New Clause.—(ENTERTAINMENT ALLOWANCE AND EXPENSES.)

HC Deb 28 May 1952 vol 501 cc1573-609

(1) In this section the expression "entertainment allowance" means a sum, being a sum in excess of one hundred pounds, which a person claims in computing his total income, profits, gains or losses in respect of any year of assessment for the purpose of income tax, profits tax or the excess profits levy, to be entitled to deduct in respect of the expense of providing entertainment for himself or for any other person, and the expression "expenses" means expenses incurred by a body corporate within the meaning of section thirty-eight or thirty-nine of the Finance Act, 1948.

(2) If the entertainment allowance or expenses of any person in any year of assessment, or his entertainment allowance together with his expenses in that year exceed one per cent. of his income, profits or gains for that year computed without deduction of his entertainment allowance and expenses, the Commissioners of Inland Revenue may, within a period not exceeding eighteen months from the expiry of that year of assessment, serve a notice in writing on that person, calling upon him to comply with all or any of the following requirements, namely:—

1. (a) to produce a fully detailed and itemised account showing how that person' s entertainment allowance and expenses or either of them is made up, and how and in what circumstances each item of expenditure contained in such entertainment allowance and expenses was incurred or is alleged by that person to have been incurred;
2. (b) to produce together with such account all documents and books relevant thereto and necessary to substantiate and verify the accuracy of such account;
3. (c) to furnish an affidavit sworn by that person, or in the case of a body corporate by the proper officer of that body corporate, stating that such account is to the best of the knowledge, information and belief of the deponent to such affidavit complete and accurate in all respects, and that the documents and books produced together with such account are complete and genuine and comprise all documents and books relevant to such account which are in the possession or control of that person.

(3) The aforesaid notice shall specify the time (not being less than three months from the date of service of such notice) and the place at which such account, documents, books, or affidavit, as the case may be, are to be produced or furnished, and shall specify an officer of the department of the Inland Revenue to whom they are to be produced and furnished as aforesaid.

(4) If the Commissioners of Inland Revenue are not satisfied that full compliance has been made by a person upon whom such a notice has been served with the requirements contained in such notice, they may by a further notice in writing served on that person require him, or in the case of a body corporate, the proper officer of that body corporate, to attend at a time not less than ten days after service of such notice, to be examined orally upon such account, documents, books and affidavit aforesaid by such officer of the department of Inland Revenue as the Commissioners of Inland Revenue may in the said notice specify, and such examination shall be on oath which it shall be competent for the officer so specified in the said notice to administer.

(5) If a person upon whom such a notice as is referred to in subsection (2) or subsection (4) of this section is served fails without reasonable cause to comply in all respects with the requirements of any such notice, that person shall be guilty of an offence and shall be liable on conviction on summary indictment to imprisonment for a term not exceeding three months and to a fine not exceeding one thousand pounds, and if that person shall be a body corporate, that body corporate shall be liable to a fine not exceeding ten thousand pounds, and the directors and secretary of that body corporate shall likewise on such failure as aforesaid be guilty of an offence and liable on summary conviction therefor to imprisonment for a period not exceeding three months and to a fine not exceeding one thousand pounds in the case of each such director and the secretary.— [Mr. Albu.]

Brought up, and read the First time.

2.15 a.m.

Mr. Albu

I beg to move, "That the Clause be read a Second time."

The purpose of the Clause is to tighten up the present rules relating to expenses and entertainment allowances for directors and senior officials in companies. In moving the Clause my hon. Friends and I are only trying to carry on the work which was done by the Labour Government, which, on a series of occasions, introduced provisions into Finance Acts with the intention of preventing evasion of tax by this method.

In particular, the Finance Act, 1948, in Sections 38 and 39, introduced measures to stop the practice of free expense and entertainment allowances unless they were wholly, exclusively and necessarily expended in carrying out the duties involved. In this way the Sections were for Schedule E purposes much narrower than those which existed for Schedule D, which did not include the word "necessarily." Those Sections are now Sections 160 and 161 of the consolidated Income Tax Act, 1952. The new Clause would give the Commissioners certain powers, if expenses or entertainment allowances exceeded 1 per cent. of income or profits, to demand detailed and itemised accounts, and also new powers in relation to these matters to examine books and documents.

It is not necessary to elaborate, certainly to anybody who lives in London, the necessity for some further measures. Although the purposes for which we introduced the Sections in 1948 were clear, most people would admit that they have by no means succeeded in their object, and it looks as if further powers are needed if they are to be seriously carried out. In spite of the changes introduced then, there is no doubt that very great abuses of the system of expense and entertainment allowances still occur, both for personal expenses, entertaining in restaurants and so on, and also in the provision of flats and suites in hotels and so on, for a purpose ostensibly connected with business but frequently apparently as a means of luxurious tax evasion. [Laughter.]

It is easy for hon. Members opposite to laugh at this, but they must remember the conditions under which they are introducing the Finance Bill. We must not forget, for instance, that on several occasions during the Committee stage, in making some concession or in dealing with some criticism, the Chancellor has said, "I hope this will be heard by the members of the Trades Union Congress." It is clear that somehow he believes that some of the things that he has done in the Finance Bill will assist the leaders of the trade unions in the policy of wage restraint. It has already been shown that he is very wrong, but there is no reason why he should go further wrong. If he accepted the Clause he might go a long way towards making the trade union leaders and, more particularly, their members believe in the sincerity of his intentions,

Figures have frequently been given in recent years of the effects of redistributive taxation and full employment and so on in distributing in a more equitable way the national income and narrowing the gap between the higher and lower incomes. These figures are, on the whole, for what they purport to represent, reasonably fair and accurate, but I cannot help feeling—and I am sure my hon. Friends will agree with me—that the true effect of redistribution of income in the last three years has been greatly distorted by two things; first the expenditure of capital, and secondly the increasing use of expense and entertainment allowances. The figures take no account of this. The true relation of consumption as between the different classes of the community can only be measured if these things are taken into account.

I am not going to quote examples, but hardly an hon. Member will not have heard of cases of the type I have described. In fact, it would not be possible for a large number of the luxury restaurants and luxury hotels to exist at all in this country if it were not for the large expense allowances received by hotels, and directors and other senior officials of corporate bodies. [Interruption.] The hon. Member for Kidderminster (Mr. Nabarro) is, no doubt, well informed on these matters.

Mr. Nabarro

Does the hon. Gentleman include in his definition of "corporate body" the nationalised industries and the trade unions?

Mr. Albu

Of course I am including all bodies. The amount received in expense allowance by directors of nationalised industries are published and known, and are relatively small. There is no question whatever but that they are a minute fraction of the amount of expenses in many cases. I do not wish to elaborate the point, but this is a point upon which—as the right hon. Gentleman can hear—there is a very strong feeling on this side of the Committee, and amongst those of us who represent the mass of the people of this country. I believe myself, quite seriously, and quite apart from the sort of joke hon. Members make from time to time, that there is something wrong in the present circumstances about the sort of sumptuary spending we have seen in recent years, which is absolutely out of keeping with the times in which we are living.

I sincerely hope that the Financial Secretary will be able to accept this new Clause, or at any rate a similar one, as a contribution towards the revenue by tightening up tax evasion. I believe he, as well as we on this side of the Committee, is in favour of that. This particular type of evasion is particularly unfair to those who live on salaries and wages, and it seriously opens the door to corruption. I hope that when the Financial Secretary speaks we shall not hear the usual negative that we have come to expect from the Treasury Bench —although I must say the hon. Gentleman has been reasonably forthcoming on occasions—but that he will realise that it is in his interest and that of the Revenue, and that he will give it his hearty support.

Mr. Snow

I hope the Government are not going to treat this matter with levity. Although the hour is late, this is a matter of supreme importance to hon. Members on this side of the Committee. I do not suppose there is a member of my party who has not been confronted with the following situation when we have attempted to demonstrate to our constituents by means of the annual return of the National Income and Expenditure the gradual smoothing out of the income levels in the country. Our constituents have replied that it is all very well according to the White Papers, but what they see going on in the shops and hotels disproves it.

