HC Deb 26 May 1952 vol 501 cc977-88
Mr. Boyd-Carpenter

I beg to move, in page 53, line 27, at the end, to insert: subject, in the case of the National Coal Board, to the provisions of the next following subsection. This is simply a paving Amendment for the one immediately following, which is much longer.

Amendment agreed to.

5.15 p.m.

Mr. Boyd-Carpenter

I beg to move, in page 54, line 4, at the end, to insert: (4) Paragraph (a) of the last preceding subsection shall not apply in relation to the National Coal Board, but the National Coal Board may, in relation to any chargeable accounting period, elect that its standard profits for a full year shall be computed as if—

  1. (a) at the end of the year nineteen hundred and fifty-one all compensation and payments provided for by sections ten, seventeen, eighteen and forty-four of the Coal Industry Nationalisation Act, 1946, had been made by the issue of stock at par;
  2. (b) no increase in the amount of that stock had occurred after the end of that year;
  3. (c) at the time of any payment made by the Board to the Crown under section twenty-eight of the said Act of 1946 in respect of expenses and liabilities incurred by virtue of the provisions of the said sections a decrease had occurred in the nominal amount of that stock equal to so much of the payment as represents principal; and
  4. (d) it had had from time to time paid-up share capital of an amount bearing to the amount of stock arrived at under the preceding paragraphs of this subsection the same proportion as so much of the payments referred to in paragraph (c) of subsection (3) of section forty of the Finance Act, 1947, as fell, by virtue of that subsection, to be disallowed in computing the profits of the Board for the purposes of the profits tax bears to the full amount of those payments.
(5) For the purposes of section (Addition to standard profits in respect of borrowed money) of this Act—
  1. (a) the following amounts shall, subject as hereinafter provided, be deemed to be borrowed money of the National Coal Board, that is to say—
    1. (i) the nominal amount of any stock treated under paragraph (a) of the last preceding subsection as having been issued, decreased as provided by paragraph (c) of that subsection; and
    2. (ii) the nominal amount of the stock issued under section thirty-two of the Coal Industry Nationalisation Act, 1946, decreased by so much of any payment under section twenty-eight of that Act as represents principal of that stock;
  2. (b) to the extent that responsibility in respect of any stock issued by the Gas Council is allocated under section forty-four of the Gas Act, 1948, to an Area Gas Board, the stock shall be deemed not to be borrowed money of the Gas Council but shall, subject as hereinafter provided, be deemed to be borrowed money of that Area Gas Board;
and to the extent that the nominal amount of any stock is taken into account under subsections (3) and (4) of this section for the purpose of computing the standard profits for a full year of a body corporate, it shall be disregarded in computing the average amount of that body corporate's borrowed money in any period.
I must apologise to the Committee for the length of this Amendment, which is intended to deal with the position of the National Coal Board in respect of liability to this tax. As hon. Members will have noticed from their reading of the Clause, we propose a special type of assessment for the nationalised industries. We took note of the fact that for Profits Tax purposes a line was drawn between the interest on that part of the compensation stock which related to debentures and other loan capital and that part which related to the dividends of the former colliery companies.

It is therefore provided in this Clause that only that part of that interest on compensation stock which related to profits shall be treated as profits for the purpose of this levy. We feel that this is the only satisfactory way to deal with the nationalised industries in general, since to try to assess a profits standard by adding together the profits or standards in money would—because of the hundreds of private enterprises prior to nationalisation—be an impossible task.

In the case of the Coal Board, however, it is not possible to apply that solution. The reason is that owing to the method of assessment of compensation under the Coal Industry Nationalisation Act, only about half the compensation stock has been distributed, and if we applied to the Coal Board the same rules as apply to the other nationalised industries we should be treating them very unfairly, because they would only be allowed to call in aid about half of the compensation stock.

What we have done has been to provide that all the compensation stock shall be treated as having been issued by 30th December, 1951, and then, proceeding on that assumption, to apply the general proposals for the nationalised industries to which I have referred.

The Amendment also contains a small alteration as regards nationalised industry generally, inasmuch as, so far as compensation stocks are taken into account for the purpose of computing standard profits as if they represented share capital, they shall not also get an allowance in respect of borrowed money.

Mr. P. Roberts

I should like to ask a question. I have tried to follow the argument which has been put forward. As I understand, the Coal Board were trading during the whole of 1947, 1948 and 1949—over the period of the standard years. The only difficulty they would have is that they could not call in aid nine months of the year ending in 1947. This Amendment merely deals with that period of nine months and gives them the opportunity to average that over the whole three years or two years.

Is that the argument, or is it the fact that the Coal Board can take as their standard a figure based on the dividend compensation which was payable? That is the point about which I am not quite sure.

