HC Deb 16 June 1954 vol 528 cc2191-231
The Deputy-Chairman

It may be for the convenience of the Committee to take with the next Amendment to Schedule 2, page 39, line 8, the Amendment before it to line 7 and the one after it to line 9, and also the fifth and sixth Amendments on the Order Paper to lines 34 and 36 respectively.

Mr. E. Fletcher

I am sure that that would be for the convenience of the Committee, Sir Rhys. I beg to move, in page 39, line 8, to leave out "three years," and to insert "relevant period."

It is all very well for the Chancellor to keep telling us that we have work to do, but a good deal of this work is owing to his failure to do some of his work properly in drafting this Bill. What we are trying to do is to help the right hon. Gentleman remedy the defect which ought not to be there at all. The Chancellor is the last person who should complain; indeed, he ought to be grateful to us for trying to point out some of the defects in this Schedule.

The Chancellor is as fully aware as anybody that whatever merits the investment allowances may have, they carry with them the inherent defect that they are liable to gross abuse unless adequate safeguards are inserted in the Schedule to prevent it. As the Financial Secretary recognised in opening the Second Reading debate, this elaborate Second Schedule is the machinery which the Government have invented to check the abuses to which the investment allowances expose the Treasury. Elaborate and complex as it is, we do not think it is adequate, and the object of this, and the other Amendments, is to enable the Government to block up some of the loopholes they have left in the machinery.

I do not think I can do better than quote what the "Financial Times" said about this Schedule on 12th May, 1954: The most wonderful part of the Bill is the Second Schedule. True, you may forget the allowance when making your subsequent calculations, but the Inland Revenue will never forget that you received it. The draftsmen have excelled themselves in thinking up ways of defeating the wicked. I give credit to the draftsmen for having gone a good deal of the way to check a number of possible abuses, but the extent to which they have gone is merely a measure of the problem with which they have to cope.

The object of this Amendment is to prevent more completely the possibility of abuse. The way in which we think it is necessary to do this is that there should be an extension of the period of three years. That is quite an arbitrary figure, and is the period during which what the "Financial Times" calls the "wicked" might seek to get the benefit of investment allowances without deserving them.

If we look at Part I of the Schedule we see that the Government takes power to withhold investment allowances, or to withdraw those already granted in certain cases, and the events are as set out in sub-paragraphs (a), (b), (c), (d) and (e) of paragraph 2. We have no complaint about (a), (b), or (c), which refer to the obvious cases of somebody who has claimed investment allowances and who then goes abroad or transfers assets abroad, or who has claimed for some illegitimate purpose. Then, quite properly, there can be deprivation of the allowances, and we think it is reasonable that the three years' period should apply.

But what is much more likely is the case of a person, or a company, acquiring some plant or machinery not for an obvious or legitimate purpose for his own business, but for the purpose of reselling it. The Treasury draftsmen have recognised the difficulty about any given transaction where it is intended to resell, or where there has been legitimate acquisition and then the person has decided to sell.

Sub-paragraph (d) contains the unusual wording that any sale or transfer of the property representing the expenditure made by the person incurring the expenditure or an associate of his otherwise than to a person acquiring the property for a qualifying purpose, where it appears with respect to the sale or transfer that it is one in contemplation of which the expenditure was incurred. That means to say that the Treasury envisaged circumstances where it would have to decide that an original acquisition of some plant or machinery was not bona fide at all, but was made with a view to a contemplated sale or transfer which took place subsequently.

That is the procedure with which the Treasury is seeking to deal, and it limits the period of resale to three years from the date of acquisition. We think that that is too short, and we say that it should be five years because in any normal transaction where plant or machinery is acquired bona fide and which attracts an investment allowance, then the company acquiring it would, in all normal probability, keep it for a period of five years.

We think that any shorter period should be an onus on the party acquiring it and transferring it, and we think that that party should show that it had acted in a bona fide manner throughout.

3.45 a.m.