I remember in 1949 the late Sir Stafford Cripps in his Budget coming to the conclusion that the top limit had been reached in the taxation of the upper income groups. I remember at that time thinking that I supposed he knew what he was talking about, but it did not seem right to me. Subsequently I have come to the conclusion that he was right, on the assumption that there is no substantial tax evasion, ut the fact is, as the Parliamentary Secretary to the Ministry of Civil Aviation agreed on an earlier Clause, that there is serious evasion. The question is whether any legislation drafted to cope with it would be enforceable. I am the first to admit that the yardstick by which we should judge legislation is very largely that of enforceability. A brilliant British comedian whose professorial status has beer legitimised by a university has said that a respectable businessman is one who succeeds in living on the expenses he can get through the Inland Revenue. That is typical of the situation as it exists today.

There are three ways in which this type of expenditure is possible. First, by drawing on capital; and I am bound to say in parenthesis. watching the stock market ever since the Government came into office, that one can only conclude that a large section of people prefer to lose money under a Tory Government than lose money under a Labour Government. Then one can get this high and extravagant expenditure by means of capital expenditure. But by far the most likely source derives from the form of evasion we are discussing. On 29th April I put a question to the Chancellor of the Exchequer which read as follows: Whether his regulations provide for companies operating in the Metropolitan area to maintain living accommodation for the companies' directors or staff without the said Accommodation being a personal Income Tax charge on the occupants… The right hon. Gentleman replied: The cost of maintaining such living accommodation would be deductable in computing the company's profits for Income Tax purposes if it was incurred wholly and exclusively for the purposes of the company's trade." —[OFFICIAL REPORT, 29th April, 1952; Vol. 499, c. 68.] Is it possible to judge accurately whether accommodation is used "wholly or exclusively" for the company's trade? I was coming down in the train from my constituency some time ago and I got talking to an opulent gentleman who told me he lived in an exclusive hotel in the West End during the week. I said "That must be extremely expensive, if comfortable." He replied that his real home was in Sussex, but that if his company wanted him to work in London they must pay for an apartment in London. I do not remember that sort of thing being permitted in business in London before the war. If one had a job in London one was expected to live reasonably close to it.

This racket has developed of charging the public—because that is what it amounts to—for a second accommodation, and it should be stopped. I have studied Section 161 of the Income Tax Act, 1952 as closely as I can. Incidentally, I challenge anyone to understand it fully for it is most complex, and it seems to me that there is a loophole here for directors to have this second home charged to the company, the company not paying tax, and the resulting inflation being in fact a charge on the public as a whole.

2.30 a.m.

Mr. G. Williams

Is the hon. Gentleman arguing that if a Member of Parliament has to live in London in order to carry on his business he is not entitled to reclaim Income Tax on that account?

Mr. Snow

That is a facile argument. I should not have thought that it was a serious argument which ought to be put forward. This is a serious matter. We have responsibilities in our constituencies which may be anywhere in the country. I am talking specifically about people whose businesses are in London and who have no reason at all for living elsewhere than in London to cope with their business.

The purpose of this new Clause is to provide the Commissioners of Inland Revenue formally with the facilities to obtain an accurate and honest statement of expenses—no more. With that information it would be possible to codify the expenses allowances that the Commissioners permit under existing law. I maintain that it is impossible for the tax inspectors to obtain the necessary information now, much less to produce a uniform code. I claim that at present the Commissioners are not in a position to practise equity in this matter.

Whatever hon. Members on the back benches opposite may feel about this matter, I warn them that they really must not put themselves in the position of being the protagonists of the petty racketeer in business. That is the sort of impression they will give if they resist this new Clause. We must put a stop to this flagrant evasion of taxation. We must make people conform to a reasonable standard of behaviour.

Colonel L. E. Crosthwaite-Eyre (New Forest)

We have heard the most astonishing mis-statement of fact which has been heard in this Committee for a long time. The Treasury has complete power at the moment to make investigation into any expenses account of any person which they may feel is unfair or unrelated to the expenses which should be incurred in his or her normal task. This Clause, if it means anything at all, is a deliberate attempt by hon. Members opposite once again to promote prejudice against directors. It comes ill from them. They are the people who are trying to say that expenses are bad. Did they do that when they were in office?

Mr. Albu

Yes.

Colonel Crosthwaite-Eyre

Did they? I ask them to consider the Acts of Parliament which they passed and the £10,000 of expenses which they gave to the nationalised boards. Did they think of that one?

Mr. Mulley

Can the hon. and gallant Gentleman give chapter and verse for his allegation?

Colonel Crosthwaite-Eyre

The expenses given to the National Coal Board.

Mr. Mulley

There is nothing in the Act.

Colonel Crosthwaite-Eyre

There is. Perhaps the hon. Gentleman will think again before he challenges me. There were £10,000 given at the discretion of the chairman of the National Coal Board to the members.

Mr. Mulley

How many?

Colonel Crosthwaite-Eyre

What has that to do with it? Here the Clause says that we cannot have more than 1 per cent. or alternatively £100. That is what is the test for a director, and yet the chairman of the National Coal Board is given £10,000 without anything at all—

Mr. Mitchison

On a point of order. The hon. and gallant Gentleman has just made a statement which seemed to me to have nothing whatever to do with the subject matter of this new Clause. May I respectfully call your attention, Sir Charles, to the fact that the object of this Clause is to provide facilities for inquiries into entertainment allowance and expenses. I submit that we are not concerned in the Clause with the amount of the entertainment allowances and expenses. What we are concerned with is facilities for inquiring into them.

The Chairman

I was listening very carefully to what the hon. and gallant Member was saying. He was giving reasons for dealing with this matter of expenses and I thought that what he was saying was quite in order.

Colonel Crosthwaite-Eyre

I do not want to pursue the point, but I think that the humbug of Members opposite ought to be exposed. They try to attack something which, they think, will produce a little benefit, whilst they themselves have for five years done the very thing by promoting expenses to the people whom they themselves favour. Now, they try to have a come-back on a technical point against people against whom, they think, they can in turn secure political prejudice.

Mr. James Callaghan (Cardiff, South-East)rose—

Colonel Crosthwaite-Eyre

No, I will not give way. I want to finish what I am saying. The Inland Revenue at present have complete powers to investigate any particular expense account that they do not like.

Sir F Soskice rose—

Coloncl Crosthwaite-Eyre

May I finish?

Hon. Members

Give way.

Colonel Crosthwaite-Eyre

The Clause adds absolutely nothing to the powers that the Inland Revenue have. It has been put on the Order Paper merely to try to create prejudice—

Mr. Callaghan rose—

Colonel Crosthwaite-Eyre

Let me finish my sentence. I will give way to the hon. Member. I have debated with him before and I am not frightened of him.

Mr. Callaghan

Is it quite impossible for the hon. and gallant Member to understand the simple point that no one is objecting to the payment of expenses or to the claiming of expenses properly incurred, whether by members of nationalised boards or private industry? What the Clause is aimed at, and what, clearly, the Inland Revenue are not able to do, is to check on expenses that are improperly claimed by directors of private companies who are using their business expenses to inflate their private standard of life.

Colonel Crosthwaite-Eyre

Let the hon. Member, who has had the advantage of being six years in Government, produce one case, or two cases, or even a category of cases, in which the Inland Revenue have not been capable of dealing with this. He knows there are not any. [HON. MEMBERS: "Oh."] Of course he does. That happens under the existing reguladons. [Laughter.] The hon. Member may laugh, but for six years his Government introduced Clause after Clause—I see the former Chancellor of the Exchequer sitting beside him. I should be horrified to believe that the right hon. Gentleman was of opinion that a great number of directors had got out of the net which he had woven to ensure that they did not incur any undue expenses. During the time of the last Government Clause after Clause was introduced to see that no undue expenses were incurred. This Clause is not to try and strengthen the revenue at all; it is to try and make prejudice against directors. That is its sole purpose.

Sir F. Soskice

The hon. and gallant Member has now said about three times that the Commissioners have already all the powers which are set out in this Clause. Will he be so good as to look at subsection (4) and then tell me in what section of the Income Tax code the powers there given are contained?

Colonel Crosthwaite-Eyre

I must admit that the right hon. and learned Gentleman has got me at a disadvantage.

