HC Deb 27 May 1952 vol 501 cc1160-9

3.51 p.m.

Mr. Roy Jenkins (Birmingham, Stechford)

I beg to move, in page 33, line 38, to leave out "seven," and to insert "six."

For the convenience of the Committee perhaps I should explain the meaning of this Clause as it stands and what this Amendment and the three earlier Amendments on the Order Paper, which have not been called, propose to do. Clause 30 relates to the amount which a director-controlled company may deduct from its profits for the purpose of calculating the liability of that company to Profits Tax, and it seeks to increase considerably the deduction which may be made in the case of such companies.

If this Clause were to go through un-amended it would mean that, in future, director-controlled companies would be able to deduct from their profits for these purposes either 15 per cent. of their total profits or an amount varying according to the number of working directors up to four. It would be £4,000 for one or two working directors, £5,500 for three working directors and £7,000 for four or more working directors. There is an overriding provision that in no case shall the amount exceed a total of £15,000.

This Amendment, and our unselected three previous Amendments on the Order Paper would, between them, have the effect of reducing the amounts which may be deducted by such a company according to the number of working directors concerned. For a company with two or more working directors we would put the sum down from £4,000 to £3,000; for a company with three or more working directors, we would put the sum down from £5,500 to £4,500; for a company with four or more, we would put it down from £7,000 to £6,000.

It seems to us that the concessions granted, which will involve a considerable expense to the Revenue, are rather out of the way, particularly so because a substantial concession in this direction was granted in the Finance Bill last year. Before then the position was that a company could only deduct in this way a total of £2,500 no matter how many working directors it had. Last year it was put up to a maximum of £4,500 for three or more directors. This year the proposal is to extend that further to £7,000 for four or more directors. This seems to be a steep rate of increase.

I believe that the £2,500 was first fixed in 1947 and not changed until 1951. No doubt, owing to certain changes in the value of money, and one or two other considerations, there was a case last year for an extension of the concession. However, I should not have thought that there was a case for two successive extensions which would increase the maximum deduction from £2,500 to £7,000. Obviously, no conceivable change in the cost of living bears any relationship to the extent of the concession being granted today.

We would like to know the cost of the Clause. Judging from some figures given by my right hon. Friend the Member for Battersea, North (Mr. Jay), when he was replying to the debate last year, and when he said that the concession last year would cost £4 million, the cost this year may be more like £5 million. No doubt we shall hear from the Minister of State for Economic Affairs—and we are very pleased to see him on the opposite bench. From what the Chancellor of the Exchequer said, clearly this points to a great easing of the European financial situation, since he is able to tear himself away temporarily from those duties and come along here. We welcome the right hon. Gentleman and look forward to his intervention in this debate. I have no doubt that one of the first things he will do will be to tell us the cost of this proposal.

The fact that some hon. Friends and myself have put down a new Clause to increase the exemption limit to Profits Tax from £2,000 to £5,000 might seem to be in contradiction of this Amendment. I do not think that that is so. It is the case that in some small companies the directors' remuneration is not drawn out but is ploughed back into the business, thus escaping Profits Tax. If such a concession is to be granted to enable small companies to build themselves up free of Pro- fits Tax, we think it is better that it should be done in a straightforward way, as proposed in our new Clause, and not in this rather roundabout and haphazard way, depending, inconsequentially, on how many working proprietors there may happen to be.

For those reasons we feel unhappy about the Clause and we say that our Amendment, which would still give substantial concessions but would take us about half way back to the position as it was after last year's Finance Bill, is reasonable. It would prevent a concession granted recently from being extended too far. It would enable the Government to accept our new Clause, and thus give an advantage to those companies in a more straightforward and obvious way than is being done at present.

The Minister of State for Economic Affairs (Sir Arthur Salter)

Perhaps I may disregard some of the remarks of the hon. Member for Stechford (Mr. Roy Jenkins) that are not very relevant to the intrinsic merits of this Amendment. The hon. Member has given a completely accurate account of the effect of the Clause as it stands and of the Amendments which were on the Order Paper but which have not been called. I think it will be for the convenience of everyone if I discuss the plan as a whole rather than the limited effect of this particular Amendment.

