§ Section four hundred and sixty-eight of the Income Tax Act, 1952 (which relates to the restriction of certain transactions leading to avoidance of income tax or profits tax) shall be deemed not to have been in force as from the introduction of the Bill for this Act into the Commons House of Parliament.—[Mr. Stevens.]
§ Brought up, and read the First time.
§ Mr. Eric Fletcher (Islington, East)
On a point of order. I ought to draw your attention, Sir Charles, to the fact that although it would appear that my name is on the Order Paper in support of this new Clause, if I have the good fortune to catch your eye, I intend to oppose it. I am sure it is not the fault of my hon. Friend the Member for Bury and Radcliffe (Mr. W. Fletcher), who we all hope will have a quick recovery, that there is this confusion. I thought I ought to make the position clear for the record.
§ Mr. Stevens
The effect of this Amendment will be to repeal Section 468 of the Income Tax Act, 1952, which was Clause 32 of the Finance Bill introduced by the right hon. Member for Leeds, South (Mr. Gaitskell) last year, which subsequently became Section 36 of the Finance Act, 1951. Briefly, the provisions of Section 468 include the fact that all transactions of certain classes, being classes of transactions which result or may result directly or indirectly in the avoidance of liability to Income Tax or Profits Tax, shall be unlawful unless carried out with the consent of the Treasury.
I ask the Committee to pay particular attention to the words "which result or may result directly or indirectly," because they mean that this Clause is a very wide one. The type of transaction envisaged by that Section is of a company incorporated in this country which transfers its seats of activity overseas. In the event of any person being found liable on conviction and indictment, that person may suffer prison for two years or a fine not exceeding £10,000.
In the last year or two it so happens that natives of West Africa have come to me and have suggested that foreign capital which has gone to their country and has spent some time, capital, plant and 1400 machinery and labour in development raw materials and primary products in that territory has benefited more than the natives of the territory concerned. They have suggested that the indigenous peoples of those countries should impose financial burdens of some sort considerably heavier than are imposed already on the foreign capital which has thus settled upon their soil.
I have given them a word of warning. I have suggested that if they make too arduous the conditions under which foreign capital comes to their country and develops that country, not only to the benefit of the foreign capital concerned but to the benefit of the peoples who live there, that foreign capital will go elsewhere and find somewhere more profitable in which to develop the primary products.
We are in the same way in this country. If one goes along the Great West Road one sees a large number of extremely well built, very light and airy factories, all owned by British companies but with this behind the scenes: that the majority of the share capital—in some cases the whole of it—is owned by Americans resident in the United States of America.
We need American capital and other foreign capital in this country. We need it in the Colonies, and the Dominions need it as well. I know that American friends of mine are perturbed, as we are perturbed in similar cases, where in some cases part and in some cases the whole of profits earned by American capital in this country cannot be remitted to the home country. I wonder whether Section 468 is not the last straw in many cases. American and other foreign capital will come here if there is some freedom to manoeuvre, but it will not come here if, once in, the trap shuts.
So far as the United Kingdom companies are concerned—by that I mean companies which are not only registered in this country, but are owned by British shareholders—it has been a common practice for hundreds of years for companies registered in this country to establish branches, trading posts, shops of one kind and another overseas. Those branches have been operated from this country and, if they have been successful, when they have been firmly established they have been converted by the head office, as it were, in this country, into 1401 limited companies incorporated in accordance with the laws of the country concerned. A local board of directors has been set up, local management has taken the place of management from this country, and no more than shareholders' control has been exercised for the future from here.
That system, for 300 years or more, has been found to be efficient politically, economically and also commercially. In years gone by the East India Company paved the way for that industrial independence without which the political independence of India, whether desirable or not, could never have been achieved. The Charter Company opened up vast tracts of Africa. The Hudson Bay Company laid the foundations of Canada's industrial greatness.
Today, Section 468 of the Income Tax Act, 1952 would look after the Governor and Company of Adventurers of England trading into Hudson Bay. Those adventurers on their return, instead of being lauded and applauded for their courage, determination and enterprise, would each one of them, jointly and severally, be liable to imprisonment for two years or to a £10,000 fine or both.
It is perfectly true that Treasury consent is provided for by the Section. However, I know from experience the very strong arguments which are necessary to convince the Treasury that a decision to transfer the control from this country to a country overseas is really necessary. I must confess that I prefer a judgment coming from the years of practical business experience of a director. I have found that to be more reliable than the theoretical opinions of the Treasury, however expert.
Section 468 is commonly known as the "ring fence" Section, and it seems to me that the words "ring fence" are wholly alien to our ideas of freedom. I hope that the Chancellor, if he will not accept the new Clause, will, at any rate, give us some hope that we may for ever wipe out this stain on our economic escutcheon.
§ Mr. E. Fletcher
The hon. Member for Langstone (Mr. Stevens) has introduced the new Clause in what, I think, the Committee would regard as very moderate and temperate language, language which, at any rate, 1402 contrasts very markedly with the violent language which was used by a great number of hon. and right hon. Members opposite during the Committee stage of the Finance Bill last year. I do not know whether the hon. Member was then present.