Sir F. Soskice

Will the hon. and gallant Gentleman, then, withdraw what he said about this being a Clause that gives no further powers but simply is done for prejudice?

Colonel Crosthwaite-Eyre

I certainly will not withdraw. If the right hon. and learned Gentleman looks at subsection (4) he will see the whole thing is permissive. [Interruption.] I do not think that is fair.

Mr. Callaghan

No arguments and no manners.

Colonel Crosthwaite-Eyre

If the hon. Gentleman thinks that, it is a compliment to myself.

The Chairman

I do not think that we should shout across the Floor of the House at each other.

Mr. Callaghan

As you are making this implied rebuke, Sir Charles, may I ask you whether it is, in your view, consistent with normal practice in the House for an hon. Member to make an allegation that this Clause has been put down with a view to prejudicing a particular class of persons, and, when he is challenged on that by my right hon. and learned Friend, admits he has no evidence and, indeed, that he is at a disadvantage, and then to continue with his argument and refuse to withdraw his allegation?

The Chairman

That is not a point of order.

Mr. Callaghan

I did not make it as a point of order.

The Chairman

I do not think that we should start shouting things across the Floor of the House.

Mr. Callaghan

I fully accept that. I just want to say, with your permission, that in my view the hon. and gallant Gentleman has put himself right outside the court of the House and has no longer any right to be heard.

Colonel Crosthwaite-Eyre

The hon. Member is always most free of his allegations when he is less certain of his ground. I never pretended to be a legal expert and never have done. [Interruption.] Perhaps some hon. Members opposite would have the grace to look at the Order Paper. [Interruption.] I have it here. I shall not read the whole Clause. It is a purely permissive Clause that starts, "If the Commissioners." The former Attorney-General would not expect anybody except someone well versed in the law—[Interruption.] I am sorry—I am trying to be honest with the House.

Sir F. Soskice rose—

Colonel Crosthwaite-Eyre

May I finish? I want to answer this question. Some rather sharp remarks were made and I only wanted to say that here is a very tricky legal question. I do not pretend to be able to answer immediately, but I do believe that it did not invalidate my case; and if I gave the impression that I thought my case had been invalidated by what the right hon. and learned Gentleman said, I wish to make it clear that I did not mean that at all. I simply meant I was not prepared to take on any small legal definition he might have in his mind at the time.

Sir F. Soskice

I am very much obliged to the hon. and gallant Gentleman. He brought this all on himself by making a statement that this Clause was simply put down for purposes of prejudice and contained no new powers. I then asked him to look at subsection (4) and tell me in what section of the Income Tax code the powers therein contained are conferred. He said that he could not refer me to any section and that the powers in subsection (4) are permissive. They are always permissive. The powers in Section 31 of the Income Tax Act, 1952, are permissive. The Commissioners are not bound to do these things. They have the right to do them if they think fit.

2.45 a.m.

Colonel Crosthwaite-Eyre

May I say again—[HON. MEMBERS: "Give it up."] Certainly not; there is nothing to give up here. I am the first to admit that the right hon. and learned Gentleman may be correct. [HON. MEMBERS: "He is correct."] Then he is correct—all right. It does not alter the main argument that this Clause was put down not with the object of strengthening the hand of the Revenue but purely to create prejudice. No hon. Member opposite said anything to show that this Clause will do anything to strengthen the powers of the Revenue, despite whatever may be the technical point as to their additional powers. That is an entirely different matter from strengthening their hands.

If any hon. Member opposite could show how this can strengthen the position vis-à-vis the Revenue they would have a case; but in all the speeches which I have heard—even that of the right hon. and learned Gentleman; and I would be the first to admit that a technical case had been made out—on the only issue which counts, which is how this is going to ensure that money is not taken away from the Revenue which should be in the pockets of the Revenue, they have said nothing. I am only too ready to admit that I may have been wrong in saying that subsection (4) does not produce some technical power for the Revenue; but the great thing to consider is whether this really means that people who are trying to defraud the Revenue are more likely to be caught. If it does, well and good; but if it does not—and I suggest that it does not—this is merely a Clause put down to try to make political prejudice and not to serve the nation.

Mr. Mitehison

The kindest thing we can say about the speech which we have just heard is that it is better not to comment on it.

I should like to go back to the Clause which we are considering, just to see what it does seek to do. I do not pretend to have exhausted all the powers of the Treasury; but 1 think I have been fairly thoroughly through most of them, and I think I am right in saying that this Clause adds very definitely to their powers. Subject to correction, I am not certain that a fully itemised account could otherwise be required, but I am certain that the powers in subsection (4) are quite new.

I think that both sides of the Committee would agree that if expenses or entertainment allowances of this kind are abused there can be no doubt whatever that the fullest powers should be given, and if powers which have been thought full enough in the past prove not to be sufficient those powers ought to be extended. It is obvious that no one in this Committee will be able to give a large number of detailed instances, and even where they know of instances they are not likely to be able to give particular information about them, and may be in difficulty about giving information at all. That is one side of the case.

The other point is this: it is common knowledge now that expenses and entertainment allowances are a matter of abuse, and are known to be a matter of abuse, and beyond the existing abuse they are firmly known also to be a widespread source of avoidance of taxation. If we start with the belief itself I can imagine nothing more dangerous and damaging now than that the belief should be there, even if it were grossly exaggerated or unfounded.

I think that in a matter of this sort one can appeal to the commonsense and knowledge of the world of hon. Members of this Committee. We do know perfectly well that not only does the belief exist, but that there is substantial foundation for it. What we do not know is the extent of the existing abuse, nor the extent of the avoidance. If that statement is right, and I have tried to put it as fairly and uncontroversially as I can, it does show the need for the extension of the present powers. Once we come to that we have to say what is needed by way of extension. In a matter of this sort I attach, and I suggest the Committee ought to attach, great importance to the possibilities of oral examination.

Mr. Nabarro

Would the hon. and learned Gentleman allow me to ask him, because he is well versed in these matters, as are other hon. Gentlemen, whether it is not a fact that at present under Sections 38 and 39 of the Finance Act, 1948, where any reasonable doubt exists about the validity of a director's expenses the inspector of taxes will assess the whole of the expenses to Schedule E, and the onus of proof for the validity of the expenses is on the director? If he is unable to prove it the situation is that he remains assessed to Schedule E tax and has to pay that tax.

Mr. Mitchison

I do not think that is a full statement about that. The hon. Gentleman is referring to what are now Sections 160 and 161 of the Income Tax Act, 1952. There are two bodies concerned. One is the company concerned, and the other the director, or any other person taking the benefit of these allowances. It is true that Section 161. which is, I think, what the hon. Gentleman has in mind, because it is the old Section 39 of the Finance Act, 1948, goes some way in that direction. I do not think the hon. Gentleman denied for a moment that that has been effective in stopping the abuse of these allowances and these expenses.

That is the point we are concerned about at the moment. If the hon. Gentleman, who, and I speak without any offence, has obvious knowledge of this matter is prepared to get up and say of his knowledge, and to the best of his belief, that there is no abuse of expenses and entertainment allowances, then, speaking for myself, I should attach great importance to that statement.

I very much doubt if the hon. Member, or any of his hon. Friends in the Committee, is prepared to get up and say that. It is such common knowledge that, in fact, there is abuse of the powers of inquiry and of the ability to throw back the charge on to someone else, and that the powers are insufficient. That is the point which we have in mind and I repeat it because I think it is necessary for the Committee to remember it, that we cannot know, in any detail, what we have to do. There is some abuse, and we know that the belief in the abuse goes beyond the abuse itself.

One has to consider the moral effect and when the Labour Government were in power they brought in the two sections of the Finance Act of 1948 which are now under review and which are being re-enacted in the 1952 Act. It was because of the existence of the abuse, and because of the public damage caused by the belief in it. After all, we have to remember that this does not apply to the wage-earner in the ordinary sense, who is being asked now, as he has been for years past, to put his back into it, to produce more, and all the rest of it; and at this moment he is being asked to do these things in the face of rising food prices, a rise in the cost of living generally, and with shortage of money, and with the fear of unemployment becoming more and more very real. As we all know, actual unemployment is affecting many of these people.