I think the hon. Member said £4,000 for three directors instead of £4,500, but with that exception his account was entirely correct.

Mr. Jenkins

I did say £4,500.

Sir A. Salter

The hon. Gentleman asked me first what would be the cost of the proposal in our Clause. It would be about £2 million in a full year. This is a limited question; it is not a question of principle.

4.0 p.m.

The hon. Member, like us, agrees that there should be some increase in the deductable allowances. He thinks that these increases should stop at a maximum of £6,000. We think that the maximum could reasonably be £7,000. We like our plan better than his, because, under our plan, after the £2,500 for the first director, which is common both to him and to us, we would go up by £1,500 for each additional director up to four.

He, on the other hand, would, we think illogically and unjustly, reduce the allowance for the second director from the present sum of £3,500 to £3,000, so that while the first director got £2,500 the second would get only £500. Then it is suggested that we should revert to £1,500 for the third and the fourth. We think that, in its graduation, our plan is much more reasonable than his.

Is the total sum unreasonable? The Millard Tucker Committee said that while they recognised that the exact amount must be a matter of policy and of the cost which the Exchequer thought it reasonable to incur, they saw no reason, in principle, why each director should not get £2,500 a year up to a maximum of £15,000. That would have meant £15,000 as a maximum compared with our maximum of £7,000 and the hon. Member's maximum of £6,000.

Partly because we think that our gradation is more reasonable as against the uneven jumps of the hon. Member's, and partly because, in view of the Tucker Committee's recommendation, we think that our total maximum is more reasonable, we cannot accept this Amendment. However, what we propose is much nearer to the hon. Member's suggestion than what the Tucker Committee proposed, and for all these reasons we hope that the Committee will accept the Clause in its present form.

Mr. Hugh Gaitskell (Leeds, South)

I am afraid that I regard the right hon. Gentleman's reply as extremely disappointing. This is not a case of making a long overdue change or anything of that kind. Last year we increased substantially the amounts which might be paid to directors of this type, compared with what they had been before. We settled on the figures after long consideration. As far as I know, there has been no complaint from director-controlled companies that they were inadequate

The purpose of imposing limits is to prevent the evasion of Profits Tax. That must remain a matter for consideration by the Government. The almost casual way in which the Government throw away another £2 million here contrasts very oddly with the extremely niggardly attitude they adopt on questions connected with the social services. It is perhaps typical of them that, without any apparent argument at all, and merely because the Tucker Committee happens to propose something rather higher, they say that they must do something more for these people.

The Government have brought forward no evidence in support of this view. For my part, I should be disposed to advise my hon. Friend to press this matter to a Division.

Sir A. Salter

Might I ask the right hon. Gentleman for a clarification? Does he really mean, as I gathered from what was said and also from a study of the number of Amendments put down as part of the general plan, that while the first director should get £2,500 the second should get only £500, and that the amount in the case of the next two directors should be £3,000? Is that the proposal? On the question of the reference to the Tucker Committee, I would point out that their proposals would have meant £5 million as against our £2 million.

Mr. Gaitskell

Our position has been made clear by my hon. Friend the Member for Stechford (Mr. Roy Jenkins) and by the Amendments on the Order Paper. We could easily have discussed the Question, "That the Clause stand part of the Bill," and opposed the increase altogether. We thought that there might be some argument which we did not know about which justified the Government in putting up these sums substantially. In the circumstances, we decided on what might be called an half way house. In view of the right hon. Gentleman's statement, if we had known that there was absolutely nothing behind this change at all, we should probably have been inclined to recommend the Committee to stick to our original proposition.

I am aware of the proposals of the Tucker Committee, but I cannot agree that the right hon. Gentleman should ride off on the basis that the Government have not done quite so badly as the Tucker Committee in that they are spending only £2 million whereas the Tucker Committee suggested £5 million.

Sir A. Salter

Does the right hon. Gentleman seriously propose that the scale should be £2,500, £3,000, which is a jump of only £500, £4,500 and £6,000?