Mr. Boyd-Carpenter

I hope that my hon. Friend followed what I said about the general provisions of this section in respect of the nationalised industries. They are given this general basis on the division of the compensation stock into, as it were, loan capital and dividend-paying capital. On top of that we have superimposed—for the reasons I have given—this particular provision for the Coal Board; but apart from this particular provision they share the general provisions for the nationalised industries as a whole.

Mr. Roberts

I appreciate that; but the point is that if they took it on a standard basis they would have quite a substantial loss, which would increase their liability to Excess Profits Levy when they come to the accounting period. It appears that by adopting this method Her Majesty's Government are giving quite substantial assistance to the Coal Board by letting them off Excess Profits Levy which, had they been ordinary trading companies or ordinary coal companies, they would have had to continue to pay. I appreciate that that may be a question of principle on which the Government have dealt with all the nationalised industries, but the Coal Board seem to come out of it rather well.

Mr. Boyd-Carpenter

I do not want to follow my hon. Friend into an argument about the particular tax liability of a particular taxpayer. He knows very well that that is not a matter which is normally appropriate for discussion from this Box, but he is right when he says that the intention is to give as nearly as possible the same treatment as to all the nationalised industries.

Amendment agreed to.

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

Mr. Crosland

This seems to me to be one of the most important sections in the whole E.P.L. range and the curious thing is that it has provoked hardly any public discussion. That may well be because of the difficulty of understanding it, as one of my hon. Friends has said. I want to ask one or two questions from the point of view of elucidation. Reams and reams of paper have been covered on many other Clauses but this, which exempts the whole of the nationalised sector, has had practically no public discussion, and I am concerned to know what the effects of the Clause are likely to be.

The most important fact about this Clause is that it exempts the whole of the public sector from the operation of Clause 41, which is the Clause about the transfer of the whole or part of a body corporate's undertakings as a going concern. Clearly, the bulk of the nationalisation in the last few years was in the three years 1947, 1948 and 1949, and, therefore, a great number of going concerns were transferred to one or other of the nationalised industries. In fact, the nationalised industries consist of very little more than concerns which were transferred to them as going concerns during the standard years.

This Clause is, therefore, of very great importance, and the simple question I want to ask is this: Why were the nationalised industries and the bodies transferred to them deliberately exempted from Clause 41 and the Tenth Schedule? There must be some reason for it, but it is not at all clear—and certainly not clear to me—why this decision was taken. The second question is Broadly speaking, what will the effects be? What will they be on the transferors and the transferees? The amount of capital involved is enormous.

No one can dismiss this as being quantitatively of little importance. It is quantitatively of enormous importance in terms of national income and national capital and in terms of the country's trade, commerce and output. In fairness, we should have a rather long statement on the reasons which prompted the Government to exempt the whole of the public sector from Clause 41.

May I put one or two more detailed points which concern some of the transferors—that is to say, some of those bodies which transferred to or were bought out by nationalised undertakings during the standard years? I hope that the Financial Secretary will not find me tedious, but I want to return to a series of points which I put to him about Bristol when we last discussed these matters and on which I did not get an entirely satisfactory reply. Probably I took him by surprise and did not give him enough notice. I raised this case because there are a number of other bodies in the same situation.

I am concerned about a local authority which operated an electricity undertaking which was transferred to the British Electricity Authority on 1st April, 1948, which, as hon. Members know, was vesting date for electricity nationalisation. The obvious thing one would have expected was that the transfer of a going concern would have been covered by Clause 41 and the Tenth Schedule, but Clause 49 exempts them from the provisions of that previous Clause and that Schedule.

Take the case of a local authority which had such an undertaking and take also the case—because this is the difficulty, and it is not an uncommon case—in which the local authority concerned made a loss on that electricity undertaking in the 15 months before 1st April, 1948. What are the local authority to do when E.P.L. comes along? Under the Amendments tabled by the Chancellor, they have two possibilities, and I suggest that one of them is grossly unfair to the local authority and that the other is grossly unfair to the Revenue. I am not simply putting the case of the local authority; I am concerned with the general justice of the case.

The first possibility is that the local authority may choose to be assessed on their profits during the standard years, in two years of the three, 1947, 1948 and 1949. In the case of Bristol, they made a very substantial loss on their electricity undertaking during the pre-nationalisation period. That means that even if they chose the years 1948 and 1949—which, of course, they will do, in order to exclude 1947, when the predominant part of their losses occurred—their standard profits will include one quarter of a year's very substantial loss. Since they are not touched by Clause 41, they cannot transfer their losses to the B.E.A. in the same way as a private undertaking could have done. The loss will drag down their standard profits and increase their liability to E.P.L.