One has only to look around London and, to a lesser extent in other large cities, to know perfectly well that there are people who are not wage-earners in the ordinary sense, but who are managing companies or holding directorships, who are using these expense allowances to get a partial tax-free standard of living which they otherwise would not have. To that extent, they are putting on the backs of the ordinary man and woman a burden which ought not to be theirs.

Mr. Nicholson

It is the hon. and learned Member's job to prove that the powers are inadequate; not to prove that they are not used.

Mr. Mitchison

I do not want to repeat this again, but shortly, I would say, because I have been asked, that I invite any hon. Member of this Committee to get up and say that there is no abuse of expenses and no abuse of entertainments allowance. If the hon. Member will get up and say that I will give way.

Mr. Nicholson

Are the powers inadequate, if properly administered?

Mr. Mitchison

The hon. Gentleman, if he will allow me, is a very honest man. I did not expect him to get up and say that there is no abuse. But, if there is some abuse, then the powers are insufficient, or they may be improperly administered.

3.0 a.m.

I do not make such a suggestion, especially as the Revenue authorities and the Treasury authorities are among the most competent of the public services: they have powers of this sort and they used them properly. But I put it to the hon. Member and to the Committee that if, in fact, there are abuses, then the obvious conclusion is that the powers of the Treasury to investigate and check them are insufficient. I think we can rely on the Revenue Department and the Treasury to use those powers fully and adequately.

The question is whether the powers are sufficient. If the abuse exists—and that, I understand, is admitted—then surely the conclusion is that the powers to check it are inadequate; and when the point is made that the powers should be enlarged, then the Committee should look at it most favourably.

If this abuse were remedied it would do much for the morale of ordinary men and women who are being called upon to increase production, and to do it on a standard of living that now tends to fall and at the risk of unemployment. Yet these people see others admitting this abuse and getting a tax-free standard of living to which they are not entitled, because Parliament declines to give the Revenue sufficient powers to enforce what we all agree should be the law.

Mr. Boyd-Carpenter

This has been a lively debate, but the new Clause raises a comparatively narrow point—as to whether or not the existing powers of the Inland Revenue to obtain information with respect to this particular type of allowance are or are not adequate.

In so far as it is the intention of the hon. Member for Edmonton (Mr. Albu) in moving this Clause to prevent the evasion of tax by the submission of in- accurate or false claims, one naturally has a good deal of sympathy for it. No-body on either side wishes that people should evade taxes imposed by this House and it is perfectly right that we should try to see that the officers of the Government who have the difficult duty of administering these taxes should have adequate powers of doing their job.

But if one looks at the terms of the Clause one is the more impressed with the narrowness of the point raised. It does not purport, as I understand, to alter in any degree the substantive law as to what types of allowances are permissible for deduction for tax purposes at all. All it seeks to do is to give to the Inland Revenue, in respect of this alone, further inquisitorial powers. Two points, there-fore, arise for the Committee to consider: first, whether the existing powers of the Revenue are adequate or not so far as obtaining information is concerned; and, second, if they are adequate, whether this is the right way to reinforce them.

In order that the Committee may make up its mind on these issues, I think it would be desirable if I might be allowed to put to the Committee the existing position. Claims in respect of entertainment expenses, as indeed for other forms of claim for expenses against the profits of businesses are in the first place made to the local inspector of taxes and in the great majority of cases the tax-payers produce to the inspector such accounts or evidence as he asks for. In the vast majority of cases the matter is settled between the taxpayer and the inspector.

But if the inspector, who at this stage is on a purely voluntary basis with the taxpayer, is not satisfied that sufficient evidence has been produced to justify the claim to these expenses, he has the very powerful weapon available that he can simply disallow the claim. If he disallows the claim, the taxpayer has two alternative courses open. He can accept the disallowance or he can go on appeal either to the general or, in special cases, to the Special Commissioners.

If he elects to go on appeal to the Commissioners the onus is on him to establish his case and to make out the claim by means of adequate evidence. It is for him to bring forward such evidence as he thinks will support his claim before the Commissioners, and the Commissioners can either allow or disallow his appeal.

At that hearing the Commissioners have power to receive evidence—it may be on oath—from either the appellant or his employees, and they can examine any other person they require, and in relation to cases concerned with business profits they can call upon the taxpayer, in their discretion, to produce accounts, etc., relating to the point at issue. I would stress that it is in the taxpayers' interests if he is pursuing an appeal to produce satisfactory evidence in support of his claim, since, if he does not do so, he incurs the risk of losing his appeal and, therefore, the whole object of his claim.

Clearly, these powers are substantial, but in addition in only a minority of cases, I am glad to say, that there are special powers. I hope we shall proceed on the basis, which I believe to be a fact, that the overwhelming majority of taxpayers are honest men and that the desire to defraud the Revenue, though it exists no doubt in the case of a small minority, is probably smaller in this country than in any other country in the world.

In the special cases which arise there are in reserve the special powers, to which reference has already been made in the debate, in the hands of the Board of Inland Revenue under Section 31 of the Income Tax Act, 1952. In substance these powers extend to the requiring of the production for inspection of business accounts and documents about trading transactions, and, finally, there is the reserve power that false or fraudulent statements may receive the attentions of the criminal law.

In the light of this, it really seems that the powers of the Revenue to sift these claims are considerable, and it is, therefore, somewhat doubtful whether there is any need to superimpose upon them the further series of different powers suggested in the new Clause, relating, as I have said, to one class of claims. It seems to me that we have armed the Revenue with fairly considerable powers.

The hon. Member for Lichfield and Tamworth (Mr. Snow) referred to abuse—we can differ as to the degree but no hon. Member will dispute that there is some abuse—and said that something must be done about it. That is a very facile line of argument because it begs the whole question whether this is the right "something."

I think I have put to the Committee, I hope adequately, my view that under the head of information relating to this type of allowance the powers vested in the Revenue are already very considerable and that it really 'does not seem necessary to superimpose these new powers upon them. The new powers rather cut across the general powers of the Revenue and, from an administrative point of view, it would be very inconvenient to invest them with certain powers under one head while, presumably, the existing powers would continue over the rest of the field and, contemporaneously, the biggest part of the field.

The proposals themselves in the Clause would be very severe. The production of itemized lists detailed within 18 months is a fairly heavy duty to impose upon people. Frankly, I would not hesitate to impose it if a case could be made out for it being really helpfully necessary. But no one wishes to impose upon a class of taxpayer, the majority of whom, Mr. Thomas, are as respectable as you or I—I will put it higher; as respectable as you, Mr. Thomas,—heavy duties unless it can be shown that the doing of that will remedy a substantial evil.

I will suggest again, in view of some of the speeches that have been made, that we are not at this stage at any rate discussing the general question of taxable allowances. They are a matter, of course, upon which it is very easy to arouse feeling, as we have seen on both sides of the Committee, and it is understandable that that should be so. I make no complaint.

Mr. Mulley

The hon. Gentleman 'certainly met the difficulty in which an hon. Friend of his was placed with regard to a Clause concerning Estate Duty. I think my hon. Friends wish to raise the general question of expense allowances, but we are in the same difficulty as his hon. Friend in framing a new Clause I which would be within the rules of order. Since the hon. Gentleman conceded that point to his hon. Friend, he should not take such a narrow view in this case.

Mr. Boyd-Carpenter

It is not for me to say what points can be raised in this debate. That is your duty, Mr. Thomas. My duty is to deal with the specific affairs hon. Members have put on the paper and which, it appears, they seek to insert into the Finance Bill. Because, if they desire to press this new Clause they are seeking ultimately to include the Clause in the Bill and effect an alteration in the law of this country. Therefore, I do not think it is my duty now to go into the whole general question as to whether allowances should be granted, for what purposes, to whom and in what circumstances. These are interesting questions but I do not think they are directly dependent upon this Clause.

I certainly did not understand from the hon. Member for Edmonton (Mr. Albu) that the Clause was intended— as the hon. Member for Sheffield, Park (Mr. Mulley) now seems to indicate simply as a peg upon which to hang a general discussion on allowances. The hon. Member for Edmonton moved it as a serious contribution to the law on that subject. It is certainly upon that basis that he would wish it to be considered.