One of the Amendments which, under the direction of the Chair, is being considered with this Amendment is that standing in the name of my hon. Friend the Member for Gloucestershire, South (Mr. Crosland) in page 39, line 36. There is a slight typographical error in that Amendment. In the third line the words: … under (c) or (d)… should read: under (d) or (e)," because we think that the period of five years should govern the case of the vehicle which is the subject of subparagraph (e).

Mr. Stevens

I should like to draw the attention of the Committee and of the Economic Secretary to the Amendment in the name of my hon. Friend the Member for Altrincham and Sale (Mr. Erroll) and myself in page 39, line 34, which, so far from extending the time during which the new plant or machinery must be held, reduces it.

Clause 15 (3) denies to private motorcars the proposed investment allowances. There may well be good reasons for that denial, but it specifically makes an exception of private vehicles which are provided wholly or mainly for hire. The Schedule, on the other hand, makes a condition which will deny to those companies which specialise in the hiring of cars an investment allowance which apparently is provided for them by Clause 15 (3). That means that hire car companies will lose their allowance if they sell their cars within three years of buying.

The cars which are owned by these large hire car firms in this country are hired not only for use in this country but also on the continent, where they meet the competition of foreign car hire firms. That means that United Kingdom firms must have modern cars in good condition. In the past the Government have recognised the special position in which car hire firms are placed. When the supply of new cars for the home market was acutely short, the Ministry of Supply arranged special priority releases on the undertaking that the car hire firms did not sell for two years after purchase. Later, when an order to control hire-purchase was introduced a modified form of hire-purchase control was applied to car hire firms. They were allowed to extend their payments over 30 months, instead of the 18 months which applied to other commodities.

The overseas earnings of car hire firms are not insubstantial. They amount to £1½ million in the course of a year, much of which is in good, hard dollars. These firms can only keep and extend these earnings if they have modern cars. I am assured that the pre-war practice of these car hire firms was to change their cars every year. The period is now about two years on the average. They are reducing it quite rapidly to 1½years. They hope to be down to one year again before very long.

It seems very illogical that, having first of all excluded private cars in Clause 15 and then having specifically brought into the same Clause private cars used for hire purposes only, we should then put into a Schedule which modifies that Clause a condition with which hire car firms obviously cannot possibly comply. It seems to me that there is some rather curious drafting here. I hope the Minister will be impressed with the brief remarks I have made and will say that he can do something to meet a very obvious anomaly.

Viscount Hinchingbrooke

The hon. Member for Stechford (Mr. Roy Jenkins) and the hon. Member for Islington, East (Mr. E. Fletcher) had the Committee worried for about two hours earlier this evening over the situation whereby Surtax-paying farmers might acquire large numbers of tractors and sell them off at a profit, and they implored the Government to say whether something could be done to look into and check this problematical and hypothetical abuse.

Those hon. Members, it has now been revealed by the speech of the hon. Member for Islington, East, must have had in their minds all the time the knowledge that they would move an Amendment to this paragraph of the Schedule. Therefore, the speeches with which they wearied us earlier must have been entirely disingenuous, because the hon. Member for Islington, East, has now said that paragraph (2, d) provides that any sale or transfer of the property representing the expenditure made by the person incurring the expenditure. … must bring in the sanctions which her Majesty's Government have applied here, namely, that if it is sold within three years no investment allowance is given.

Mr. Jay

The noble Lord will appreciate that the problem we considered earlier, about profit, applied equally to a tractor which merely stood off in the field, as to one that was sold.

Viscount Hinchingbrooke

I was careful not to say anything about the other hypothetical suggestion that these tractors would be acquired in large numbers and left to rust in the fields. But perhaps there is a case for the Government to look into. We have had a great deal of argument from the hon. Member for Stechford, with a mass of figures which got the Committee completely tangled up and worried, and the object of the exercise was to show that if these tractors were sold there was danger of abuse. He must have known at the time that my right hon. Friend the Chancellor of the Exchequer had forestalled him, and had very wisely put into this Second Schedule the exact provisions necessary to prevent that abuse ever taking place.