§ Mr. Fletcher
The hon. Member will remember that we had a very heated debate this time last year when we were discussing what is now Section 468 of the Income Tax Act, 1952, which was regarded by Conservative Members as the notorious Clause 32 of the Finance Bill introduced by the Labour Government last year. On that occasion we were threatened with all kinds of dire consequences if the Clause were allowed to pass and become enacted in the Finance Act and as part of our Income Tax legislation.
In those circumstances, I am not particularly surprised that a number of hon. Members opposite have put down a new Clause seeking to repeal that Section in the Income Tax Act. It will be very interesting to see what attitude the Government adopt towards it. If the speeches which Members opposite made last year have any sincerity whatever, the Government will be bound to accept the new Clause and repeal the old Clause 32. But we have become so accustomed during the last few days to so many Members of the Government eating the words which they spoke a year ago that I have a shrewd suspicion that the Chancellor will not accept the new Clause which his hon. Friends behind him have proposed. [Laughter.] It is not a laughing matter—it is a matter of great seriousness, because the country is deeply interested in understanding whether the speeches made by Conservative politicians have any sincerity at all or whether this is merely another instance of the hollow mockery in which Conservative politicians indulge, and have indulged for a great number of years.
§ Mr. Fletcher
I am anxious that the Committee should examine this matter dispassionately, and I do not think that we can do better than remind ourselves of some of the things that were said by 1403 leading Conservative statesmen last year, when the Clause was opposed.
Their attack on the Clause was led by the present Secretary of State for the Colonies. Fortunately for him, he is not able to take part in our finance debates this year, because he is otherwise engaged. He said of the Clause, which, I am quite sure, the Government will be anxious to retain—that it was pernicious and vicious; that it wasthe worst type of Socialist isolationismand waspoison to an international centre like London." —[OFFICIAL REPORT, 12th June, 1951; Vol. 488, c. 2175, 2177.]The right hon. Gentleman and his hon. Friends said that it was a confession of despair. If those words, which, I am sure, were meant seriously, were true, then the Chancellor surely will tell us that he is going to repeal that obnoxious Section.
What did the Minister of Works say? He referred to the Clause and to another Clause as "children of oppressive taxation" and as a sign of decay. Then we had the Minister of State predicting all kinds of evil consequences as a result of the Clause.
I do not know whether there is any significance in the fact, but we also had a speech from the Parliamentary Secretary to the Ministry of Civil Aviation, who was here until a moment ago. He indulged in a vitriolic attack on the Clause, and he was followed by the Minister of State for Economic Affairs, whose intermittent appearances we are glad to have this year in our finance debates. [HON. MEMBERS: "Where is he?"] That was one of the occasions in which the right hon. Gentleman, who is generally the most mild mannered of speakers, was provoked to express great misgivings. He was appalled at the prospect that would arise to our economy and to our finances. He thought that the whole of our earnings were so fragile and precarious that if the Clause were put on the Statute Book, a great deal of revenue would be lost.
Looking back, is it not quite obvious that all those speeches by present Ministers, who, either because of those speeches or for some other reason, now adorn the 1404 Treasury Bench, were without any sincerity at all? They were all hollow in their mockery. They knew perfectly well that the Clause was necessary, as it still is, to protect the Revenue and to prevent tax evasion and avoidance. They knew perfectly well that there was no harm in the Clause.
We shall be told by the Chancellor of the Exchequer that the Clause works very well because it is being administered reasonably by the Treasury. But he will not be able to get away with that excuse, because that is exactly what my right hon. Friend the Member for Leeds, South (Mr. Gaitskell) last year told the right hon. Gentleman and his friends would happen. We pointed out, when we were defending the Clause against that attack, that it would be administered reasonably and sensibly by the Treasury, and that when it was right and proper to give the exemptions which the Treasury can give, they would be given; that no honest trading company, either here or overseas, need have the slightest fear that its legitimate business interests would be in any way affected or prejudiced by the Clause when it reached the Statute Book.
That is why it was put on the Statute Book, and it has been administered reasonably. The Chancellor, therefore, will not be able to say that it is because of his administration that the Clause is justified. If he were to say that, he would be contradicting what the Secretary of State for the Colonies said last year when he said that, however it was administered, its mere existence was a menace. If the Chancellor agrees with that, he will have to accept the new Clause.
§ The Chancellor of the Exchequer (Mr. R. A. Butler)
Would the hon. Member give us the benefit of his own views? We are all fully aware of the HANSARD and other speeches to which he has referred, but we are very much longing to hear his own observations.
§ Mr. Fletcher
My views and those of my hon. Friends are precisely the same as last year. We regard Section 468 as a good and necessary Section. We rejoice that it was put on the Statute Book.