Mr. Mitchison

Would the hon. Gentleman answer one question? The existence or non-existence of abuse of the allowance is very serious because if there is no abuse, then clearly the existing powers are sufficient. If, on the contrary, there is abuse, surely the hon. Gentleman will agree that that is a very cogent argument that the existing powers are not sufficient. Perhaps he will let us have his view of the extent to which abuse exists at the moment—if, in fact, there is any?

3.15 a.m.

Mr. Boyd-Carpenter

I have already made a comment on that, as the hon. and learned Gentleman will no doubt recall, but if I may follow up what he has said it is really no conclusive argument for these proposals even to say that the existing powers are in general inadequate. My own view is that they are adequate, but even if the hon. and learned Gentleman is right and I am wrong, it still does not follow logically that this curiously narrow point raised in this Clause is the right way of dealing with the matter. I am sure that he will appreciate that consideration also.

Our view is the one I expressed earlier. I do not think that these powers are needed or will help. It is, of course, the duty of this Government, as it is of every Government, to ensure that the taxation imposed by Parliament, as, indeed, the laws passed by Parliament, are carried out. We shall, of course, watch the operation of this very difficult branch of the law, and if it does appear to us that we could usefully be armed with further powers we should not hesitate to come to Parliament and ask for them.

We shall certainly watch the matter because we have made it clear for every reason, fiscally and psychologically, we have no wish for legislation made by Parliament to be avoided. But in view of that attitude I have to say that we do not, after consideration, think that these particular powers will help us, and having come to that conclusion we are driven inescapably to the further conclusion that if this would not help us it would be wrong to ask Parliament to give us these powers. For those reasons we must oppose the new Clause.

Sir F. Soskice

We have listened to a very courteous and painstaking reply, and I am sure that we are all grateful to the Financial Secretary.

On the narrow front, he admitted, as the main plank of his argument—I start from the assumption, which anyone who has considered the subject will certainly make—that although it is the case that the vast majority of taxpayers do their level best to pay their proper due there is an unscrupulous minority which preys upon them, and abuses the facilities for avoiding tax obligation. The field in which the abuse goes on is in the entertainment expenses and the expenses falling within the purview of Section 160, which takes the place in the new Income Tax Act of Sections 138 and 139 of the 1948 Act which the late Government introduced.

I believe, and I feel sure all Members will agree, that if we put party prejudice aside, as I hope we shall in a matter of this sort, I am right in saying that there is considerable abuse by an unscrupulous minority in these two fields. On that assumption I shall try to answer the purely legal aspects of the Financial Secretary's argument.

Sir Ian Fraser (Morecambe and Lonsdale)

Why must we assume that in this particular field, to the exclusion of all others, there is a group of people who act deceitfully or particularly knavishly against the Revenue? In other fields of taxation there will be some who seek to evade, but probably the great majority do not do so. Why must it be assumed that in this particular field there is a particular class who must be dealt with in this particular way?

Sir F. Soskice

I certainly do not say that evasion does not also take place in other fields of the tax system. I was saying that, especially in this field, everybody who looks at current events knows that evasion in particular takes place. I think that everybody will agree that that is so.

I pass from that to the purely legal aspect on which I should like to answer what the Financial Secretary has said. He made two comments which, I think, were wholly inconsistent. First, he said that the powers already vested in the authorities were far-reaching and that it was questionable whether anything further was necessary and, indeed, whether the new Clause went much beyond the powers already possessed. Then, rather shifting his ground, he went on to say that this was a terribly severe Clause and that we ought to hesitate before we vested the powers contained in it in the authorities. Those two positions are difficult to reconcile.

I adopt the medium course. I agree that Section 31 of the Income Tax Act, 1952, gives drastic powers. Equally, I entirely agree that it is always open to the inspector to over-assess a person so as to disallow his expenses. Then the necessity is put upon the taxpayer of trying to establish in the affirmative, before the General or Special Commissioners, that he is entitled to allowances that he seeks.

I agree with the Financial Secretary about both those considerations. But this new Clause does something entirely different from that. It goes beyond that. It does not go beyond it to an extent which I would suggest to the Committee is at all excessive, but it goes beyond it and gives powers which are different in kind. First, it is all very well to say that the inspector can wait till he gets before the appeal tribunal of the General or Special Commissioners and then cross-examine the taxpayer.

That is a late stage in the proceedings. It is not always easy when one gets before the final tribunal of fact, because that is what it is, to make sure that one will have the material to hand to demonstrate that a claim which is put forward is falsely founded. The dice, as I think the inspectors will testify themselves, is often heavily loaded against the person who is trying to displace a claim put forward by a taxpayer who asserts, without very much detail, that he is, in fact, entitled to the claim which he puts forward.

Sometimes one can break it down. Often the material is not to hand to enable one to do so. What this Clause does is to give the inspector an opportunity of furnishing himself with that material before he comes before the appeal tribunal. He then comes with a fully documented brief and with the matter which he can put to the taxpayer when he is in the witness box. He is given that opportunity by this Clause.

The Financial Secretary may say, "Yes, but he has enough authority in that respect under Section 31, because that Section enables the Commissioners of Inland Revenue to require the production of accounts." But if the hon. Gentleman will compare what Section 31 provides with what the new Clause provides—both of them dealing with the pre-appeal position and designed to furnish the inspector with the material upon which to cross-examine before the tribunal—he will find that the new Clause gives new useful powers to the inspector.

I will enumerate some of them. Under Section 31 he can ask for accounts relating to the business. Under the new Clause not only can he do that, but he can require a statement as to how and in what circumstances each and every item of this expenditure claimed is said to have been incurred. Those two are very different. One may have an account which may contain a general unitemised statement of certain categories of expenditure. Here, one is given the opportunity to see that it is itemised. That is one difference.

The Clause also requires that the taxpayer shall supply an affidavit stating that the return he has made in relation to expenses is complete, and that he has disclosed all the documents in his power and control. If he swears an affidavit and is found to be wrong he is guilty of a criminal offence: he is guilty of perjury.

Under Section 31 there is no power. The taxpayer is told to produce certain documents, and that is all. The new Clause goes still further in subsection (4). It goes a great deal further, and the Committee will have to consider whether, in their view, it goes too far. I suggest that it does not, but that this is what it does. It says that if the Commissioners are not satisfied that full compliance has been made with a request to produce accounts, and if they are not satisfied that the affidavit is true, they can require the taxpayer, if he is an individual, or, if the taxpayer is a company, its proper officer, to attend before an officer of the Board of Inland Revenue to be cross-examined on oath. All that can happen before the matter comes before the appeal tribunal.

Whether those powers are too extentive is a matter for consideration, but that they are effective, I suggest, is beyond all controversy. If the inspector is enabled, before the matter gets to the appeal tribunal, not only to be furnished with an affidavit and all documents have been produced, to be informed how each item of expenditure is said to have been incurred and in what circumstances, and if he is further enabled to cross-examine on oath the person who has furnished the particulars, and who is seeking the tax relief before he gets to the appeal tribunal, what is beyond controversy is that those powers are drastic and effective and that the inspector can put himself in a position to cross-examine with real effect if a taxpayer seeks to establish his claim before the Commissioners.

The question is whether those powers go too far. They do not, I suggest, because they are limited so as to be usable only in a particular category of cases: those in which the expenses plus the entertainment allowance, as defined in subsection (1), exceed 1 per cent. of the profits as computed without deduction of that entertainment allowance and expenses. Therefore, it is only in a limited category of cases that the powers are exercisable at all. In other words, it is only in a case where there is a fairly substantial claim in respect of these entertainment expenses and the other expenses.

Mr. Nabarro

Suppose, for example, that we are talking of a company director with an income of £1,000 a year. One per cent. of that—[HON. MEMBERS: "Only £1,000?"] That is not an unreasonable sum for a company director. [An HON. MEMBER: "It is a very rare sum."] One per cent. amounts to a total expense of £10. The average company director would spend £10 on travelling in one month in the legitimate pursuit of his business, and that is an expense.

Sir F. Soskice

It has to be an expense, in the case of a director of that sort, which is devoted solely to entertainment.

Mr. Nabarro

The Clause does not say so.