Mr. Roy Jenkins

The noble Lord seems extremely worried that when we moved the previous Amendment we had more in our minds the Amendment which my hon. Friend has just moved. It would seem very odd if, when the Chancellor replied to the Amendments on the previous Schedule he did not have his own Schedule. But the Chancellor never attempted to come along and say that the thing was absolutely foolproof. He said it was a very difficult situation. He did not claim that the Schedule would deal with it completely, but thought it very difficult to alter the Schedule so as to deal with it. Therefore, the noble Lord has not caught us out here on a point.

I also think it is the case that subparagraph (d) of paragraph (2) of the Schedule—to which, I take it, he referred—is qualified in a number of ways: any sale or transfer of the property representing the expenditure made by the person incurring the expenditure or an associate of his otherwise than to a person acquiring the property for a qualifying purpose, where it appears with respect to the sale or transfer that it is one in contemplation of which the expenditure was incurred;". At any rate the Revenue would have to show that the sale which took place was one which was contemplated at the time the expenditure was incurred and it would also have to show that it was not made to someone who acquired it for a qualifying purpose. Even when all that was done one would be left with the position in which no sale took place, but in which the article was left either to rot or rust in the field.

The real position about the previous Amendment and the discussion we are now having on the Schedule is that certainly the noble Lord—and one had a suspicion that the Financial Secretary was joining him—has not a real desire to see that abuses are corrected. Many of us remember his intervention last year, also late at night and after not much attendance in the debates, when he said that if directors were able to charge excessive expenses he wished them luck. He is not concerned about abuses, but in making it as easy as possible for people to get away with what they can. I hope that the Economic Secretary, as distinct from the Financial Secretary in his unsatisfactory reply earlier, will approach these Amendments in a different frame of mind—one concerned as far as possible with checking abuse which exists.

Mr. Maudling

This Amendment deals with a narrow but very important point. I will try to address my remarks to the hon. Members who moved the Amendment and my hon. Friend the Member for Langstone (Mr. Stevens) and not to get involved in the other matters which have been brought into the debate, in which I might find myself out of order.

The purpose of the Schedule is to prevent people getting an investment allowance in circumstances where clearly it was not the intention that an investment allowance should be granted, for example, where a piece of plant has been bought and is sent to someone overseas. The hon. Member for Islington, East (Mr. E. Fletcher) wishes to extend the period to five years and said that the period we have chosen, three years, is an arbitrary one. I agree that it is so. We had to decide on a period which was reasonable as far as one could see to ensure that as far as possible abuses were stopped without entering into unnecessarily lengthy administrative complications.

I would point out that the number of opportunities for abuse under this provision is very limited. It only applies to someone buying something which qualifies for allowance and then transferring it to a person who uses it for a purpose which would not qualify, for instance, a refrigerator for industrial or commercial use which is passed on as part of a collusive arrangement for domestic purposes. I think it is fairly clear that there would be rare occasions on which that would arise. The period of three years is a rather long period over which to expect people to make any collusive deal.

I would have thought it would be very unusual for people to make a collusive deal in articles like refrigerators and so on in anticipation of a benefit which would accrue at the end of three years. If the article was purchased and used for the full period of three years for industrial and commercial purposes it would rightly qualify for the allowance and a great deal of the purpose of the allowance would have been already met.

The question arises whether, in practice, one would gain much by extending the provision to five years to compensate for the additional administrative trouble which would undoubtedly arise by extending the period. It would mean that the inspectors of taxes would have to make quite certain what happened to these various articles. I think it unlikely that at the end of the five-year period there would be much chance of obtaining really conclusive evidence of the intention at the time of purchase, which is the crucial matter in deciding whether subparagraph (d) applies.