Thus, their liability to E.P.L. has to be covered by their other commercial undertakings. In such cases, it may be a water undertaking or a transport undertaking, but in the case of Bristol the most important remaining commercial undertaking is the docks. That is not the case with many docks, but it is the case that in Bristol the docks are owned by the Corporation and they are extremely well run. Indeed, they are famous all over the country. The docks would have to pay an additional E.P.L. liability which was not due to their own standard profits being unsatisfactory and was not due to the whole of the remaining standard profit of Bristol Corporation being in any way unsatisfactory. It would have to pay this additional liability because of the losses of the electricity undertaking during the standard years.

I maintain that this possibility is blatantly unfair to Bristol Corporation—that a successful undertaking such as the docks should have to bear the consequence of a previous loss on the part of a quite separate undertaking which has now been transferred to B.E.A. and with which Bristol Corporation have nothing whatever to do. There are a number of cases like this which would have been hidden beneath Clause 41. Under that Clause there would have been no difficulty, for the case of a local authority in such circumstances would have been covered. The right thing would be that the figures relating to the transferred undertaking, in this case the electricity undertaking, should be excluded from the calculations of the corporate body's standard profits, and Clause 41 was introduced precisely to achieve such a result. I should like an explanation why this sector of companies which have been brought under public ownership was excluded from the Clause.

That is the first possibility which, I maintain, is grossly unfair to the local authority concerned. Ironically enough, the second possibility is too fair to the local authority and unfair to the Revenue. In that case the local authority choose to be assessed for liability not on their profit during the standard years but under the new net assets standard which the Chancellor of the Exchequer introduced a week ago. The introduction of this standard was an enormous relief to local authorities and they will choose it. Under the net assets standard, as hon. Members know, they have their 8 per cent. exemption on their net assets either at the end of 1948 or at the end of 1951.

5.30 p.m.

In the case that I am considering, the case of the Bristol people, and in the cases of others similarly placed, naturally enough they will choose to be assessed on their net assets at the end of 1946, because their assets at that time were swollen by the assets of the electricity undertakings which were subsequently transferred. This means that they are to be assessed on the basis of a net asset which bears no relation to their actual net assets at the moment, because it includes electricity assets.

What happened when those undertakings were nationalised? So far as local authorities were concerned, no capital transactions took place. Undertakings did not sell their assets to the B.E.A.; and they were then compensated in electricity stock. That did not happen in the case of the local authorities. All that happened was that certain severance payments were made which were nothing like the full net asset value of the undertaking—they were not intended to be—and also the B.E.A. took over the responsibility for the debt on the electricity undertaking.

In a case such as the one I am considering, which is not uncommon, where gross assets easily exceeded outstanding debt—in fact, in the case of Bristol, some £4 million—it means that the net assets of Bristol as calculated for E.P.L. purposes are to be £4 million larger than they are, or have been since 1st April, 1948. I may be making an error here, although I have thought a great deal about this, but, so far as I can see, it seems that Bristol is to be allowed 8 per cent. before becoming liable to E.P.L—to be allowed 8 per cent. of net assets worth £4 million.

This seems hard upon the Revenue. It means that net assets are being exempted twice over, once in the hands of the Bristol Corporation and once in the hands of B.E.A.; so whichever of the two possibilities is chosen in respect of electricity undertakings which have been transferred, one is grossly unfair to the transferor, and the other is grossly unfair to the Revenue. If that is the result of transfers in Clause 41, it seems to me to make this a more peculiar Bill than it has been described so far.

The thing is so complicated that one may always make a simple error about it, and there may be some reference to this in some obscure part of one of the Schedules that I have missed, but I think it is an important point, and it is certainly one on which I should be most grateful if the Financial Secretary would say something.

Let me revert, in conclusion, to what I began with, and that is the much wider point than that of these electricity undertakings. A very large number of transfers took place during these standard years, which were the years of the nationalisation of three of four of the country's most important industries. All those transfers are to be left outside the provisions of Clause 41. There must be a reason for this—there must be a motive; but the matter is quantitatively so important that I think it deserves a fairly lengthy answer by the Government as to why this decision was taken.

Mr. Boyd-Carpenter

The hon. Member for Gloucestershire, South (Mr. Crosland) raised the general question as to the purposes and intent of the Clause and a specific question relating to the City of Bristol. Let me try to deal with those two matters in the same order as he did. First, the general issue. The hon. Gentleman pointed out, quite accurately, that the effect of this Clause is to take, in substance, the nationalised industries out of Clause 41 and apply a new procedure to the transfers on nationalisation to them of a very large number of private enterprises, and he asked why it was necessary to do it.

To some extent he himself gave the answer. The quantitative aspect of the matter is of very great practical importance. As the Committee will be aware, under ordinary transfers under Clause 41—normally speaking—the transferee takes the transferor's stance. There are qualifications, but that is the substance of the matter. If we were to seek to apply that, not to what I may describe as normal transfers, the ordinary sales of businesses which go on from day to day and year to year, but to the very large transfers that took place on nationalisation, we should get into very considerable practical difficulties.