Sir F. Soskice

Certainly it says that. It is entertainment allowance in the case of an individual, or expenses in the case of a body corporate, so that the director would have to have made a claim in excess of £10 purely for entertainment expenses out of his salary of £1,000.

The Committee may think that the 1 per cent. ought to be altered upwards or downwards—upwards, the hon. Member would no doubt have it; I am not speaking in any derogatory sense; he thinks that it is too low—but the principle of the Clause ought to be accepted: that we fix a limit beyond which one is, as it were, in the realm of suspicion. If he makes his claim beyond that limit, whatever it may be—we have fixed it at 1 per cent.—a person should consider himself liable to have these inquiries made of him and he should be under the obligation of answering questions which are put.

That is the basis on which the Clause is framed. If there is a real problem in the way of evasion, I urge that it is the duty of the Committee to furnish the Commissioners with adequate powers to deal with it. If the evasion is not dealt with, it simply means that the general body of taxpayers suffers quite unnecessarily under an injustice which should not be put upon them.

I quite agree that this is not the sole panacea for the problem. It is also most important that there should be adequate staff, adequately trained, and so on, and the process of recruiting and training staff has been going on for some time. But recruiting staff and training them is one thing. Having been acquired, the staff should be armed with adequate powers to exercise in case of need. It is for these reasons that the Clause should be accepted by the Government. It is necessary and not excessive, and it does give powers not at present possessed.

3.30 a.m.

Sir I. Fraser

Could the right hon. and learned Gentleman say whether he would apply these tests to Members of Parliament's expenses?

Sir F. Soskice

Anybody is within the scope of the Clause, but, generally speaking, Members of Parliament do not incur more than £10 by way of purely entertainment expenses. If they do, the 1 per cent. can be adjusted upwards. We put in 1 per cent. because we thought that would probably be about the right figure in cases of bodies corporate.

Mr. Beresford Craddock (Spelthorne)

Why have hon. Members opposite discovered this discrepancy only now? Why did they not discover it during the last six years?

Sir F. Soskice

The last Government took a great many steps in this direction. They took steps to increase the available staff and proceeded with its recruiting. Then they went further and introduced Sections that have already been referred to in the Finance Act of 1948, which now find their place in the Code which began at Section 160 of the Income Tax Act, 1952. That has still not proved to be adequate, and that is why we now urge upon the Government to take this third step necessary to complete the process.

Mr. Boyd-Carpenter

No one would complain of either the tone or the substance of what the right hon. and learned Gentleman has said. But his legal argument, which is perfectly valid, I am sure —I would not venture to challenge him on that—does depend on two assumptions. It depends, first, on the assumption that it is in this particular field, the entertainments allowance field, that the major part, at least, of the trouble exists. It depends, secondly, on the assumption that the difficulty of dealing with it derives from lack of information. If those two assumptions of fact are made out, then the right hon. and learned Gentleman's argument has the greatest force.

But we do not accept these assumptions of fact, and, if one does not, then, naturally, one does not accept the logic of what the right hon. and learned Gentleman has said. We are not convinced, for the reasons I have given, that there is need for these additional powers. Once we recognise all this—and we have made detailed inquiries into this matter—then we arrive at the ordinary constitutional principle—which I hope hon. Members will accept—that a Government is not entitled either to ask for or to have forced upon it powers over the subject and over the citizen which it does not believe to be necessary. That is surely a sound principle, and it is really a matter on which we are entitled to press our views upon the Committee.

After all, we have the responsibility to Parliament and this Committee for the administration of the tax. If we fail to collect the tax the House will properly hold us responsible. Equally, we must abide by the principle that where the case for taking powers is not made out, those powers should not be conferred on the Executive, either at the Executive's request or, indeed, forced upon it. That sums up our attitude, and I hope that, whatever decision the Committee comes to on that issue, we may be able now to come to a decision.

The Committee has a good deal of work to do, although the dawn has not yet come through the windows. I hope the Committee might now take the view that the arguments have been stated and that we can now decide, if necessary by the traditional method which this Committee adopts.

Mr. Shackleton

The Financial Secretary has left the Committee in a very great difficulty. I think we have reached the stage when it might be said that the discussion is only just beginning, because we have now got to a point where the Government, having rejected the proposals for additional powers to enable them to deal with a problem which is now fairly admitted throughout the Committee to be a serious one, and while saying that they do not need these powers, have no alternative suggestion to make beyond the general observation that they will watch the situation.

The case which has been made out on the narrow issue—and which has been explained so very forcibly and fully by my right hon. and learned Friend the Member for Neepsend (Sir F. Soskice) —does help to fill a gap in the system of tax collection by dealing with this particular problem: I think it is necessary to look at the mechanics of the system of dealing with expenses in a particular company. The normal procedure is for a member of the firm—a director or the chairman—to submit a form of expense account which, ultimately, finds its way to the secretary of the company, or somebody else, and in due course the director or chairman receives a cheque directly or through his bank.

In time, those expenses will find their way to the local tax authorities, who may then have to make a decision which to some extent might be called an intuitive decision. They will have to judge the general position and, in the light of their knowledge of what is customary with regard to entertainment expenses, to judge how far they regard those expenses as reasonable.

If it is apparent to them that the expenses have shot up very much, taking into account the type of business carried out by the firm, they may query some of those expenses but, broadly speaking, they will accept them on the basis of fairly slight evidence. Itemised accounts may be made available, but even though they may look impressive those accounts may not give the essential nature and purpose of the entertainment.

I think that we are in a very serious difficulty. All hon. Members will probably agree that at one time or another they have heard somebody inviting them or their friends to have lunch "on Mr. Butler" or, in the days of the previous Government, to lunch or dine "on Mr. Gaitskell."

The Temporary Chairman (Mr. George Thomas)

Order. The hon. Gentleman must not name right hon. Members.

Mr. Shackleton

I think it is in order for me to quote statements uttered outside the Chamber. I am not referring directly to either right hon. Gentleman; I am merely quoting statements.

It has become part of business custom for people to lunch and dine together on the flimsiest of excuses, and they do it at the expense of the Chancellor and of the country without feeling that it is wrong to do so. To some extent this is a moral problem. I am not one of those who believe that this new Clause will solve the problem, but I think that a clear case has been made out that it will go some way towards helping to solve it, and it is for that reason that we are urging the Government once again to consider the case which has been put forward.

Although the Financial Secretary tried to keep the debate on narrow lines, I think it is necessary to consider this problem in the general context. We hear demands for wage restraint. Could not we have an appeal for expenses restraint? Could not the issue be put fairly before the people who are using these expenses lightly—and probably without any idea that they are defrauding the country—because this is a practice that has grown up during the past few years? There are some who are undoubtedly aware of what they are doing. But this is a case where, at least, I think the Government ought to tell us what they are going to do to deal with this problem. If they cannot come forward with any better suggestion, and reject the proposal we have made from this side of the Committee without giving their own version or alternative plan, other than that they will watch the situation, I think they are failing most lamentably in their duty of serving the public interest.

I would only make one other small point. We have had the question of expenses of Members of Parliament raised during the discussions. One hon. Gentleman the hon. Member for Lonsdale and Morecambe (Sir Ian Fraser), who entered the Committee recently, and left it very quickly, raised a point without bothering to discover what we were discussing. It is important to realise that that is a different matter from the one we are discussing, and that it does not do to bring that matter into our discussions, especially where we are trying to deal with a different problem.

I would conclude by asking the Financial Secretary what steps he proposes to take as an alternative to the proposals which I think will help, when one examines the actual mechanics of the presentation of expense accounts, the Income Tax inspector who has to collect the tax to do his job more efficiently.

Mr. Mulley

I do not apologise for rising to speak on this Clause, which is important. If hon. Gentlemen opposite get a little agitated they should recollect that they have speech by speech, Amendment by Amendment and Clause by Clause occupied the Committee as much as this side, and should not come in with indignant looks such as the Patronage Secretary has when we are considering this important matter. I suggest that hon. Gentlemen opposite should contain themselves white we try to get a complete answer from the Financial Secretary. This is, in essence, the same point that was raised earlier about the powers of the Inland Revenue to produce books, or to ask for books and accounts to be produced by people when putting in their profits statements. The same argument was then brought forward that the existing powers were sufficient, and that is the argument we have heard again from the Financial Secretary.