When considering this provision, we realised that we would have to take an arbitrary decision. We wanted to balance the need for avoiding the possibility that allowances might be gained in circumstances where they were not intended against the additional administrative complexity of carrying on too long with this thing. Despite what the hon. Member for Islington, East says, I am inclined to think, on the whole, that a period of three years will do the trick.

4.0 a.m.

As far as motor-cars are concerned, the hon. Member said that in this case also we should go to five years, although he did not advance any strong reasons for doing so. One can understand generally his feeling. On the other hand, however, my hon. Friend the Member for Langstone thought we had gone too far in making the period three years, because the average car hire firm—this applies only to hire cars, and not to the ordinary business motor-car, which is already excluded by Clause 15—tends to turn over its cars in a much shorter time than three years. That argument might in a way appeal to the hon. Member for Islington, East, because he related the period for this purpose to something like the normal period of turnover of the asset by the normal sort of company which owns assets of that kind.

On listening to both sides of the Committee, I feel that we are probably about right in keeping the period at three years and not making a different term of years specially for hire cars. I do not think there is a case for making the period in the case of hire cars longer than for industrial assets, and I do not accept that the arguments used by my hon. Friend the Member for Langstone, strong as they were, are strong enough to entitle us to make a special exception in favour of hire cars by reducing the period below three years.

We have met the argument that hire cars should be able to be included in investment allowance, although the generality of motor-cars used for business purposes are excluded. I think, therefore, that we have done something to help in that way.

Mr. Stevens

Has my hon. Friend any evidence to indicate that the normal practice of a car hire firm is to turn over its cars at longer or shorter intervals than three years?

Mr. Maudling

Such evidence as I have suggests that it is difficult to talk of a normal practice in an industry which is extremely varied. Some firms may renew their cars very frequently, but in my own constituency it seems as if the interval in some cases is more like 20 years.

I hope I have been able to convince the Committee that we gave serious thought to the question of the term of years that was involved before we put it into this part of the Schedule. While appreciating the arguments from both sides of the Committee, in rather opposing directions, I think that the Government are still of opinion that our proposals as they stand best reconcile the rather conflicting interests of administrative efficiency and avoiding abuses.

Mr. Mitchison

I want to say a few words about sub-paragraph (d), which deals with the case of a man who bought property apparently intending to sell or to transfer it to somebody else, and who bought it ostensibly for what is called the "qualifying purpose" but who apparently intended to transfer it to someone who had not, or might not, use it for the qualifying purpose. It is uncommonly like what in other connections we call a "little bit of fraud," and it is a fairly disreputable sort of transaction. It differs in that respect from the other provisions in the programme.

With regard to that matter, I notice that the Amendments contain two alternative provisions. One is that there should be no time limit at all; that, I take it, would be the effect of the two Amendments in lines 7 and 9. The other suggestion is to specify five years instead of three years.

The Economic Secretary usually is logical, but he was not today. He said one would probably not be able to prove anything after three years. That is possible; but is that any reason for saying that a man should, as it were, by the terms of the Schedule, get off after three years if the matter could be proved? What I have said about five years applies just as much to the subsequent date. I would ask the hon. Gentleman to consider this matter carefully. We are dealing with a case which is fraud, or as near fraud as is no matter. Why should there be any time limit? It may be that it will not be possible to prove many cases after three years, but is that any reason for saying that if you can there is no effect, as regards this particular matter, once three years have elapsed? I cannot see the logic of that.

From what the Economic Secretary has said, I do not think that the Government have quite considered what they are doing. I do not want to rub this in at this late hour, but I hope the Economic Secretary will allow me to say that it is rather nonsense. I have never seen fraud get off so lightly. This is fraud. The Government have apparently said that there shall be a special three years time limit for fraud in this case. I cannot think how the Government arrives at these time limits.

I have always thought that the Treasury, for all its appearance of exactitude, was the biggest hit-and-miss Department. It has a period of five years for death duties, and now three years for fraud. In those cases it is dealing with cardinal numbers. When it comes to millions, the Treasury begins to count with a remarkable accuracy which would only defeat the ordinary man. It is with the simple ones, the ones which an intelligent ape at the zoo could count on the fingers of its forepaws, that one gets these hit-and-miss efforts.