Mr. Austen Albu (Edmonton)

The right hon. Gentleman appears to have overlooked the fact that all these Clauses are really Clauses to prevent tax evasion and that the limits fixed are those considered reasonable for that purpose. My view is that especially under subsection (2, c), where the total amount allowed to directors is put up to £7,000 and the number of directors increased to four or more, that seems to take the exemption out of the field of the type of small company which has been mainly considered in this kind of Clause.

I should have thought that we had taken the matter much beyond the stage for which the Clauses were originally designed, which was to allow for the pro-

tection of small companies with working directors. I am not sure how easy the Commissioners find it to define directors who are working in a managerial or technical capacity and devoting substantially the whole of their time to the service of the company. Once one has extended this provision beyond the limit of three directors, and extended the sum to a total of £7,000, one begins to leave the field of genuine exemption and to enter the field where there is a serious danger of tax evasion.

Question put, "That 'seven,' stand part of the Clause."

The Committee divided: Ayes, 239; Noes, 204.

Division No. 147.] AYES [4.7 p.m.
Aitken, W. T. Davidson, Viscountess Hudson, Sir Austin (Lewisham, N.)
Allan, R. A. (Paddington, S.) De la Bère, R. Hudson, W. R. A. (Hull, N.)
Alport, C. J. M. Deedes, W. F. Hulbert, Wing Cmdr. N. J.
Amory, Heathcoat (Tiverton) Digby, S. Wingfield Hurd, A. R.
Arbuthnot, John Dodds-Parker, A. D. Hutchison, Lt.-Com. Clark (E'b'rgh W.)
Ashton, H. (Chelmsford) Donaldson, Cmdr. C. E. McA Hylton-Foster, H. B. H.
Assheton, Flt. Hon. R. (Blackburn, W.) Donner, P. W. Jenkins, F. C. D. (Dulwich)
Astor, Hon. J. J. (Plymouth, Sutton) Doughty, C. J. A. Jennings, R.
Baldock, Lt.-Cmdr. J. M. Douglas-Hamilton, Lord Malcolm Johnson, Eric (Blackley)
Baldwin, A. E. Drayson, G. B. Johnson, Howard (Kemptown)
Banks, Col. C. Drewe, G. Jones, A. (Hall Green)
Barber, A. P. L. Dugdale, Maj. Rt. Hn. Sir T. (Richmond) Joynson-Hicks, Hon. L. W.
Barlow, Sir John Duncan, Capt. J. A. L. Kaberry, D
Baxter, A. B. Duthie, W. S. Keeling, Sir Edward
Beach, Maj. Hicks Eccles, Rt. Hon. D. M. Lambert, Hon. G.
Bell, Ronald (Bucks, S.) Elliot, Rt. Hon. W. E. Lambton, Viscount
Bennett, F. M. (Reading, N.) Fell, A. Lancaster, Col. C. G
Bennett, Dr. Reginald (Gosport) Finlay, Graeme Langford-Holt, J. A
Bevins, J. R. (Toxteth) Fleetwood-Hesketh, R F Law, Rt. Hon. Rt. K.
Birch, Nigel Fletcher-Cooke, C. Legge-Bourke, Maj. E. A. H
Bishop, F. P. Foot, M. M. Legh, P. R. (Petersfield)
Black, C. W Fraser, Hon. Hugh (Stone) Lindsay, Martin
Bossom, A. C Fraser, Sir Ian (Morecambe & Lonsdale) Linstead, H. N.