My right hon. and learned Friend has dispelled any doubts the Committee may have had about additional powers the Clause might give to the Inland Revenue in this matter. There is a very substantial additional point. I hope that the Financial Secretary will concede the principle we are making, and that if he cannot accept the actual detailed formula of the Clause he will realise the difficulty in which the Opposition are in formulating new Clauses, because one has only to suggest in a remote manner that a new tax or incidence of tax may arise for an individual and that Clause is out of order.

It would be much easier for the Government to bring forward proposals on this subject than it is for the Opposition, and I hope he will concede the point and say that on the Report stage he will deal with entertainment and other allowances, which everyone has admitted, by not accepting the challenge of my hon. and learned Friend the Member for Kettering (Mr. Mitchison), are being abused. It is not so much a matter of tax evasion. It is in many cases a matter of tax avoidance. The expenses incurred are perfectly legal. There is no question of their being anything that the Inland Revenue can do about it. It is an extravagance permitted by the law as it stands.

All my hon. Friends want is the law to be altered to curb the extravagance. Let me illustrate it by an example. I would refer to the expenses of an hon. Member, as such. If an hon. Member who has a business or directorship, or an income assessed under Schedule D brings an acquaintance to lunch in the House, then he can charge the whole cost against his assessment. But if an M.P. invites a constituent to a cup of tea—or a pot of tea it has to be now, following the decision of the Kitchen Committee—then that cannot be charged against a Member's income in any way whatever. There is no provision for entertainment expenses, of whatever percentage, against Schedule E assessment. Again, if an hon. Member with other source of income goes home by taxi-cab and claims that he needs to go home more quickly in order to arrive fresh for the next day's business, he can claim that against his assessment. But an hon. Member who has no such Schedule D assessment cannot thus claim, even though no alternative means of transport exists at this hour of the morning.

3.45 a.m.

The Schedule D requirement is merely that the expense was exclusively and wholly incurred for the purposes of the person's trade. It is the only requirement which has to be shown, and the Inland Revenue authorities have no power to say that it is extravagance. If a man spends £10 with the objective of earning LI, then that is a matter for the trader and not the Inland Revenue; no law states that one's calculations must be to profit and not to lose. It is perfectly in order if it is shown as coming within the wide definition of "for the purposes of trade." Nothing whatever can be done about it ranking as an expense.

But if one's assessment is on Schedule E. one has to show, in addition to incurring the expenses "wholly or exclusively" for one's occupation, that the expenses were necessarily incurred; and because an M.P. can turn away a constituent without a cup of tea, he can have no claim whatever to entertainment expenses. That is the difference between Schedules D and E.

A business man may ride in a large car, whereas his workman has no means of claiming the modest charges he incurs in his travelling to work. There must be a great abuse by way of this tax avoid- ance. It is the means of people living far beyond what their taxed income could provide. I think it is true to say that there is a mere handful of people who are able to buy, from their taxed income, a Rolls Royce car; and yet Rolls Royce sell a considerable number of their cars in this country every year. They are, of course, bought by persons obtaining these allowances and the Inland Revenue authorities, with their present powers, cannot decide if it is necessary for a Rolls Royce to be bought or whether a more modest car would serve the purposes of the business.

How many business people found it "wholly or exclusively within their trade or profession" to be at Epsom today to see the Derby? I would say that the Chancellor paid for a large number in attendance although his public duties forbade his being there in person. And all this takes place at a time when we are asked to go back to our people and urge upon them a policy of wage restraint. The Financial Secretary of the Chancellor should consider the principle of what we want to do, even though he is not prepared to accept the actual detailed wording of the new Clause.

Sir R. Acland

I should like to explain to hon. Members opposite, and particularly to the hon. Member for Kidderminster (Mr. Nabarro), why we on this side feel that a matter of principle is involved in what has been described as a "rather narrow" issue.

The way we behave depends a little on what we think is likely to happen to us if we should be caught behaving wrongly. We would all concede that railway fares ought to be paid and probably a considerable number of us would, in fact, pay our fares even if there were no ticket-collectors. But for a great many people the actual presence of a ticket-collector at every barrier does just tip the balance between paying and not paying. If the situation was that there were there ticket collectors on approximately one in ten of the barriers and, if, on approaching the barrier—

The Temporary Chairman

Would the hon. Baronet tip the balance back to the new Clause?

Sir R. Acland

I was giving a simple illustration, Mr. Thomas, of how human nature reacts to circumstances and that is precisely relevant to the powers which the Treasury have. If one barrier in ten was manned, and the only thing necessary to do was to approach a manned barrier to purchase a ticket, enormous numbers of people would not pay.

Is that not analagous to the present position? As I understand, suppose a director puts in a claim that his expenses have been £250. The only thing that can happen to him on that is that he is asked to give details in writing. He gives them and that is not very difficult. if the inspector is not satisfied with that, the return will come back to him, with the inspector's own idea of what the expenses should be—say, £100. If the director does not feel that he can prove that much more he will settle and lose nothing. Later, he might get the inspector to agree to £150 or £170. If he. thought he had an overwhelmingly strong case he could appeal and he could be cross-examined.

The thing which cannot happen to him under the present law is that he can never be cross-examined on oath on his first statement of his own expenses. He can put in that statement of expenses almost where he likes. If it goes through unchallenged, he has got away with it. If he is challenged, nothing unpleasant happens to him except that he has to accept the lower figures. The powers in the Clause would mean to every man putting in his expenses claim that he might not only be required to give details in writing but that he might be cross-examined orally and on oath on his own first statement of his expenses, and it would have the effect of very seriously moderating claims for expenses. For that reason I hope the Clause will go through.

Mr. Gaitskell

I am sorry that we have had to have this debate at such a late hour. The subject is an extremely important one; I think it is one of the most important of all the new Clauses. I certainly make no apology for delaying the Committee a little longer.

As has already been pointed out, during the rest of the Committee stage a great deal of time has been taken up by hon. Members opposite. They took a remarkable dislike to the Finance Bill, and, therefore, troubled the Chancellor a great deal. I am sorry that the Chan- cellor has not been here most of the time. I realise that he is very busy and has to have some rest. I do not wish to suggest in any way that the manner and form displayed by the Financial Secretary was at all inadequate, but the subject is so important and the debate has been so interesting that I wish the Chancellor had been here to listen to it.

I do not think that anybody can dispute that the question of entertainment expenses and allowances is a very vital one and one with which public opinion is much concerned. There is a very widespread feeling that a great many people get away with far too much. The Financial Secretary intimated that in the view of the Government this is not one of the most important types of tax evasion. Strictly, in financial terms, that may be so, but from the point of view of the public attitude to taxation it is certainly among the most important sources of evasion precisely because it is an ostentatious type of evasion. That is why we have chosen the subject—not exclusively, because we had another Clause on evasion generally'—for particular mention now.

We should all agree that the present situation is not satisfactory. That indicates that any Government should strive to try to check the evasion which exists. Some hon. Members have asked why we did not do this when we were in power. We made a start with it. In 1948, Sir Stafford Cripps brought in some important improvements, and it was certainly my intention, had I had the opportunity, to carry that further. I was not able to do so last year, because we had a number of other important tax evasion matters with which to deal. The Committee will remember them very well because of the many nights—not just one night—we spent discussing them.

The question arises what we can do about it. Some of my hon. Friends have suggested that the whole principle of entertainment allowances is wrong and that they should not be permitted at all. I do not think that is practicable if only because the export trade would have to do a certain amount of entertainment. Others have suggested that a definite limit should be imposed on the amount that any company or individual may spend on entertainment. There would be the practical difficulties of deciding a limit which would not be too high for some people and unfairly low for others. Incidentally, we could not have brought either of those two propositions into the Clause because they would have been out of order.

My right hon. and learned Friend the Member for Neepsend (Sir F. Soskice) explained, with his customary lucidity, the purpose of the Clause. I think he completely refuted the argument of the Financial Secretary that this would not help and that it would not make any difference. My right hon. and learned

Friend made it perfectly clear that it would make a substantial difference. It would provide the inspectors with valuable additional powers. We take the view that the issue is an important one, and something should be done about it. We are quite convinced that this new Clause does do something about it. On those grounds, I recommend strongly to my hon. Friends that we should now press the matter to a Division.