For a long time we have had a rule in the law that a reasonable period of limitation for most purposes, though not for fraud, is six years. Is it possible that the Economic Secretary was having a game with that in one of his inspired moments and said, "Six years: shall we double that? No. Shall we halve it? Yes." Is it possible that that is how he arrived at the three? This matter does need reconsideration.

Mr. E. Fletcher

I agree with the Economic Secretary that there is a difference between sub-paragraph (d) and subparagraph (e). As the hon. Gentleman will have gathered from the speech of the hon. and learned Member of Kettering (Mr. Mitchison) we are concerned with (d) rather than (e). It is a matter of collusive purchase with a view to resale, and the primary object of the Amendments is to protect the Revenue from deliberate, collusive transactions to get undeserved benefit of investment allowance. The Chancellor of the Exchequer realises that there is the possibility of collusion for this purpose, and has sought in the Schedule to deprive the collusive purchaser of plant and machinery of the benefit of investment allowance if he can be caught, provided the resale takes place within three years.

Why should there be a time limit at all? If there is a collusive transaction, why should the parties to it get the benefit of the investment allowance? It may well be that in practice it is impossible to catch anybody after five years, but I agree with my hon. and learned Friend the Member for Kettering (Mr. Mitchison) that if a collusive transaction is entered into at any time it ought to be stopped and no one should benefit from it. Of course, there must be extreme cases; one cannot imagine a collusive purchase taking place with a view to a sale 25 or 50 years subsequently.

I do not know whether the tax inspector has to keep an eye on these things indefinitely, but surely the Treasury will concede the principle that if there is a collusive transaction those who take part in it ought not to get the benefit of the investment allowance. That is the principle behind the Amendments referring to sub-paragraph (d) and we hope that we have now made that view abundantly clear to the Treasury and that the spirit of the Amendments will be accepted.

Mr. Jay

We do not seem to have had a satisfactory answer to the main points which we have been trying to put before the Committee. There were two alternative groups of Amendments. The first proposed a period of five years for subparagraphs (d) and (e) and the second proposed that there should be no time limit in the case of sub-paragraph (d). We now wish to press the latter group, to which we feel we have had no answer.

The noble Lord the Member for Dorset, South (Viscount Hinchingbrooke), in his effort to rebuke my hon. Friend the Member for Stechford (Mr. Roy Jenkins), was effectively answered, although he did not seem to notice it, by the Economic Secretary. The noble Lord argued that the whole problem of the possible purchase and resale of tractors, or whatever the assets might be, was entirely met by the provisions of sub-paragraph (d) that if anybody resold assets and had contemplated so doing when they bought them they would be deprived of the allowance. What he failed to see was the words otherwise than to a person acquiring the property for a qualifying purpose. If the assets are resold and somebody uses them for a qualifying purpose, the whole of the safeguard is inoperative.

The Economic Secretary made it clear that in the majority of cases such assets would be resold for a qualifying purpose, which merely meant that they would be used as tractors. When a tractor is bought second-hand, in the majority of cases it would be so used.

Viscount Hinchingbrooke

The argument was where a man bought a tractor and then resold it to enlarge his net income. Obviously, he resold in that case to someone who had no purpose of installing the tractor on a farm but treated it in some other way, for example, in order to give him the money.

Mr. Jay

That does not apply if the tractor is sold second-hand to increase his net income, but partly to get the best price which can be obtained for the tractor. That is what the Economic Secretary said—reasonably: he would sell it to somebody who wished to use it as a tractor. There was not a great deal of substance in the noble Lord's argument.

Mr. Mitchison

I would ask my right hon. Friend not to be too hard on the noble Lord, who was misled by the Financial Secretary, who kept on thinking that it was a case of abuse when it was merely a case of the operation of the statute which he is bringing forward.

