Clause 26.—(IRON AND STEEL COMPANIES (PROFITS TAX AND EXCESS PROFITS LEVY).) (Hansard, 8 July 1953)

Mr. Deputy-Speaker (Mr. Hopkin Morris)
The next Amendment is that in page 27, line 2, in the name of the hon. and learned Member for Kettering (Mr. Mitchison).

§ Mr. Jay
On a point of order. Do I understand, Mr. Deputy-Speaker, that you are not calling the Amendment to Clause 14, in page 10, line 39, to insert a new subsection (6)? We had reason to believe that that was to be called.

§ Mr. Deputy-Speaker
No, that Amendment is not selected.

§ Mr. Gaitskell
Further to that point of order. I understand that both the Government and ourselves expected and were informed that the Amendment standing in my name, in page 10, line 39, was to be called.

§ Mr. Deputy-Speaker
No, we have passed it. It is marked "Not selected" in my paper.

§ Sir F. Soskice
I beg to move, in page 27, line 2, after "Agency," to insert: being a distribution within the meaning of section thirty-six of the Finance Act, 1947, by way of dividend or cash bonus or of assets in kind. The reason we put down this Amendment was that we were very puzzled as to the object of Clause 26. The Financial Secretary, with the assistance of the Solicitor-General, gave us some examples of the purposes to which this Clause was to be put, but we could not square the examples with the wording of the Clause and the machinery for which the Clause seems to provide.
In effect, the Clause says that when the Treasury certifies that what would otherwise be a distribution for Profits Tax purposes within the meaning of Section 36 of the Finance Act, 1947, is made by a company owned by the Agency, and certifies that that distribution is for the purpose of the discharge by the Agency of its duties, it shall not attract Profits Tax. That, as a concept, seems relatively simple and easy to understand, but what we do not understand, and what we are 1355 asking the Financial Secretary to explain to us, is what, in fact, are the types of distribution which he envisages.
If one asks what is a distribution within the meaning of Section 36 of the Finance Act, 1947—in other words, a distribution which produces the result that the distributed rate of Profits Tax is applicable—one finds that it is a distribution of dividends, whether made directly or indirectly, or of assets in kind. That is what a distribution is, and, therefore, when we look at Clause 26 (1), we ask ourselves in what circumstances is it likely that one of these companies owned by the Agency will pay dividends or distribute assets in kind in circumstances in which the Treasury will be prepared to certify that that distribution is for the Agency's purposes.
I have been reading the speech of the Financial Secretary in the Committee stage, and I find that he gave us no examples, but, with the assistance of the Solicitor-General, he suggested that an issue of bonus shares might constitute such an example. One can conceive that, for the purpose of reconstruction or reorganisation, such a company owned by the Agency might capitalise its assets by the issue of bonus shares. That we can well understand. But where that falls within the Clause, we do not understand. The Clause just does not seem to fit it.
8.45 p.m.
It is possible that when the Financial Secretary talked about the issue of bonus shares, he had in mind Clause 26 (2), but that subsection only relates to the case where there is an issue of redeemable preference shares for the purpose of capitalising the assets of one of these companies, and then that capitalisation is subsequently reduced by payment back of capital. It is only in those circumstances, under Section 31 of the Finance Act, 1951, that there can be a transaction which may give rise to a Profits Tax liability.
When the Financial Secretary tells us simply that an issue of bonus shares is the kind of distribution which is contemplated, it occurs to us that he might have been thinking of that subsection. But if he was thinking of that subsection, we then ask, when is that circumstance going to occur for the purpose of reorganising one of these companies? There is first 1356 to be a capitalisation of assets, and then capital is to be returned and subsequently written down in such circumstances that the transaction falls within Section 31 of the Finance Act, 1951.
What troubles my hon. and right hon. Friends is that they cannot conceive in what sort of circumstances the kind of double transaction to which subsection (2) seems to relate is likely to take place, and not knowing in what circumstances it is likely to take place, they are hesitant as to the object for which such a double transaction might be embarked upon. Clearly, they cannot willingly give their sanction to a Clause of this sort without knowing for what purpose that kind of transaction is to take place. I hope that the Financial Secretary will give us examples of when it is likely that a transaction consisting of the writing up of capital followed by a writing down of capital, such as to give rise to a tax liability under the Finance Act, 1951, is likely to occur, and for what purpose. That is the first question.
As I indicated a moment ago, the Financial Secretary said that an issue of bonus shares might be a case of distribution. I wondered if he had in mind the wording of paragraph (a) of Section 36 (1) of the Finance Act, 1947, which defines such a distribution. But if he had, I cannot help thinking that he may have fallen into an error, because the expression there is not an issue of bonus shares which in terms of that definition constitutes a distribution. That paragraph relates to a cash bonus, which is quite a different thing. It is not an issue of bonus shares at all.
I repeat that within the meaning of the 1947 Act distribution is either an issue of dividend, a cash bonus or a return of assets in kind. What are to be the distributions which are to fall within the scope of subsection (1)? I have looked through the hon. Gentleman's speech, and I really do not think that he gave us any intelligible example of when it is to be done and what distributions are envisaged. The situation would be that one would be dealing with companies which are wholly owned by the Agency. Is it contemplated that these companies shall, in some way, distribute their assets in kind to the Agency? If so, for what purpose, and in the course of what kind of reorganisation for the purpose of the 1357 disposition of the shares of these companies?
It seems to us that the matter has been left in a very enigmatic way, and the reason why we have put down this Amendment is because we feel that we must reopen the discussion in order to make certain that we are not giving approval to something which in principle is wholly undesirable. If the Financial Secretary, with the help of the Solicitor-General, could have interpreted the matter on the previous time, and could have told us what transactions were envisaged, we might have been able to say that we were agreeable to the Clause, but, as the matter stands, we are left in complete and almost abysmal ignorance as to what sort of thing is contemplated here.
I hope that the Financial Secretary has been able to look through his brief and underline the real examples that are contemplated, and that he can tell us what they are. We can then indicate whether the proposal in the Clause is reasonable or not. It does not satisfy us for the Financial Secretary simply to say "We think it unreasonable that distribution which is effected for the purpose of reorganisation by the Agency in discharge of its duty should attract tax." It depends entirely what the transaction is. That is exactly what we want to know. Will the Financial Secretary give us examples of transactions which fall within subsection (1) and transactions which fall within subsection (2) and describe them to us, and we shall then be able to make up our minds.

