HC Deb 22 May 1952 vol 501 cc820-9
The Solicitor-General

I beg to move, in page 46, line 19, to leave out "July, nineteen hundred and forty-eight" and to insert "January, nineteen hundred and forty-nine."

This Clause is concerned with the transfer of businesses. This Amendment, with others which are consequential, secures that the purchaser of a business gets a standard on the basis of the Chancellor's new proposal relating to the choice of any two of the three years 1947, 1948 and 1949.

Amendment agreed to.

Further Amendment made: In page 46, line 20, leave out "beginning of the standard period" and insert:

first day of January, nineteen hundred and forty-seven."—[The Solicitor-General.]

Mr. Roy Jenkins

I beg to move, in page 46, line 23, after "shall," to insert: in relation to any chargeable accounting period during which the trader or business continues to be carried on without any substantial alteration in the character thereof. This Clause relates to businesses which are transferred, and whether or not the standard profits can be carried on in the event. It says that they can only do that if the business passes … as a going concern and without substantial alteration in the character thereof … This phrase appears to us to be rather ambiguous, because it might mean that, providing the business passes without subtantial alteration—provided there is no alteration on the day of transfer—the condition is fulfilled, and whatever happens subsequently it would not be taken that there had been a change in the nature of the business such as would exclude the company to which it had been transferred from carrying forward the standard profits.

We propose to tighten up things and say that these standard profits may only be carried on so long as there is found to be no change in the nature of the business. I think it was the Solicitor-General or the Financial Secretary who, earlier, said that the Government wished to prevent the buying and selling of profit standards and it seems to us that this Amendment would clear up an ambiguity and—if my reading of the Bill as it stands is correct—would help towards eliminating this undesirable practice of buying and selling profit standards.

The Solicitor-General

I hope I have understood the Amendment which has been moved with commendable brevity. I should like to correct one thing on which I part company with the hon. Member. I do not think we said that we were against the transfer of a standard from one company to another. We were against the transfer or buying-up of a deficiency. There is a difference between this Clause and the earlier Clause to which he referred. This Clause deals with the purchase of a business, as distinct from the acquisition of control over a business, and it does mean that it is difficult, when the businesses are merged, to separate or distinguish the profits as between the two.

We have looked into this very carefully. There is a real difficulty, on which I think the hon. Gentleman has put his finger; but we believe that the Clause in its present form is the most effective way to overcome that difficulty. After all, it really would not be fair, if one company legitimately buys a new business, that that new company should be deprived of the standard of the old business. If the new company were to infuse life into that old business and earn greater profits I think it ought at least to retain that standard. That is a legitimate trans- action, as opposed to the transaction where there is a dealing to secure a deficiency. I hope I have made the position clear to the hon. Gentleman; but if I have not I should be only too glad to discuss it with him later.

Sir F. Soskice

I follow what the hon. and learned Gentleman says, but I still have not the remotest idea what he means by the words. If he wants to say that if company A buys from company B it is to enjoy the standard of the previous company, well and good; but when I include the words: without substantial alteration in the character thereof they become completely otiose.

If the intention is that there should be a period after the transfer, during which the business is carried on without change, let him say that. I could perfectly understand the view being taken that all one has to show is that company A has bought company B's business; but if that is all one wishes to indicate what is the point of putting in words which seem to mean nothing? One cannot help buying a business without substantial change, because all that is done is to transfer it from one set of hands to another, and that does not change its nature.

The point is, what happens when it has been transferred? I would impress upon the hon. and learned Gentleman that the words used by the Government in this subsection are really quite inappropriate. Let it be one thing or the other. If the hon. and learned Gentleman desires to enact that it should be sufficient to prove a transfer, let him say so and give his reasons; but if he thinks it necessary, for the purpose of obtaining the standard of the former company, that there should be some degree of continuity of the business in its previous state, then let him choose some words such as those which my hon. Friend has put on the Order Paper, to enact, in terms, that after the transfer the business is to remain unchanged. One thing or the other, either is completely indefensible. The words are wholly ambiguous. I hope that the Solicitor-General will reconsider the words used. I do impress on him that they either mean nothing or something of dubious intent.

11.30 p.m.

Mr. Jenkins

While we cannot complain about the hon. and learned Gentleman's courtesy we can complain about the substance of his answer. I really do not think he made an attempt to answer the point. I could not understand his first point, which was that it was wrong to try to pick up a remark by his hon. Friend the Financial Secretary and say the Government was not anxious to prevent the buying and selling of businesses which were attractive from an E.P.L. point of view because it related to a deficiency and that was a different matter from what is dealt with in the Clause.

That is true, but the whole of the Clause, and that is why it is in the Bill is that the Government do not want to have pre-buying. There is no point in having the Clause and the words of which we complain. What we are anxious about is how long a period it covers, and the hon. and learned Solicitor-General has not told us that at all. Before I consider withdrawing my Amendment I should like to know from him whether it covers the day of transfer or whether it extends indefinitely.