Bowen, E. R. Galbraith, Cmdr. T. D. (Pollok) Lloyd, Maj. Guy (Renfrew, E.)
Boyd-Carpenter, J. A Gammons, L. D. Lloyd, Rt. Hon. Selwyn (Wirral)
Boyle, Sir Edward Garner-Evans, E. H. Longden, Gilbert (Herts, S.W.)
Brains, B. R. George, Rt. Hon. Maj. G. Lloyd Lucas, P. B. (Brentford)
Braithwaite, Ll.-Cdr. G. (Bristol, N.W.) Glyn, Sir Ralph Lucas-Tooth, Sir Hugh
Bromley-Davenport, Lt.-Col. W. H. Godber, J. B. Mackeson, Brig. H. R.
Brooman-White, F. C. Gough, C. F. H. McKibbin, A. J.
Buchan-Hepburn, Rt. Hon. P. G. T Gower, H. R. McKie, J. H. (Galloway)
Bullard, D. G. Graham, Sir Fergus Maclean, Fitzroy
Bullock, Capt. M Gridley, Sir Arnold Macmillan, Rt. Hon. Harold (Bromley)
Bullus, Wing Commander E. E Grimond, J. Macpherson, Maj. Niall (Dumfries)
Burden, F. F. A Grimston, Hon. John (St. Albans) Maitland, Comdr. J. F. W. (Horncastle)
Butcher, H. W. Harden, J. R. E. Maitland, Patrick (Lanark)
Butler, Rt. Hon. R. A. (Saffron Walden) Hare, Hon. J. H. Manningham-Buller, Sir R. E.
Carr, Robert (Mitcham) Harris, Frederic (Croydon, N.) Markham, Major S. F.
Carson, Hon. E. Harrison, Col. J. H. (Eye) Marples, A. E.
Cary, Sir Robert Harvey, Air Cdre A. V. (Macclesfield) Marshall, Douglas (Bodmin)
Channon, H. Harvey, Ian (Harrow, E.) Maude, Angus
Churchill, Rt. Hon. W. S. Head, Rt. Hon. A. H. Maudling, R.
Clarke, Col. Ralph (East Grinstead) Heath, Edward Maydon, Lt.-Comdr S. L C
Clarke, Brig. Terence (Portsmouth, W.) Higgs, J. M. C. Medlicott, Brig. F.
Cole, Norman Hill, Dr. Charles (Luton) Mellor, Sir John
Colegate, W. A. Hill, Mrs. E. (Wythenshawe) Molson, A. H. E.
Conant, Maj. R. J E. Hinchingbrooke Viscount Monckton, Rt. Hon. Sir Walter
Cooper-Key, E. M Holland-Martin, C J Nabarro, G. D. N.
Cranborne, Viscount Hollis, M. C Nicholls, Harmar
Crookshank, Capt. Rt. Hon. H. F. C. Holmes, Sir Stanley (Harwich) Nicholson, Godfrey (Farnham)
Crosthwaite-Eyre, Col. O. E. Holt, A. F. Nicolson, Nigel (Bournemouth, E.)
Crouch, R. F. Hopkinson, Henry Noble, Cmdr. A. H. P
Crowder, John E. (Finchley) Hornsby-Smith, Miss M. P. Nugent, G. R H.
Crowder, Petra (Ruislip—Northwood) Horobin, I M Oakshott, H. D.
Cuthbert, W. N. Horsbrugh, Rt. Hon. Florence Odey, G. W.
Darling, Sir William (Edinburgh, S.) Howard, Greville (St. Ives) O'Neill, RI. Hon. Sir H. (Antrim, N.)
Ormsby-Gore, Hon. W. D. Ropner, Col. Sir Leonard Thornton-Kemsley, Col. C. N
Orr, Capt. L. P. S. Russell, R. S. Tilney, John
Orr-Ewing, Ian L. (Weston-super-Mare) Ryder, Capt. R. E. D. Turner, H. F. L
Osborne, C. Salter, Rt. Hon. Sir Arthur Turton, R. H.
Partridge, E. Savory, Prot. Sir Douglas Vane, W. M. F.
Peake, Rt. Hon. O. Schofield, Lt.-Col. W. (Rochdale) Vosper, D. F.
Perkins, W. R. D Scott, R. Donald Wakefield, Edward (Derbyshire, W.)