Mr. Jay

It may well have been the Financial Secretary who misled the noble Lord, but now we have led the noble Lord back into the paths of reason and we can pass to the next point.

4.15 a.m.

We really do feel we have bad no answer to this: what reason is there why there should be any time limit in the case of sub-paragraph (d) at all? This is a case where someone has deliberately—that is what the words "in contemplation of which" mean—purchased an asset to resell it and make a monetary gain at the expense of the Inland Revenue. The very fact that the sub-paragraph is included at all, shows that in the Government's opinion, it is necessary to prevent that happening in order to make this allowance work properly and in order to safeguard the revenue.

But, if that is true up to a period of three years, we really cannot see why one should say that because somebody indulges in this—my hon. and learned Friend the Member for Kettering (Mr. Mitchison) called it fraud but let us call it this operation, because if the Bill goes through like this it would be legal—intending to resell the tractor or whatever it is three years and one month later, he should go scot free. The only argument the Economic Secretary put forward was that it would be very burdensome for the Inland Revenue to keep records for more than three years. I think the Economic Secretary fell into a logical fallacy.

If our Amendment would compel the Inland Revenue to take action and prosecute in special cases where this might have happened, it might be necessary to have a time limit. But all our Amendment would do, would not be to compel the Inland Revenue to do that, but to empower them to do it. It would have the result that if, after five, six, seven or eight years the facts came to light, and, no doubt, if they were glaring and flagrant cases they would come to light, the Inland Revenue would have the power to act.

As the Bill is, even though it was done with the intention and the facts came to light and were perfectly well known by the Inland Revenue, they would be precluded by the law from taking any action. We cannot see any point in putting that inhibition on the Revenue in cutting out a case where, on the Government's own arguments, action ought to be taken.

Mr. Maudling

I am glad the right hon. Gentleman did not use the word "fraud"; I think it is a little strong, because it would be a perfectly legal operation under the Schedule as drafted. I think the difficulty one finds in going much further in this matter is that one does not like to introduce legislation which, obviously, administratively cannot be made effective. That is why I do not think it is possible to have this provision without a time limit. But, I am certainly prepared to give consideration to extending the time limit in this instance to five years, between now and the next stage, and certainly I am prepared to consider in the light of the arguments put forward whether three years, in this particular instance, is a little bit on the short side.

Mr. Jay

In view of the Economic Secretary's assurance, which I understand to be that he will consider an extension of the time limit in a reasonably sympathetic spirit, I will advise my hon. Friend to withdraw.

Mr. E. Fletcher

I beg to ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Mr. Gaitskell

I beg to move, in page 39, line 27, to leave out from "his." to "where," in line 28.

We are concerned here with provisions which seek to prevent a use of the investment allowances which is contrary to what the Government desire. Both the debate which has just taken place on the earlier Amendments and our discussions on the proposal that the investment allowances should not be granted in relation to Surtax show that there is a very considerable danger of what one can describe, I think fairly, as a racket developing through persons who receive the allowance using it simply to purchase and resell industrial property of various kinds to relieve their own tax burden.

The Financial Secretary earlier made considerable play with the fact that it was possible for companies—not only for wealthy individuals—to reduce their tax burden in this way. My hon. Friend the Member for Stechford (Mr. Roy Jenkins) pointed out then that in the case of companies it was hardly possible for them to do so without selling at a reasonable price and perhaps at a price which itself involved a certain element of profit, apart from the allowance. If it is the case that the companies can do this, then there is all the more reason for being especially careful to lay down conditions with regard to resale which prevent the kind of racket which I have mentioned from developing.

We have been discussing the time limit in the previous Amendment, and the Economic Secretary has promised to consider that. We are now concerned with a rather different angle. The events set out in the Schedule as a result of which the allowances can be withdrawn are five in number and we are concerned here only with the fourth of these. It is the one where property is resold by the person incurring the expenditure, or an associate of his, to somebody who is not going to use the property for the purpose of seeking an income or profit, where the whole conception was one that was thought of at the time the expenditure was incurred. I have deliberately used not the language of the Schedule but what I think is more conversational language which I hope is a little clearer.