The Solicitor-General

I agree with the right hon. and learned Gentleman that the wording is complicated, but this is a complicated matter. I think it has to be a complicated provision to try to stop something that I do not think anyone wants. But in view of what has been said we are prepared to look at the drafting again. It is a drafting matter, and I do not think there is any substance of difference between what we want to achieve.

Sir F. Soskice

I do not want to take time and I am grateful to the Solicitor-General. I do not think it is a drafting matter. It is a matter of substance. Either he wants a company which acquires a business to buy the former company's standard if it continues in the same way, or the Government would have taken a different view. They propose to enact that it is enough to obtain the former standard if a former company's business is bought. There is an alternative position, which is different entirely in result and the Government should choose one or the other and not say it is a drafting matter because it is not. The words are simple although they are not unambiguous.

The Solicitor-General

Whether the right hon. Gentleman agrees that it is a drafting matter when I say we will look at it again, it covers what has been said from both sides of the Committee.

Mr. Jenkins

I beg to ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Amendments made: In page 46, line 32, leave out "July, nineteen hundred and forty-eight," and insert: January, nineteen hundred and forty-nine.

In line 33, leave out "beginning of the standard period," and insert:

first day of January, nineteen hundred and forty-seven."—[The Solicitor-General.]

Mr. Stevens

I beg to move, in page 47, line 3, to leave out "individuals" and insert "persons."

In line 3 of this Clause the word "individual" appears, but I am told that it cannot include a body corporate. Yet the possibility of a body corporate being in partnership with an individual is clearly contemplated in other places in the Bill, particularly, for example, in Clause 51. If that is so, I feel that the word "persons" should be used instead of the word "individuals," so that the possibility of an individual's being in partnership with a body corporate may be contemplated.

In the case of the next pair of Amendments, beginning with that in page 47, line 6, I would point out that subsection (1) of the Clause provides that when a business of a limited company is transferred as a going concern to another limited company the purchasing limited company succeeds to the profit standards of the vendor limited company. As at present drafted Clause 4 (3, a, b, c, d) provides that if a partnership sells to another partnership the successor will only take over the standard of the vendor provided that there is a certain relationship between the one and the other.

That relationship is defined in the Bill. I nearly said "clearly defined," but those of us who have read it will agree that it is not so very clearly defined. We believe that the same principle should apply where the goodwill of a partner- ship is sold as a going concern to another partnership or a partnership consisting of a limited company and an individual.

So far as the last of the five Amendments is concerned, to page 47, line 14, it would extend the relationship not only to legitimate and adopted children but also to trustees—trustees, for example, of younger members of the family. I think that that is perfectly justifiable. It would certainly be in line with practice so far as Income Tax is concerned. Section 163 of the Income Tax Act, 1951, makes just such a provision, and I do suggest that that provision should be made here. If the Amendment to line 6 is accepted, of course, that to line 14 would not be necessary. I suggest that these five Amendments are logical and simple justice, and I hope the Chancellor will accept them.

The Solicitor-General

I can deal with the Amendments in the same order as that in which my hon. Friend has dealt with them. With regard to the first two, the omission of the word "individuals" and the insertion of the word "persons," I understand that the reason he wants that done is simply because the word "persons" will include a body corporate. I would say to him that if he will be good enough to withdraw that Amendment we shall put down an Amendment on Report to cover the situation he has in mind with regard to that.

With regard to the next two Amendments, I am afraid we cannot meet him, for this reason. He will appreciate that where a company acquires a business from individuals there is no excess profits standard of business belonging to the individual. That does mean that to try to arrive at some standard we should have to go a good deal—or might have to—into the private affairs of individuals, and we do not believe that that would be justified. Provision is made in the Bill for the acquisition of a standard on the purchase of a business from individuals, in the circumstances set out in subsection (3), that is to say, where the business is in the nature of a family one.

With regard to the last Amendment, we feel that that really is a drafting matter. We are doubtful whether the clause, as worded, covers a case where a committee in lunacy, for instance, transfers a business to a new limited company. If the hon. Member withdraws the Amendment we will look at that point also, and if we are satisfied that the Amendment is really necessary, one will be introduced on the Report stage.

Mr. Stevens

With regard to the second pair of Amendments, surely it is true that the Excess Profits Levy standard of a limited company is to be ascertained on the basis which is used for Income Tax purposes. In a trading partnership, the profits are assessed for Income Tax purposes on a basis similar to that used for a limited company. Surely there is not all the difference which the Solicitor-General has indicated. I hope he will look closely at this again. If he does, I think he will find that the difference is not quite as he suggests. On the basis of his assurance, I beg leave to withdraw the Amendment.

Amendment by leave withdrawn.

Amendment made: In page 47, line 3, leave out "beginning of the standard period," and insert: first day of January, nineteen hundred and forty-seven."—[Mr. R. A. Butler.]

Motion made and Question proposed, "That the Clause, as amended, stand part of the Bill."

Mr. James Callaghan (Cardiff, South-East)

I want to ask the Solicitor-General how the nationalised industries are concerned when transfers take place to, or from, them. This is an important matter, as the Patronage Secretary obviously recognises. One reason why my right hon. Friends could not assent to an earlier suggestion that discussion of this particular point of the Bill should be confined to a small group of business experts from both sides of the Committee who would agree, in amity, about signing away the country's rights on these matters. The layman, who does not understand the Excess Profits Levy, may have important questions to raise.