For example, if we were to take the question of applying the standards of, in many cases, hundreds of enterprises, to bring them together and apply them to a standard on which to base the standard profits of a nationalised industry, that would involve, first of all, an enormous amount of work both for the Revenue and for the nationalised industry concerned; and it is a very complicated matter.

Let me give the Committee an example. I am speaking from memory, and the right hon. Gentleman the Member for Leeds, South (Mr. Gaitskell), who has far more acquaintance with the subject than I have, will correct me if I am wrong, but I think I am right in saying that on nationalisation of the coal industry over 800 colliery companies were nationalised. The taking of their standards, and the factors peculiar to each one of those, and aggregating them, in order to provide the N.C.B. with a standard, would really be a very laborious process.

One need not go through in detail other nationalised industries, but, in general, a very large number of enterprises are involved. The hon. Gentleman was quite right when he stressed the importance which the sheer quantitative figure gave to this question. I agree with him. It is just the quantitative figure that makes it desirable, if we can, to simplify the basis in these cases.

I do not want to stress again, as 1 have several times, the desirability of maximum simplicity in the administration of this Tax; but, particularly where we are concerned with a tax which, it is hoped and believed, is not going to be a permanent part of our tax structure, it really is desirable that we should not load the Administration with undue burdens.

The reason—and I say this to the hon. Gentleman in answer to his question—for this separate treatment of the nationalised industries is that, as he will be aware, there exists already, for the purposes of the Profits Tax, a line of demarcation between that part of the compensation stock which relates to loan capital and that which relates to ordinary capital. That already exists for Profits Tax purposes.

Therefore, as the hon. Gentleman will appreciate, it is a great advantage, from the point of view of administrative simplicity, to take over those already ascertainable and those already ascertained facts and apply them to the administration of the tax. That is the reason for the different treatment of those industries.

Then as regards the Bristol case, of which, the hon. Gentleman recalls, he and I had some discussion a day or two ago. He, I think, had not had the opportunity to consider at that time what was the effect of my right hon. Friend's Amendments, and I did not anticipate that he would raise it, though notice had been given to me by the hon. Gentleman the Member for Bristol, South (Mr. Wilkins) that he would raise it on this Clause. I have really nothing to add to what I said then.

I think that the hon. Gentleman the Member for Gloucestershire, South is right in saying that if the Bristol Corporation, as I expect it will, takes advantage of the net assets standard of valuation of 31st December, 1946, it will come off extremely well. But it is not for me —nor indeed, perhaps, for the hon. Gentleman—to give advice as to the best tax arrangements to be made by any particular taxpayer.

The problem arises, as the hon. Gentleman will himself appreciate, from the rather peculiar way in which compensation for electricity nationalisation was carried out. He has, in substance, correctly stated it. In the case of a local authority, though not in the case of an electricity company, of course, all that happened was that the British Electricity Authority took over outstanding debts and in many cases paid a certain sum by way of compensation for severance of the electricity enterprise from the other enterprises of the local authority. That was a method of compensation which was subject to certain criticism at the time, but that is neither here nor there.

The rather curious situation to which the hon. Gentleman has referred, quite rightly, I think, really arises from that method of compensation. If we took some other form of nationalisation where the compensation stock is supposed to be of the same capital value as the enterprise taken over and is, in fact, transferred to the person whose property is nationalised, no great difficulty arises, because the assets are valued as at 31st December. 1946, and although the asset that has been nationalised has gone, there is some other capital asset by way of compensation which, presumably, will be employed in some way.

I agree that in those cases where we are concerned with the curious consequences of arrangements made for compensation in respect of municipal undertakings, it looks as if the local authority concerned is getting an uncovenanted benefit in respect of E.P.L. The hon. Member for Gloucestershire, South will recall that on the last occasion we discussed this, I undertook that we would look into the matter. He very properly put it, that he did not wish Bristol either to be too fairly or too unfairly treated. That is equally our desire. We did undertake to look into the operation of the tax in this class of case, and no doubt it arises in the case of other municipalities which had the misfortune to have their electricity undertakings nationalised. We want to look at that so that this tax may be as fair as possible. Obviously, it will be appreciated that since we had our last discussion there has not been time to do that thoroughly, but I am glad to repeat the assurance which I gave then that it is our intention to look into this matter to see whether this tax result is, first of all, so very peculiar, and, second, if it is, whether it is reasonable and practicable to adjust the tax provisions to take account of it.

Mr. Crosland

I am grateful to the Financial Secretary for his reply. I hope he will bear in mind that I am doing him a service in raising this matter, since it occurred to me that of this very large class of assets 8 per cent. were to be exempt altogether from E.P.L. liability. I urge him, however, not to look into this matter too hard.

Clause, as amended, ordered to stand part of the Bill.