1405 It was designed to protect the Revenue and to prevent measures of tax avoidance. It was necessary for that purpose, and we take pride in the fact that it was put on the Statute Book, despite all the vehemence, anger and opposition, however engendered, of hon. Members opposite.
What I hope we shall hear now, either from the Chancellor, from the Financial Secretary or from the Minister of State for Economic Affairs—
§ Mr. Fletcher
—who took such an interest in the Clause last year and opposed it so strongly, with language which was for him so vehement, that they now quite candidly admit that their opposition last year was entirely false, misjudged and miscalculated, and that the Clause was rightly put on the Statute Book, that it is being wisely administered, and that it ought to remain on the Statute Book.
§ Mr. Ian Horobin (Oldham, East)
I do not propose to occupy the Committee's time for long with this matter, but it is one of very great importance and we should not leave this year's Finance Bill without some discussion on it. The Clause relates to the iron curtain which the country set round itself last year. It is well known that England and Russia are the two countries in Europe which have advanced so far in social progress that they require these iron curtains around them to prevent their nationals from fleeing.
§ Mr. Horobin
No, it is not clever—it is tragic. That iron curtain Section is one with which, neither last year nor now, the Front Bench will have any sympathy. The reasons why it was found necessary to bring in something of this sort—or, at least, that it was claimed to be necessary —are well known. Primarily, those reasons are the crushing and intolerable burden of taxation upon business enterprises.
I do not know whether every Member of the Committee observed the significance of a figure which was given a few moments ago by the Parliamentary Secretary to the Ministry of Civil Aviation, 1406 when discussing a previous new Clause. He said, merely in passing, that a change in the method of depreciating valuations would cost £300 million a year.
The true significance of that figure is that if our currency had not been subject to the inflationary debauchment of recent years, it would not matter which method of depreciation was allowed. That figure of £300 million, therefore, is a measure of the extent to which the inflation which we have recently suffered has been depleting the real capital of British industry. That came out simply in passing.
I do not need to weary the Committee with a long examination of the fact that for the first time in British industrial and commercial history, British firms, as patriotic as the next, have had to begin to feel, "Has it become quite intolerable'? Must I go if I can?" That is a really serious situation, and I do not believe that sensible people, on either side of the Committee, could view a concern where that was true with anything but grave misgivings.
I am willing to make allowances to hon. and right hon. Gentlemen opposite for sincerity, which they are not always willing to extend to us. I do not believe that anybody in the Committee can be happy in a commercial situation when it has been, apparently, found necessary to introduce measures of this sort, contrary to the whole history of the country, when anybody who could do his business in London and in sterling has not done it. It is as a symptom of the depreciation. the deterioration, in our commercial supremacy that Section 468 of the Income Tax Act is so dangerous. If it had no effect whatever, it is serving notice on the world that we no longer have confidence in ourselves; and nothing could be worse than that.
I do not wish to develop the general argument. I could have quoted from a most powerful speech by the present Colonial Secretary last year. which has been developed briefly by my hon. Friend the Member for Langstone (Mr. Stevens), who introduced the new Clause. I do not want to go into the general arguments, but I want to suggest that this matter has now, which it did not have last year, a direct relevance to a fundamental decision of policy which the right hon. Gentleman made, and which we all look to see redeemed as 1407 soon as possible: to put sterling back on a convertible basis.
I am one of those who was most encouraged to see the Chancellor adding the enormous weight of his authority to this view. I do not believe there is any future—I am sure there is no future—for the system of private enterprise in this country unless, quickly, we can make sterling convertible. That runs through the whole of our problems—the Liverpool Cotton Exchange; putting the meat industry back into proper hands, and what have you. The whole future of this country and of private enterprise is wrapped up with convertibility.
The section of the Act which we are seeking to annul serves notice that at present convertibility is impracticable. Clearly, if we are in a position —whoever's fault it is, or if it is nobody's fault—in which we find that if they get the chance large industries and commercial undertakings will transfer their transactions abroad, it is obvious that it will be impossible, by any Bank rate policy or any other measure that the Chancellor can take, to make sterling convertible. That is a self-evident proposition, and I do not think it will be disputed by anyone.
But that is a reason which is new since last year, apart from all the other general arguments, why this section should be repealed, and that we should be again in a position to say to our customers in effect, "Come, and come as you please, because we know that under those circumstances you will come and stay." But, having said that I must say that I do not believe it would be fair for hon. Members on this side of the Committee, who feel as strongly as I do about this, to press the Chancellor at this moment to say he will repeal this here and now—[HON. MEMBERS:"Oh!"] Hon. Members opposite had better be quiet, they may draw some of the fire on themselves—[HON. MEMBERS:"Oh!"] Their scarlet, financial sins are irredeemable—[HON. MEMBERS:"Cheer up!"]—and at 2 1½2 per cent at that.
The Chancellor has inherited a terrible problem, and over the next six months while we are getting over the hump of this crisis, I do not honestly think that he can give anything away. He must probably cling to every protection he has, 1408 at a moment when anybody who opens his newspaper or looks at the tape knows that sterling is balanced on a knife edge. That again should not be a matter of dispute between us.