Question put, "That the Clause be read a Second time."

The Committee divided: Ayes, 99: Noes, 126.

Division No. 153]	AYES	[4.0 a.m.
Acland, Sir Richard	Gaitskell, Rt. Hon. H. T. N.	Moyle, A.
Albu, A. H.	Gibson, C. W.	Mulley, F. W.
Awbery, S. S	Greenwood, Anthony (Rossendale)	Neal, Harold (Bolsover)
Bence, C. R.	Hall, Rt. Hon. Glenvil (Colne Valley)	Oswald, T.
Benson, G.	Hamilton, W. W.	Pargiter, G. A.
Blackburn, F.	Hannan, W	Paton, J.
Blenkinsop, A.	Hargreaves, A.	Plummer, Sir Leslie
Boardman, H.	Hayman, F. H.	Price, Joseph T. (Westhoughton)
Bowles, F. G.	Herbison, Miss M.	Proctor, W. T.
Braddock, Mrs. Elizabeth	Hobson, C. R.	Reeves, J.
Brockway, A. F.	Holman, P.	Rhodes, H.
Brook, Dryden (Halifax)	Holmes, Horace (Hemsworth)	Roberts, Albert (Normanton)
Burton, Miss F. E.	Hoy, J. H.	Royle, C.
Butler, Herbert (Hackney, S.)	Hudson, James (Ealing, N.)	Schofield, S. (Barnsley)
Callaghan, L. J.	Hughes, Emrys (S. Ayrshire)	Shackleton, E. A. A.
Castle, Mrs B. A.	Hughes, Hector (Aberdeen, N.)	Simmons, C. J. (Brierley Hill)
Chetwynd, G. R	Hynd, J. B. (Attercliffe)	Snow, J. W.
Coldrick, W.	Jay, Rt. Hon. D. P. T.	Soskice, Rt. Hon. Sir Frank
Collick, P. H.	Jenkins, R. H. (Stechford)	Stewart, Michael (Fulham, E.)
Cove, W. G.	Jones, T. W. (Merioneth)	Sylvester, G. O.
Crosland, C. A. R.	Keenan, W.	Thomas, David (Aberdare)
Dalton, Rt. Hon. H	King, Dr. H. M.	Wallace, H. W.
Davies, A. Edward (Stoke, N.)	Lever, Leslie (Ardwick)	Wells, Percy (Faversham)
Davies, Ernest (Enfield, E.)	Lewis, Arthur	Wells, William (Walsall)
Davies, Harold (Leek)	Lindgren, G. S	West, D. G.
Delargy, H. J	MacColl, J. E.	Whiteley, Rt. Hon. W.
Driberg, T. E. N	McKay, John (Wallsend)	Willey, Octavious (Cleveland)
Ede, Rt. Hon. J. C	MacPherson, Malcolm (Stirling)	Williams, Ronald (Wigan)
Edelman, M.	Mayhew, C. P.	Williams, W. R. (Droylsden)
Edwards, John (Brighouse)	Mikardo, Ian	Williams, W. T. (Hammersmith, S.)
Fernyhough, E.	Mitchison, G. R	Wilson, Rt. Hon. Harold (Huyton)
Field, W. J.	Morgan, Dr. H. B W.
Fienburgh, W.	Morley, R.	TELLERS FOR THE NOES:
Freeman, John (Watford)	Morris, Percy (Swansea, W.)	Mr. Pearson and Mr. Wilkins.
NOES
Allan, R. A (Paddington, S.)	Channon, H.	Galbraith, T. G. D (Hillhead)
Alport, C. J M.	Clarke, Col Ralph (East Grinstead)	Godber, J. B.
Arbuthnot, John	Cole, Norman	Gomme-Duncan, Col. A
Ashton, H. (Chelmsford)	Colegate, W. A.	Graham, Sir Fergus
Assheton, Rt. Hon. R. (Blackburn, W.)	Conant, Maj. R. J. E.	Grimond, J.
Astor, Hon. W. W (Bucks, Wycombe)	Crosthwaite-Eyre, Col. O. E.	Grimston, Hon. John (St. Albans)
Baldwin, A. E.	Crouch, R. F.	Grimston, Sir Robert (Westbury)
Banks, Col. C.	Crowder Petre (Ruislip—Northwood)	Harrison, Col. J. H. (Eye)
Barber, A. P. L.	Darling, Sir William (Edinburgh, S.)	Harvey, Ian (Harrow, E.)
Beach, Maj. Hicks	Deedes, W. F.	Heath, Edward
Bennett, Dr. Reginald (Gosport)	Dodds-Parker, A. D.	Higgs, J. M. C.
Bishop, F. P.	Donaldson, Cmdr. C. E. McA	Hill, Mrs. E. (Wythenshawe)
Black, C. W.	Doughty, C. J. A	Hirst, Geoffrey
Boyd-Carpenter, J. A.	Drewe, C.	Holland-Martin, C. J.
Boyle, Sir Edward	Duthie, W. S.	Hornsby-Smith, Miss M. P
Bromley-Davenport, Lt.-Col. W H	Fell, A.	Horobin, I. M.
Buchan-Hepburn, Rt. Hon. P. G. T	Finlay, Graeme	Howard, Gerald (Cambridgeshire)
Bullard, D. G.	Fleetwood-Hesketh, R. F.	Howard, Greville (St. Ives)
Butcher, H. W.	Fletcher-Cooke, C.	Jenkins, R. C. D (Dulwich)
Butler, Rt. Hon. R. A (Saffron Walden)	Fraser, Sir Ian (Morecambe & Lonsdale)	Johnson, Eric (Blackley)
Carr, Robert (Mitcham)	Gage, C. H	Jones, A. (Hall Green)
Cary, Sir Robert	Galbraith, Cmdr. T. D. (Pollak)	Kaberry, D.
Lambton, Viscount	Noble, Cmdr. A. H. P	Stevens, G. P.
Lancaster, Col. C. G	Odey, G. W.	Strauss, Henry (Norwich, S.)
Langford-Holt, J. A.	Ormsby-Gore, Hon. W. D.	Studholme, H. G.
Legge-Bourke, Maj. E. A. H	Orr-Ewing, Charles Ian (Hendon, N.)	Sutcliffe, H.
Legh, P. R. (Petersfield)	Partridge, E.	Thomas, P. J. M. (Conway)
Linstead, H. N.	Powell, J. Enoch	Thorneyoroft, Rt. Hn. Peter (Monmouth)
Macdonald, Sir Peter (I. of Wight)	Price, Henry (Lewisham, W.)	Tilney, John
Mackeson, Brig. H. R.	Profumo, J. D	Vosper, D. F.
McKie, J. H. (Galloway)	Raikes, H. V	Wakefield, Edward (Derbyshire, W.)
MacLeod, Rt. Hon. Iain (Enfield, W.)	Redmayne, M.	Ward, Miss I. (Tynemouth)
Macpherson, Maj. Niall (Dumfries)	Remnant, Hon. P	Waterhouse, Capt. Rt. Hon. C
Maitland, Patrick (Lanark)	Renton, D. L. M.	Welfwood, W.
Manningham-Buller, Sir R. E	Robinson, Roland (Blackpool, S.)	White, Baker (Canterbury)
Maude, Angus	Rodgers, John (Sevenoaks)	Williams, Gerald (Tonbridge)
Maudling, R.	Roper, Sir Harold	Williams, R. Dudley (Exeter)
Maydon, Lt.-Cmdr. S. L. C	Russell, R. S.	Wills, G.
Mellor, Sir John	Ryder, Capt. R. E. D.	Wilson, Geoffrey (Truro)
Molson, A. H. E.	Salter, Rt. Hon. Sir Arthur
Nabarro, G. D. N.	Schofield, Lt.-Col. W. (Rochdale)	TELLERS FOR THE NOES:
Nicolson, Godfrey (Farnham)	Scott, R. Donald	Mr. Oakshott and
Nicolson, Nigel (Bournemouth, E.)	Smithers, Peter (Winchester)	Mr. Richard Thompson.
Nield, Basil (Chester)