§ Mr. Boyd-Carpenter
Some of the questions of the right hon. and learned Gentleman go more to the root of the Clause than to this Amendment, which seeks to reduce the number of types of distribution which the Treasury can specify under the Clause. My right hon. Friend has considered whether, in the light of this Amendment, the Clause is not drafted too widely. It has been drafted so as to cover not only the transactions which we have in mind and of which I gave examples, but also the cases which it is not desired to cover.
The effect of the Amendment will be to reduce the categories concerned to those where there was a distribution within the meaning of Section 36 of the Finance Act, 1947, by way of dividend or cash bonus, or of assets in kind. Having considered 1358 the position, my right hon. Friend has come to the conclusion that these words, though somewhat more cumbrous than those in the Clause as it stands, would cover all the transactions which it can be contemplated we should desire to cover, and my right hon. Friend therefore authorises me to say that he is ready to advise his hon. Friends to accept the Amendment.

§ Sir F. Soskice
Flattering as it is to me, and to those associated with me in putting down this Amendment, that it should have been so readily accepted, it is, nevertheless, clear that it has been made by the Financial Secretary a subterfuge into which he has dived in a very ignominious fashion in order to avoid having to answer the simple question that I put to him. Does he, or does he not, know what types of distribution it is intended to embark upon under the sanction of this Clause?
If he does not know, because his brief is incomplete or he cannot read it in time, perhaps he will be so good as to be honest and say so. If he does know can he, while accepting the Amendment, give us an intelligible reason why he will not tell us? Why is he keeping it a secret? The Chancellor of the Exchequer is sitting next to him. Cannot the right hon. Gentleman tell us? I am grateful to the Chancellor for being so frank as to shake his head. Does nobody in the House know?
Cannot the Minister get any information from the Officials' Box? Does nobody on the Front Bench know what this Clause is for? Is that really the case? If so, it is a most monstrous way of making proposals to the House to have no idea of what they are for. The Financial Secretary is the greatest adept in taking a brief which simply says, "Nothing doing. Usual answer," and giving a long and elaborate answer. He is like a housewife who has been given the sparsest ingredients and yet produces a beautiful meal, but the sort of meal that always leaves one hungry afterwards.
While thanking the hon. Gentleman very much indeed for at least limiting the scope of this extraordinary Clause, I do appeal to him to try to go one better than the Chancellor and not merely shake his head, though I admire the Chancellor's honesty and fairness. Cannot the Financial Secretary conjure up 1359 from his fertile imagination a type of transaction that might be covered by this Clause? This is the most extraordinary exhibition I have ever seen from a Front Bench.

§ Mr. Boyd-Carpenter
I fully appreciate the right hon. and learned Gentleman's feeling that one end has let go of the rope, but he has amused himself and us with his observations. He recalls perfectly well that we had a long debate in Committee and that I gave during that debate a clear and definite indication of the use of these powers.

§ Sir F. Soskice
No.

§ Mr. Boyd-Carpenter
The right hon. and learned Gentleman will recall that, in particular, I indicated that during the course of reconstruction of the companies, which was to get them into a suitable shape for sale, it would be necessary to effect distributions and arrange for the purchase and issue of shares for redistribution. For example, there was the distribution to the Agency in money in one case. [Interruption.] I really do not intend to be cross-examined by a sedentary right hon. and learned Gentleman.

§ Sir F. Soskice
May I, as an upstanding right hon. and learned Gentleman then, ask why?

§ Mr. Boyd-Carpenter
Nor am I going to be tempted even by an upstanding right hon. and learned Gentleman to inflict upon the House the very long speech which I made in Committee and which the right hon. and learned Gentleman, when he has the time to read it, will no doubt find resolves his doubts.
It is, of course, obvious that we are reconstructing the companies to get them into an appropriate state for sale, and only while they are completely in the ownership of the Agency, for that is the limiting condition. There will be distribution in one form or another. It will take many forms which I will not enumerate now, for if I did I could not enumerate them all in the available time and the right hon. and learned Gentleman would make it a great matter of 1360 complaint henceforward that I had failed to enumerate some on this occasion. If he really wants to know, he should read the speech which I made during the Committee stage.