The purpose of the Amendment is to omit from this provision the words: … otherwise than to a person acquiring the property for a qualifying purpose. … It would make the withdrawal of the investment allowance appropriate in the case of a person who deliberately obtained the allowance with a view to purchasing something which he intended to resell. That condition remains in, but he may well be reselling it to somebody who is going to use it for the purpose of making an income or a profit.

This is an important Amendment, because the case of resale to a person who intends to use the industrial property or the tractor, or whatever it may be, for a non-profit making purpose is obviously rather rare. The case of the ordinary motor-car is ruled out. I suppose we could conceivably get a case of a lorry which was transferred from one use to another, but, obviously, that would be unusual. The far more common case, and, therefore, the far more dangerous one from the point of view of the racket that I am talking about, is when the tractors or other properties are resold to persons who intend to make use of them in the ordinary way.

It may be argued by the Government that if they are to use it in the ordinary way for industrial purposes to earn profits or for income. There is nothing wrong with it. There is a good deal wrong with it if the person having the investment allowance originally is simply obtaining this reduction in Income Tax by acting as a middleman in this way. It is possible, under the Bill as drafted to have companies formed for this purpose, or even, particularly in the case of a well-to-do person, some kind of partnership as a matter of business to buy plant and equipment with the investment allowance, re-selling it to persons who will use it, and then obtaining this substantial advantage.

I agree if the racket developed in a big way the price of second-hand plant and machinery would tumble very fast. That is a point made in some of the comments of technical journals on this situation, but I do not think it is sufficient just to rely on the price of second-hand machinery falling so far that the profit or gain disappears altogether. As we know, in the case of the high Surtax payer it would have to fall substantially before the advantage—which I do not think anyone wants to see retained—disappeared altogether. Therefore, we propose to leave out these words, and to make the paragraph apply whether or not the person who bought the property is going to use it for ordinary income or profit, or for some other use as contemplated in the sub-paragraph as originally drafted.

I cannot see any reason for leaving the words in unless the Government want these things to happen. The investment allowance was not to encourage buying and reselling but was for the benefit of British industry and to increase productivity. No harm can be done by the removal of these words. On the other hand, it is clear if we remove them we shall do something to stop up what is recognised as a rather serious loophole.

Mr. Mitchison

I think one has to consider that this sub-paragraph (b) includes fraudulent cases. I used the word "fraud" just now and I went too far in suggesting that it applied to all cases. If one takes fraudulent cases first—and here I am using the word in the sense of something that would be fraudulent if it was not within the terms of the Statute, and would contain an element of concealment, misrepresentation and the like that one finds in ordinary fraud—in a case like that surely it is quite indefensible to make the withdrawal or refusal of this particular allowance depend on whether the person gets it for a qualifying purpose. I should have thought that almost incapable of argument.

To take the honest case, my right hon. Friend pointed out quite rightly that this is, of course, tied up with the question we have raised before of the high Surtax payer deliberately making a profit out of these transactions, and, of course, it opens the door to his doing so on a very considerable scale, and making a business of it. Even if that does knock the bottom out of the second-hand market in whatever the commodity is that is to be met, as far as I can see, by the operation of balancing allowances. He will get as to 19/20ths out of the balancing allowance. Consequently, it will not depend as much as all that on the market.

4.30 a.m.

One has to remember that these allowances are limited to new machinery and plant, and "new" means unused and not secondhand. I agree that there may be cases where a man buys not as an agent but as a middleman—to use a phrase which was used just now—and, therefore, the machinery does not go through his hands at all, or it goes only notionally through them; he may never see it. But that kind of case seems to me certainly not a case in which one could put up any reason at all for his getting that investment allowance. He would not get it if he was merely acting as an agent, and merely because his legal relations are slightly different and he is a middleman is no justification for his getting it.