Peto, Brig. C. H. M. Smyth, Brig. J. G. (Norwood) Wakefield, Sir Wavell (Marylebone)
Peyton, J. W. W. Snadden, W. McN. Ward, Miss I. (Tynemouth)
Pickthom, K. W. M. Soames, Capt. C. Watkinson, H. A.
Pilkington, Capt. R. A Spearman, A. C. M. Webbe, Sir H. (London & Westminster)
Pitman, I. J. Spens, Sir Patrick (Kensington, S.) Wellwood, W.
Powell, J. Enoch Stanley, Capt. Hon. Richard White, Baker (Canterbury)
Price, Henry (Lewisham, W.) Stevens, G. P. Williams, Rt. Hon. Charles (Torquay)
Prior-Palmer, Brig. O. L. Steward, W. A. (Woolwich, W.) Williams, Gerald (Tonbridge)
Profumo, J. D. Stoddart-Scott, Col, M Williams, Sir Herbert (Croydon, E.)
Raikes, H. V. Storey, S. Williams, R. Dudley (Exeter)
Rayner, Brig. R. Strauss, Henry (Norwich, S.) Wills, G.
Redmayne, E. Stuart, Rt. Hon. James (Moray) Wilson, Geoffrey (Truro)
Remnant, Hon. P. Sutcliffe, H. Wood, Hon. R.
Roberts, Peter (Heeley) Taylor, Charles (Eastbourne) York, C.
Robertson, Sir David Taylor, William (Bradford, N.)
Robinson, Roland (Blackpool, S.) Teeling, W. TELLERS FOR THE NOES:
Rodgers, John (Sevenoaks) Thompson, Lt.-Cdr. R. (Croydon, W.) Mr. Studholme and
Roper, Sir Harold Thorneycrott, Rt. Hn. Peter (Monmouth) Mr. T. G. D. Galbraith.
Acland, Sir Richard Evans, Stanley (Wednesbury) McGhee, H. G.
Albu, A. H Ewart, R. McInnes, J.
Allen, Arthur (Bosworth) Field, W. J. McKay, John (Wallsend)
Anderson, Alexander (Motherwell) Fienburgh, W. McLeavy, F.
Anderson, Frank (Whitehaven) Finch, H. J. MacMillan, M. K. (Western Isles)
Attlee, Rt. Hon. C. R. Fletcher, Eric (Islington, E.) MacPherson, Malcolm (Stirling)
Awbery, S S. Follick, M. Mainwaring, W. H.
Baird, J. Forman, J. C. Mallalieu, J. P. W (Huddersfield, E.)
Balfour, A. Fraser, Thomas (Hamilton) Mann, Mrs. Jean
Barnes, Rt Hon. A. J. Freeman, Peter (Newport) Manuel, A. C.
Bartley, P. Gaitskell, Rt. Hon. H. T. N. Marquand, Rt. Hon. H A
Bence, C. R. Glanville, James Mellish, R. J.
Berm, Wedgwood Grenfell, Rt. Hon. D. R. Mikardo, Ian
Benson, G. Grey, C. F. Mitchison, G. R
Bevan, Rt. Hon. A. (Ebbw Vale) Griffiths, David (Rather Valley) Monslow, W.
Blackburn, F. Griffiths, Rt. Hon. James (Lianelly) Moody, A. S.
Blenkinsop, A. Hall, John (Gateshead, W.) Morley, R.
Blyton, W. R. Hannan, W. Morris, Percy (Swansea, W.)
Boardman, H. Hardy, E. A. Morrison, Rt. Hon. H. (Lewisham, S.)
Bowles, F. G. Hargreaves, A. Moyle, A.
Braddock, Mrs. Elizabeth Harrison, J. (Nottingham, E.) Mulley, F. W.
Brockway, A. F. Hastings, S. Murray, J. D.
Brook, Dryden (Halifax) Hayman, F. H. Noel-Baker, Rt. Hon P. J
Broughton, Dr. A. D. D. Henderson, Rt. Hon.A (Rowley Regis) Orbach, M
Brown, Thomas (Ince) Herbison, Miss M. Oswald, T.
Burke, W. A. Hewitson, Capt. M Padley, W. E.
Butler, Herbert (Hackney, S.) Holman, P. Paling, Rt. Hon. W. (Dearne Valley)