I do not think, therefore, that it would be reasonable for hon. Members on this side of the Committee to press the Chancellor too far. If he feels he can do it now, bless him; let him get on with it. But I do not think it would be reasonable to press the Chancellor too far in the immediate future. He is trying, and trying successfully so far as the foreign exchange is any test— and in my opinion it is the only test in the next month or two— to preserve sterling and to moderate the balance of payments. Therefore, for my part, I would not press him to go further than he feels he can at present.
I do hope however, and I feel confident, that when he replies my right hon. Friend, so far from watering down any criticisms made on this Clause, will reaffirm them. If he wants any help in suggesting powerful terms in which to do it, I shall be grateful to lend my small assistance to him; not to water down his objections, but to re-affirm them, and to say that as soon as he has sufficiently restored our position from the terrible mess in which he found it, he will cast this Section into the oblivion from which it never need have appeared, had it not been for the past six years of profligacy from which we are still suffering.
§ 5.45 p.m.
§ Mr. Roy Jenkins (Birmingham, Stechford)
The hon. Member for Oldham, East (Mr. Horobin), whose speeches throughout on the subject of this Bill we have followed consistently and with great interest—though sometimes with a little trepidation—now seems to have got himself into, and to be offering to the Chancellor, a very happy and logical position. At least, it is a very happy position: but I am not sure whether it is logical. He invites the Chancellor to say that everything which was said about this Section of the Income Tax Act when it was Clause 32 of the Finance Bill last year was quite justified and that the Section is absolutely disastrous in its effects, and at the same time he invites the Chancellor to continue to operate it.
§ Mr. Horobin
As the hon. Member has asked for it, surely even he must 1409 have listened from time to time to the Members of his own Front Bench who have been pointing out that at the time of the last Budget we were actually in credit in foreign payments. There is a slight difference between that position and the unfortunate position in which the present Chancellor finds himself.
§ Mr. Jenkins
In the first place this is a matter of tax evasion or avoidance, and not primarily of foreign exchange, but in any case none of my right hon. and hon. Friends have ever put themselves into the position of believing that this country has not consistently been passing through a difficult foreign exchange position. That was certainly the view of my right hon. Friend the Member for Leeds, South (Mr. Gaitskell) when he introduced his Budget last year.
I think hon. Members opposite now begin to realise some of those facts about our foreign exchange position. It is clear from the history of the years since the war that sometimes we get into a rather easier situation, but we are constantly—and will continue to be— faced with an underlying situation which is very difficult indeed and which will continue so for some time.
The hon. Member for Oldham, East was, in parts of his speech, rather more moderate in manner than on previous occasions. Hon. Members who have not heard him on previous occasions may be surprised to hear that. But if he was more moderate in manner, I think he was more extreme in substance than I have ever heard even him before. He made several main points. First he took up the point about historical and replacement costs, and a remark made by the Parliamentary Secretary to the Ministry of Civil Aviation that £300 million would be involved in changing from one to the other. This, he thought, showed that for the first time in our history British capital is being depleted. This, he said, had never happened before and does not this show the disastrous position in which we are?
If we are to be told that because there has been a change in the value of money over the last 12 years the whole of British industry is ruined from a productive point of view in a way it has never been before, then we are in a most extraordinary state of affairs. Money has been losing value for about 800 years, and I do not believe 1410 that British capital has been depleted during that period or that our productive machine has been run down.
We are also told that we are in an absolutely disastrous position economically unless we are able to ensure that this country is just as attractive to capital from a fiscal and every point of view as any other country. That is the argument of the hon. Member for Oldham, East. I say that if that is his view, then everything which people like his right hon. Friend the Chancellor of the Exchequer say about the carrying out of our defence programme and the maintenance of our social service structure is absolute nonsense.
There is no conceivable chance of carrying on this defence programme, or even without the defence programme, of carrying the burden of our National Debt and maintaining our social services at anything like their present level, unless we are to have a level of corporate taxation a good deal higher than that of many other countries in the world. That is the plain and simple fact, and anybody who believes the propaganda put out by the Tory Party about our social services. must know it is absolutely ridiculous.
Therefore, if it is necessary to prevent capital going abroad we should not be afraid of a provision of this sort. I thought my hon. Friend the Member for Islington, East (Mr. Fletcher) went a little far when he said that there was great rejoicing when this was brought in. I would not join in that. It is a Clause which is open to some objection. but the alternative to great numbers of companies deliberately transferring their seats of control and great flights of capital— owned as the hon. Member for Oldham, East rather inconsequentially said, by patriotic citizens— going out of the country solely in order to escape the weight of taxation which other people have to face is far worse than the introduction of this Clause.
