (Viscount Hinchingbrooke) very firmly in his place, for giving a model answer which I am sure will be of great value to the Solicitor-General when he comes next to reply, and for his loyal and staunch defence of 797 the Minister of State. We are all delighted to hear that the Minister of State is to remain with us. We only hope that he will take part in the further proceedings on the Finance Bill, if European affairs permit it.

§ Mr. Mitchison
I have every personal reason for being deeply grateful to the Solicitor-General for the concession which he recently announced, and I hope he will not take it amiss if I make some rather critical remarks about the remaining paragraphs of subsection (5). I am told that there is some precedent for these figures. None the less, I find this paragraph remarkably difficult to follow, rather difficult to reconcile, and—what does matter a little—rather difficult for the ordinary person to understand. Paragraph (b) provides one clear case of where a body corporate wholly ceases to carry on the trade or business theretofore carried on by it. Then there is a break in continuity. That is one instance, and then in paragraph (a) we have something else a substantial change in the nature of the trade or business. Does that mean a complete cessation to carry on the trade or business, does it mean a partial cessation or does it involve a curious philosophical concept by which some trade or business is carried on but with a substantial change in it? What is the real distinction?
When we come to paragraph (c) we come to a particular case. Here is a case where a particular trade or business consists wholly or mainly in the holding of investments or other property. and then it ceases to consist, or to consist mainly, in the holding of investments or other property. Apparently we do not there get the whole cessation of the trade, even a partial ces- 798 sation of the trade or a substantial change in its character, because this is a particular case which has to be provided for separately. What is the difference between what happened in the special case paragraph (c) and in the cases of paragraphs (a) and (b)?
That is not the end of the matter because we come next to a case which is described in most remarkable language. This is a case where a body coporate, either in one step or by a series of cessations, whether connected or not, ceases to carry on a part or parts of its trade or business with the result that the trade or business which it continues to carry on is less important than the part or parts thereof discontinued as a result of the cessation or cessations, First of all, the first method, as it were, is a step and the second a step plus something which becomes a series of cessations. They are very remarkable cessations because a single cessation, which, by the way, does not appear to be 'capable of existing under these paragraphs, does not mean that anything ceases. That is the one case which is not contemplated.
So we come to this: first of all a step, then a cessation by which we do not cease, and then a cessation by which we do cease. This makes people completely uncertain about what this sort of drafting really means. There may be some precedent for it, but there is no excuse. This is a gross misuse of the English language. No ordinary person, if I may claim for this purpose to be an ordinary person, can understand what it is all about.
But there is worse than that. Let us take another look at paragraph (b). Let us omit the one step by which it ceases to carry on a part and so on. That is the simplest case. Let us come to the series of cessations, whether connected or not. What does it mean? What kind of connection is contemplated? Is it that each of them should be a cessation? But that is provided for by a series of cessations. What kind of connection have the Government in mind? Do we have two alternative processes, the first one consisting of a cessation and then an unconnected cessation, and then perhaps a cessation connected with the second cessation but not with the first cessation, at the end of which we cease to carry on something or other?
799 It seems to me much more "Alice in Wonderland" than the rest of the Finance Bill. I can imagine the sort of discussion that Alice and the March Hare might have about this business over the teapot. The end of the tea party was when the Dormouse went in. In this case somebody else goes in, but whether it is the taxpayer or whether it is the Revenue I am left wondering. In many ways "Alice in Wonderland" is a very logical book, but we cannot safely use it as a complete guide even to this subsection of the Finance Bill.
I do not know that I need develop this very much further, but I should be extremely grateful to the Solicitor-General or one of his Scottish colleagues, who are very good at this sort of thing, if they could explain to us in clear simple language not about subsection (b) but what the difference is between (a) and (c) and whether (d) really does mean anything and, if so, exactly what it does mean.

§ The Solicitor-General
I hope that the hon. and learned Gentleman the Member for Kettering (Mr. Mitchison) will not accuse me of discourtesy. I shall try to answer his questions as shortly as I can and I hope to make the answer clear. He and the Committee will appreciate that the object of the subsection is to try to stop something like a market in standards growing up.
Once we try to stop evasion, it becomes a complicated matter to try to block every possible way in which the operation of the Clause can be evaded. That is why this is a difficult subsection, but I think it is effective in preventing dealing in deficiencies, the acquisition by one company of the deficiency of a moribund company. It cannot be carried forward; there must be a break.
Subsection (a) merely deals with the transfer from one company to another, or from a body of individuals to another, where there is also a change in the character of the trade or business carried on. Paragraph (b) is quite clear, as the hon. and learned Gentleman said. Paragraph (c) is concerned with the change of an investment company into that of a trading company. That has to be dealt with, and it is a complicated matter.
800 Paragraph (d) is an extremely difficult one, I quite agree. It deals with the case of a company which does not wholly cease to carry on its business but sets down some part of it. It is a difficult case with which to deal. It is largely a question of fact. I can assure the Committee that the most careful consideration has been given to the wording of the subsection to see that we have secured the best language in order to prevent evasion and dealing in deficiencies.