Clause 49 provides what shall happen in the case of property which is transferred—a part of a trade or business, which is transferred to the National Coal Board, the British Transport Commission, the British Electricity Authority, and various other bodies. I want to ask, regarding Clause 41, whether it is intended to cover transfers of a trade or business, or part of a trade or business, from a nationalised industry to another body corporate. If so, I would like to ask why, in the case of a nationalised industry to which a trade or industry is transferred, Clause 41 should not apply, whereas in the case of a trade or industry transferred from a nationalised industry to a nationalised body, or body corporate, the Clause should apply? I am sure that the Solicitor-General will be able to give me an immediate answer.

The Solicitor-General indicated assent.

Mr. Callaghan

He indicates that he can, and I can leave that point.

The next point is that we understand that the Government, for reasons which I do not intend to go into, means to sell a number of properties of the nationalised industries at knock-out prices. How is that to affect the standard of the nationalised industries? Will that leave them worse off? Is this another blow by the Government at the nationalised industries through adjusting their standards of profit by selling them at knock-out prices, so that these industries will be compelled to pay more Excess Profits Levy than would otherwise be the case?

These are all important questions—very important questions—and, although some hon. Members behind the Solicitor-General are quite confident that they know the answers, we on this side of the Committee would be grateful if he would tell us whether the shabby and sordid processes through which the Government intend to drag road haulage are to appear in this Bill.

11.45 p.m.

The Solicitor-General

The hon. Member began by asking whether Clause 41 referred to transfers of businesses of nationalised undertakings. If he will turn to Clause 49 (1) he will see that it is said: Section forty-one of this Act and the Tenth Schedule to this Act shall not apply to any transfer of the whole or any part of a trade or business to the National Coal Board, the British Transport Commission, the British Electricity Authority, any Area Electricity Board, the Gas Council or any Area Gas Board. I think, therefore, that the further questions he wishes to raise, in so far as they arise, will be more conveniently discussed, not on the Question that Clause 41 stand part of the Bill, but on the Question that Clause 49 stand part.

Mr. Callaghan

I should like to follow this up, because I do not want to get to Clause 49 and then be told that I cannot discuss the transfer of business of the Transport Commission. What I and many people are concerned about is the transfer of businesses from the Transport Commission. I submit to the Solicitor-General—and I think I put it fairly clearly in the first place—that it seems to me, as a layman who has not the advantage of the legal training of the Solicitor-General, that Clause 41, subsection (1) or (2), is the position we are discussing in relation to the Transport Commission today. The Clause says, in subsection 1: Where the whole, or substantially the whole, of the trade or business of a body corporate which commenced before the first day of July, nineteen hundred and forty-eight. That is exactly the position of the Road Haulage Executive. The Government propose to mangle the corpse and distribute it among the carrion crows. We would like to ask whether, in fact, in that case the profit standard of the British Transport Commission will be effected.

Secondly, we ask whether the profit standard of the Commission will be affected, why it should be affected when Clause 49 deals with the reverse position in entirely another way or whether the operation of subsection (2) of Clause 41, namely, the transfer of … a part, not amounting to substantially the whole, of the trade or business … is intended to apply to these trades or businesses taken over from the Transport Commission? That is a fairly simple question, I hope, and capable, I am sure, of the usual succinct courteous and distinctive reply which we always expect from the Solicitor-General.

Mr. R. A. Butler

The position is as far as I can ascertain following the arguments of the hon. Gentleman, that there is no reference in this Bill as drafted to the problem he raises. It is not intended, as far as I can ascertain, to arise under under Clause 41. I have quickly scanned Clause 49 and cannot see any reference to it there. I think that far the best thing is for me to give this consideration. It will not be prejudiced by the passing of Clause 41 and if it were we should raise it at the next stage. I will give that undertaking, but I do not consider it will be prejudiced by passing Clause 41. I think the hon. Member had better let me look into it and see how such a matter is likely to be dealt with in the contingency to which he referred.

Mr. Callaghan

I am much obliged to the right hon. Gentleman and I am sure the Solicitor-General realises that I was on a real point and that here is another example of the incomplete and muddled legislation placed in front of us by this Government in relation to the most important legislative proposal in the King's Speech—the proposal to denationalise road haulage—which they did not consider it worth while putting into their first Finance Bill.

It is left to the Opposition to dig it out of them in order to make sure that the finances of the country are properly safeguarded. This is another example of the inefficient way in which we have come to expect hon. Members opposite to conduct their legislative business. We shall expect to see something better next time.

Mr. Butler

I do not think it would be possible for Parliamentary counsel to draft a Bill in relation to matters not yet before us and only in course of preparation. That would be an impossible situation. It would be much better to rely on the commonsense answer I gave than to make bad blood against the Government at this time of the night on these matters.

In order to fulfil the undertaking I gave earlier, I beg to move, "That the Chairman do report Progress and ask leave to sit again."

Committee report Progress; to sit again tomorrow.