§ Mr. Horobin
It is difficult to answer something so fantastic without having to enter into a sort of competition. Has the hon. Gentleman not read the newspapers in recent years and seen the sort of things which have been happening in other countries once the inhabitants of those countries woke up to the fact that they were being mulcted of enormous 1411 sums, not for taxation or for the benefit of all the inhabitants of the country, but for the comparatively well off people? Has he not heard of the Anglo-Iranian oil trouble? Is it not possible that the same thing may happen in Rhodesia?
§ Mr. Jenkins
Is the hon. Gentleman suggesting that the Anglo-Iranian oil trouble would not have happened, but for Section 32 of last year's Finance Bill?
§ Mr. Horobin
I am not suggesting anything of the sort. I am not even suggesting that the difficulty would not have arisen if we had had a different Foreign Secretary. I am only saying it all helps.
§ Mr. Jenkins
I am not now sure where the hon. Member for Oldham, East wants capital to go. He has painted such a horrible picture of the fiscal conditions in this country and the political conditions of other countries that it is difficult to know where capital can go. [HON. MEMBERS: "To Oldham."] I am afraid Oldham comes in the category of places which are fiscally uninhabitable.
I do not know what attitude the Chancellor will take to this new Clause. From certain expressions which we have seen flitting across his face, I would judge that he perhaps will not be very sympathetic towards it. I do not know how his hon. Friends will react to that. They did use extremely strong language on a previous occasion last year. In fact, as my hon. Friend the Member for Islington, East said, it was Members of the present Government who used the strongest language of all. We heard from the present Secretary of State for the Colonies. but he has fled the country, in spite of this Section. He has gone away. But there are a lot of other people. There was the Minister of Works, and the Minister of State for Economic Affairs, who always times his entries into this Chamber so exceedingly well. I cannot help feeling that if the Chancellor does not relent on this he will have a great revolt on the benches behind him. But if he gets into trouble I and my hon. Friends will come with him into the Lobby to help him defeat his own back benchers.
§ Mr. R. A. Butler
I do not think I need to be taught my relations with my hon. Friends behind me by the hon. Member 1412 for Stechford (Mr. Roy Jenkins). I think it is always dangerous to interfere— particularly as the hon. Member does so frequently— in the affairs of a family. They know how to run their own affairs.
I sympathise with the hon. Member for Langstone (Mr. Stevens) who very tersely moved his new Clause. I know that my right hon. and hon. Friends, including the Secretary of State for the Colonies— who, as the Committee knows, is away on duty, carrying out his duties overseas— all feel very strongly on this matter. They feel that control over the migration of companies is doubtful in principle and damaging to many companies. There is a good deal to be said quite sincerely for these arguments.
I will take up the remark of my hon. Friend the Member for Oldham, East (Mr. Horobin), who suggested we should not repeal this section here and now. I think that is the right decision and it is a pleasure, in the concluding stages of this Bill, to congratulate the hon. Member for Oldham, East on his wisdom and moderation. On a previous occasion he said I had straw in my hair. I am obliged to him for pulling it out and for putting a laurel wreath on my brow. It is now, "Roses, roses all the way" and the straw has blown away.
That is a very satisfactory atmosphere in which to enter into one or two serious observations which I wish to make about the operation of this Section which caused so much interest last year First I wish to ask whether this Section which has now been consolidated in the consolidation of Income Tax law is causing damage to industry or to the general national interest. I want to make some observations of a constructive character about its future operation so if any hon. Members wish to make any observations they will know what I have had to say. I hope that after that we may make some progress. There is a great deal of work to do, and it is the firm intention of the Government that the Committee stage shall be finished tonight. I think that, in all reason, we can finish it fairly easily.
Looking at the question whether the Section is operating, I have here the latest figures of the applications granted and the applications refused. Over 300 applications under the Section have been settled and granted and, so far, in only two cases has Treasury consent been finally refused. I do not think that those 1413 figures give colour to any suggestion that there is any serious interference with legitimate business transactions. Nor do I think that it can be described under the circumstances, if 300 firms or units get under the Iron Curtain, as being either a ring fence or an Iron Curtain.
I think it shows in what a benign and enlightened spirit the Section has been administered, at any rate under the present Administration. I would say further that my predecessor, under severe pressure from our side of the Committee in last year's Finance Bill, conceded on 12th June, 1951, that full weight would be given in the administration to the desirability of encouraging developments in the Colonies, and that the Section would not be administered solely on Revenue reasons.
That indicates the value of the pressure exerted by my hon. and right hon. Friends last year. They helped to bring about this desirable result which was consumated by the decision of the electorate to have a change of Administration and to put into office those who really understood these matters, with the result that my right hon. and hon. Friends really have not very much to worry about, or not as much as they might have had otherwise.
§ Lieut.-Colonel Marcus Lipton (Brixton)
Might I interrupt before the right hon. Gentleman gets to the really humorous part of his speech? He has referred to 300 companies. Could he give some indication of the amount of capital transfer involved?