Callaghan, L. J. Holmes, Horace (Hemsworth) Pannell, Charles
Carmichael, J. Houghton, Douglas Pargiter, G. A.
Castle, Mrs. B. A. Hoy, J. H. Parker, J.
Champion, A. J. Hudson, James (Ealing, N.) Paton, J.
Chapman, W. D Hughes, Emrys (S. Ayrshire) Pearson, A.
Chetwynd, G. R. Hynd, H. (Accrington) Plummer, Sir Leslie
Clunie, J. Irvine, A. J (Edge Hill) Porter, G.
Cocks, F. S. Irving, W. J. (Wood Green) Price, Joseph T. (Westhoughton)
Coldrick, W. Isaacs, Rt. Hon. G. A. Price, Philips (Gloucestershire, W.)
Collick, P. H. Janner, B. Proctor, W. T.
Craddock, George (Bradford, S.) Jay, Rt. Hon. D. P. T. Pryde, D. J.
Crosland, C. A. R. Jeger, George (Goole) Reeves, J.
Cullen, Mrs. A. Jeger, Dr. Santo (St. Pancras, S.) Reid, Thomas (Swindon)
Daines, P. Jenkins, R. H. (Steehford) Reid, William (Camlachie)
Dalton, Rt. Hon. H. Johnson, James (Rugby) Rhodes, H.
Davies, A. Edward (Stoke, N.) Jones, David (Hartlepool) Richards, R.
Davies, Ernest (Enfield, E.) Jones, Jack (Rotherham) Rogers, George (Kensington, N.)
Davies, Harold (Leek) Jones, T. W. (Merioneth) Schofield, S. (Barnsley)
Davies, Stephen (Merthyr) Keenan, W Shinwell, Rt. Hon E.
Deer, G. Kenyon, C Short, E. W.
Dodds, N. N. Key, Rt. Hon. C. W. Shurmer, P. L. E
Donnelly, D. L. Kinley, J. Silverman, Julius (Erdington)
Driberg, T. E. N. Lee, Frederick (Newton) Silverman, Sydney (Nelson)
Edelman, M. Lever, Harold (Cheetham) Simmons, C. J. (Briertey Hill)
Edwards, John (Brighouse) Lever, Leslie (Ardwick) Slater, J.
Edwards, Rt. Hon. Nest (Caerphilly) Lewis, Arthur Smith, Norman (Nottingham, S.)
Edwards, W. J. (Stepney) Lindgren, G. S.c Snow, J. W
Evans, Albert (Islington, S.W.) Lipton, Lt.-Col. M Sorensen, R. W.
Evans, Edward (Lowestoft) Logan, D. G. Sparks, J. A.
Steele, T. Timmons, J. Willey, Octavius (Cleveland)
Stewart, Michael (Fulham, E.) Tomney, F. Williams, David (Neath)
Stokes, Rt. Hon. R. R. Turner-Samuels, M. Williams, Rt. Hon. Thomas (Don V'll'y)
Strachey, Rt. Hon. J. Wallace, H. W. Williams, W. F. (Droylsden)
Strauss, Rt. Hon. George (Vauxhall) Watkins, T. E. Williams, W. T. (Hammersmith, S.)
Summerskill, Rt. Hon. E. Webb, Rt Hon. M. (Bradford, C.) Winterbottom, tan (Nottingham, C.)
Sylvester, G. O. Wells, Percy (Faversham) Winterbottom, Richard (Brightside)
Taylor, Bernard (Mansfield) West, D. G Woodburn, Rt. Hon. A.
Taylor, John (West Lothian) Wheatley, Rt. Hon. John Wyatt, W. L.
Taylor, Rt. Hon. Robert (Morpeth) White, Mrs. Eirene (E. Flint) Yates, V. F.
Thomas, David (Aberdare) White, Henry (Derbyshire, N. E.)
Thorneycroft, Harry (Clayton) Whiteley, Rt. Hon. W. TELLERS FOR THE NOES:
Thurtle, Ernest Wilkins, W. A. Mr. Royle and Mr. Kenneth Robinson.
Willey, Frederick (Sunderland, N.)

Question put, and agreed to.

Clause ordered to stand part of the Bill.

Clause 58 ordered to stand part of the Bill.