§ Mr. Butler
I am afraid that I have not got that with me. That is as far as I can go. Some of these concerns were, however, small. The general impression is that the Section is being administered according to the spirit expressed in the Committee last year.
I should also like to say that, as far as I know, and I made inquiries before coming to the Committee this afternoon, no conviction at the cost of £2,000 or of imprisonment has taken place. There have been no convictions. I give an undertaking to the Committee that, both in this matter and in the general operation, I will watch carefully how the Section is administered in future, in the following spirit. I want, in administering this Section, to avoid the risk that many com- 1414 panies operating overseas will be tempted to take advantage of any laxity or repeal to remove their control abroad for inadequate reasons.
At the same time, I think that we ought to avoid an autarchic or ring fence economic policy in this country which does not encourage that spirit of liberty towards which we are aiming and which was referred to by the hon. Member for Oldham, East. I also remember, in the moving words of the hon. Member for Langstone, how this country made its reputation through the merchant venturers who chanced their arm overseas and who enhanced not only their own credit but also the honour of this country.
I am informed that were there to be greater laxity there would be a great risk to the Revenue. Very high figures have been mentioned to me. It is impossible to give an exact computation, but figures between £50million and £100 million might be involved. I do not say that that is the case, but that is the opinion which has been given to me. If we take as our guide the spirit I have suggested, namely, that we do not encourage companies to go abroad without adequate reason but yet we do permit the cases which are legitimate, we should then be doing our duty.
Let me describe for a moment how things are operating at present. Any case in which the Inland Revenue and the Treasury reach the prima facie conclusion that Treasury consent ought to be refused is referred to the advisory panel under the chairmanship of Lord Kennet. The panel's advice is before me when I reach my final decision on the particular case. The terms of reference given to the panel were announced by my predecessor, and they remain in being.
This means that the Committee weigh carefully considerations put forward by the. interest concerned against the prospective loss of Revenue or foreign exchange if the transfer were permitted. They then inform me whether on balance of considerations it would in their opinion be in the national interest that permission should be granted. So far as they go, and judging by the resultant successes—300 applications and only two refusals—these terms of reference seem to be working satisfactorily.
1415 I wish, however, to offer three comments on their interpretation, not because I think that Lord Kennet and his colleagues are in any doubt on the matter but because I am anxious to remove any suspicion, especially on the part of my hon. Friends who have raised this matter, that the terms of reference are being interpreted in an unduly restrictive manner.
§ Mr. Glenvil Hall (Colne Valley)
Would the right hon. Gentleman say whether all the cases go to him? In every instance did the whole 300 go to him? Do the applications go to him only if it is thought proper that he should give a decision on selected cases?
§ Mr. Butler
They come to me only in case of doubt which has to be finally decided. Most of them are decided easily. They do not form the subject of upset, controversy or doubt. Therefore, I have not seen many cases, except those about which there has been grave doubt.
§ Mr. Butler
No. I have seen more than two cases, but I do not remember more than a few in which there was a question of grave doubt. I thought that it was my duty, being interested in the administration, to see what was happening. For that reason, I have seen more than two or three cases which have been difficult. I thought that it was my duty to see how the matter was being operated. Normally they would not necessarily come to me unless they were difficult.
My first comment is that there may be a feeling in the minds of my hon. Friends and in the Committee that the terms of reference are weighted unduly in favour of the Revenue and dismiss too lightly the interests of the applicant company. My comment on that is that the advisory panel should take into account all the necessary considerations affecting both the public interest and the interest of the applicants. I am sure that the panel already works in that spirit, but I should like to make the point clear.
Secondly, I regard it as a strong point in favour of an application if the transaction for which consent is asked relates to the setting up of a new business 1416 activity, or the substantial expansion of an existing activity. Again, the Section has been, and I hope will be, so administered in practice.
The third comment I have to make is that in considering these applications it is most important to keep in the forefront of our minds the great importance of colonial development, and indeed of development in the Commonwealth generally. An assurance was given by my predecessor that this would be done. but I think that in the interests of the panel and of all of us, it would be a good thing if I repeated that assurance.
I turn from the terms of reference to the consents. I have been considering whether anything could be added to the consents which are already known and which are already in operation. Let me give an example. Individual applications are not necessary in the case of a company controlled by non-residents which was set up after the passing of the Section. In such a case, the company is perfectly free to remove its control from the United Kingdom at any time.
I propose to issue two new general consents Their precise terms will be announced shortly, but I will give their outline to the Committee. I propose, first, that individual applications for Treasury consent shall be dispensed with where it is proposed to form a new subsidiary company in some part of the Commonwealth or the Colonies for the purpose of starting a new industrial activity there. This will make it still clearer that development will not be hampered in the Commonwealth or the Colonies, which I think we all believe to be the right thing.
The second new general consent relates to bona fide sales of land— such as a tea or rubber estate— for full consideration to an entirely independent purchaser. About one-third of the applications received by the Treasury relate to transactions of this nature, and consent is given to them as a matter of course in straightforward cases. This will clear up the matter and simplify the administration in the cases of transfer of land, which we find is the normal application under the administration of the Section at present.
There really is no point in putting the taxpayer to the trouble of making application in cases of this sort where consent 1417 is practically automatic. That is as far as I can go at present. As the hon. Member for Oldham, East, has said, the repeal of the Section, or any completely altered conception of it, would involve us perhaps in serious difficulties at an exceptional time. We are moving in an exceptional period. I am grateful to those hon. Members who have drawn attention to that.
I think that what I have said will indicate to the Committee that we intend to interpret this Section in a thoroughly common sense way. Meanwhile, I give the further assurance that I will keep the operation of the Section under close review. I hope that my hon. Friends will realise by the spirit in which I have approached this matter that we have deliberately taken a great deal of trouble to try to make this Section work in the best possible way.
§ Sir Frank Soskice (Sheffield, Neepend)
We are all anxious to make progress in the consideration of this Bill, and I do not think that I should be assisting in the deliberations of the Committee if I intervened at any length. I intervene only to say that we emphatically believe that the provision we introduced as Section 32 of last year's Finance Act is still necessary.
The right hon. Gentleman the Chancellor of the Exchequer grasped at the only straw that was held out to him by the hon. Member for Oldham, East (Mr. Horobin) in saying that he did not want the Section repealed this year. We think that this Section should be part of our tax legislation so long as there is a need for it to prevent a serious loss of Revenue. I understand that the Chancellor has been advised that if there were a more lax administration it would be possible that there might be an annual loss of Revenue of between £ 50 million and £ 100 million. I should have thought that that was sufficient justification for this Section.
We are glad to hear that the administration of the Section has turned out to be satisfactory, that the advisory panel under the chairmanship of Lord Kennet has been working well, and that no difficulty has been experienced in the administration of Section 468 of the consolidated Income Tax Act, 1952. As the Chancellor's predecessor, my right hon. Friend intimated that it was the intention 1418 of the last Government that the Section should be administered in just that spirit. The whole point was that the Treasury consent was to be given where common sense required that it should be given.
The primary object of the Clause was fiscal. It was necessary because, if it were not made part of our tax code, there was a danger, as the Chancellor of the Exchequer has now been advised and as we were advised, of a really serious loss of Revenue. It was essential in these circumstances that some steps should be taken to prevent that loss occurring. That risk, apparently, still exists, and so it is necessary that the safeguard should still be retained.
The Chancellor said that he will see to it that the administration of the Clause is kept under review, and that he will watch its operation. We are glad to hear it; we think it perfectly right and proper and my right hon. Friend would have done exactly the same if we had remained in office. We take note of the fact that Treasury consent is given or withheld not solely with regard to fiscal conditions, but that the general public interest, wider considerations, and the interests of the applicants are also taken into account and given full weight. We have also taken note of the two new circumstances in which the Chancellor proposes that consents should be given without the necessity of a formal application made by the company requiring to transfer its residence abroad.
The Chancellor mentioned two new cases— the case where subsidiary companies were to be set up, and the case of bona fide sales of land. The only question which I would put to him, and to which I think I can anticipate his answer will be in the affirmative, is that I presume that he has satisfied himself, after consultation with his advisers, that no opportunity for tax evasion is presented through the medium of constituting subsidiary companies overseas in circumstances in which consent should be given without an application.
§ Sir F. Soskice
I am much obliged to the right hon. Gentleman. I had assumed that he had done so, and that it was only after that that he had decided that consent should be given in that class of case.
1419 We feel that the debate and what the Chancellor himself has said has amply justified the action of the former Government in introducing this matter into our tax code. Its obvious necessity has been clearly demonstrated, and it is clear that the Chancellor rejects the rather irresponsible appeals made to him by some of his hon. Friends to dispense with this necessary and essential safeguard to our fiscal system. I hope he will have the courage to retain it for so long as, in the public interest, he believes it necessary to do so.
§ Sir John Mellor (Sutton Coldfield)
It is quite clear that the Chancellor has endeavoured to be helpful in this matter, and I am sure that the Committee welcomes the trouble that he has taken to inform himself of the position, but I must say, after listening to him very carefully, that I am puzzled and find it difficult to understand why it is really necessary to maintain these restrictions in force.
After all, these restrictions, through delay, expense and uncertainty, may well prevent the desirable movement of companies abroad. The restrictions are very elaborate, and companies must go to considerable trouble to find out their position. If they wish to make an application, inevitably, it must take up a lot of time, and, in the course of that time, an opportunity may be lost. Therefore, I think it is necessary for the Chancellor to have a very strong reason for continuing these restrictions at all.
He has told us today that he has been advised that the immediate removal of these restrictions might cause a loss to the revenue of some £50 million or £100 million a year, but I confess that I did not think that he passed on that advice to the Committee with any great confidence that it was anything like accurate. I do not think he feels at all sure that these figures are in any way reliable, and it would seem to me that they are not reliable at all.
My right hon. Friend told us that, of the applications made, 300 have been accepted and only two refused. Surely, if that is the situation, it is rather hard to imagine how, if the restrictions had been completely removed, the result would have been so great as to cause a 1420 loss of revenue to this country of between £50 and £100 million a year. Therefore, it would seem to me that these figures ought to be disregarded, and that we ought to have regard only to what is quite certain— that out of 300 applications, only two have been refused.
Accordingly, I would ask if it is really worth while keeping on these elaborate restrictions, which must involve delay to the companies in deciding their course of business, and must have caused them the loss of valuable opportunities, of which, in their interest and in the interests of the trade of this country, they should have taken advantage at the earliest opportunity. I hope the Chancellor will say a word or two more on that point.
My right hon. Friend, obviously, has thought the matter over with very great care, but that is the one point on which he failed to convince me— that the country really cannot afford to dispense with these restrictions now. I hope he will say something more on that point, because I am still open to conviction, and I hope he will convince me.
§ 6.15 p.m.
§ Sir Edward Boyle (Birmingham, Handsworth)
I should like to join my hon. Friend the Member for Sutton Cold-field (Sir J. Mellor) in thanking the Chancellor for the very full reply which he has given. Considering the amount of work on many subjects which a Chancellor has to do, I think all of us must appreciate the trouble which he obviously takes over individual matters in this Bill.
I rise only because I want to reply to the very fair point which was put earlier by the hon. Member for Islington, East (Mr. E. Fletcher). I was one of those who both voted and spoke against Clause 32 last year; but when I spoke against that Clause, for the reasons which my hon. Friend the Member for Langstone (Mr. Stevens) has so clearly summarised, I had no doubt that it would be very much easier to place it on the Statute Book than to take it off again. So long as the rate of taxation on industry remains at its present level, it is going to be an extremely hazardous business to remove this Clause from the Statute Book.
No one of my hon. Friends last year would have denied that the former Chancellor had a case for this Clause. After 1421 all, he was stepping up the gross rate of taxation on distributed profits from 30 per cent, to 50 per cent., and he had been warned by many people who were in a position to know that it might lead to a large number of companies seeking foreign registration. There was an obvious case for the Clause, although my hon. Friends, as I believe, rightly, considered that there was a greater weight of argument on the other side.
Today, the whole position is different. We have a very grave foreign exchange position, while certain fresh burdens have been imposed on industry. In these circumstances, I suggest that the presumption today is against removing this Clause from the Statute Book. I think it would be impossible for the Chancellor to do so, and that the only course which it would be reasonable to expect him to follow is that he should administer it in as fair a way as he possibly can. After listening to his reply, I for my part feel that, in so far as it can be administered justly, it will be, so long as my right hon Friend is in charge.
§ Mr. Glenvil Hall
Before the Chancellor replies to his hon. Friends, could he tell us how much revenue was involved in the 300 cases of companies which have been allowed to transfer overseas? Is the loss of revenue very much, very little or negligible?
§ Mr. R. A. Butler
I did say that many of the concerns were small companies, and that they related to transfers of land and tea estates and that sort of thing. I have not got the exact figures with me, and so I cannot give the right hon. Gentleman an exact estimate.
In answer to my hon. Friend the Member for Sutton Coldfield (Sir J. Mellor), all I can say is that I think these new consents will make it quite obvious to companies that they will not have particular difficulty, because in some cases applications will not be necessary, and. where application is necessary, we shall see that it does not lead to undue delay. I do not think that, in the way we are doing it, there need be undue delay for British companies in commerce and industry.
In relation to the estimate which I tried to give, I did not make it more specific, because I think it is impossible to give an exact statement. If I had made it too 1422 high, it would have looked as if I was afraid the British companies which were well suited to do the job at home, would go overseas, and, if I made it too low, I might have given a wrong impression of the advice that came to me in the past year or two about likely intentions I only gave an approximate figure, because these figures can be misleading. In doing it in the way in which we are doing it now, my hon. Friends need not fear that there will not be liberty of action to companies which genuinely fulfil the considerations which I have laid down.
§ Mr. Stevens
On behalf of my hon. Friends on this side of the Committee, I welcome these two special concessions which the Chancellor has announced in regard to the promotion of subsidiaries overseas and bona fide sales of land. I should also like to say how very pleased I was to learn that the blood of the 17th century merchant adventurers courses so enthusiastically through the veins of Treasury officials.
I think these figures of 300 to 2 which the Chancellor has quoted—if only somebody could have got odds like those on the Derby today, they would have been very happy—are most satisfactory and far higher than we expected them to be. On those grounds, I was about to ask the leave of the Committee to withdraw the Motion, but, before doing so, may I say that I personally look forward to the time when foreign capital will come here and domestic capital be retained here on a voluntary basis, without any compulsory measures being necessary at all. I beg to ask leave to withdraw the Motion.
§ Motion, and Clause. by leave. withdrawn.