It is intended that the man should, by the contemplation of the resale, use the machinery a little and then pass it on. Of course, passed on, it becomes no longer new machinery, and the man for whom it was always intended does not get an investment allowance, while the man who bought it first does get the allowances. Surely that is a most cock-eyed sort of arrangement.

I cannot see what are the grounds for putting this limitation on this particular case. Perhaps we shall be told later what they are. I cannot see any merit at all in the case of a resale contemplated at a time when the expenditure was incurred, even though it is to a person acquiring the property for a qualifying purpose. I cannot see what grounds a person who effects that resale has for getting the allowance in this case.

Mr. Maudling

I listened carefully to what was said by the right hon. Member for Leeds, South (Mr. Gaitskell) and the hon. and learned Member for Kettering (Mr. Mitchison), and I must confess that so far I cannot help thinking that they are on a false point. There is no possibility of abuse in this case where it is contemplated that A acquires something for a qualifying purpose and then sells it to B who is also going to use it for a qualifying purpose, and would himself get the allowance if he bought it direct. In that case there is only one investment allowance receivable from the Exchequer, and the investment has taken place. From the point of view of the Exchequer, it is no abuse at all, because that amount of investment has taken place and the cost to the Exchequer by way of investment allowance has not been increased.

Therefore, the object which we had in mind, of getting increased investment, has been achieved, even though it has been in one person's factory rather than in another. I do not see how it is likely or possible that a large market or series of transactions could grow up in these matters. Surely A buys the machinery and gets the benefit of the investment allowance, and passes it on to B who could have got it but in this case cannot get it because it is second-hand. Surely, as soon as the first purchaser takes the allowance for himself, he thereby reduces the value of the article. I do not see how any question of abuse can arise.

Mr. Mitchison

I am sorry to interrupt the hon. Gentleman, but surely it does not follow that the State is getting the same. It will vary according to the Surtax and Income Tax paid by the people concerned. The fact that the original purchaser is a high Surtax payer means that the concession which the State is making to him in this respect will be much larger than if he had been a low Income Tax payer. It therefore becomes practicable for a man who is paying 19s. in the £ to make a business of buying bits of machinery for people who are standard rate payers, reselling it to them, making a bit of money out of the proceeds and, for all we know, halving the boodle with the second buyer.

Mr. Maudling

I appreciate the point. which I had in mind.

Mr. Gaitskell

It is a pity that the hon. Gentleman was not taking the Amendment on the Surtax proposals because, as I made plain, these things are intimately bound up together. It is one of the great dangers of the investment allowance proposals that they bring this peculiar benefit to the high Surtax payers.

We tried in our earlier Amendments to deal with that, but they were rejected. Now we are trying to deal with it through this Schedule. It is this case with which we are concerned, and what my hon. and learned Friend said was absolutely on the point.

Mr. Maudling

As I said, this is a rare and peculiar case where a high Surtax payer would be involved. But that should not provide us with the rule for the generality of cases where I cannot see that any possible question of abuse could arise. Nor am I certain that the State necessarily would have a bad bargain in the circumstances envisaged by the hon. and learned Gentleman, because the State is prepared to accept that remission of taxation. I do not think the possibility of that rare case should lead us to accept this Amendment, which, otherwise, cannot be said to be justified on the facts of the case, and which is introducing a limitation on the freedom of traders in this country which is not justified in the interests of protecting the State.

Mr. Roy Jenkins

The point here is probably a narrow and small one, but such as it is, I do not think that the Economic Secretary has answered it. I gather that the hon. Gentleman accepted the point of my hon. and learned Friend the Member for Kettering (Mr. Mitchison) as a valid one so far as it went, but it was one which he thought had only limited application. But if it is a valid point so far as it goes, it is something to which the Government ought to face up and with which they ought to try to deal.

I did not understand the remark of the Economic Secretary when he said that even if Mr. A was a large Surtax payer, deliberately setting himself up in business to pass plant and machinery through his hands and on to Mr. B, who might either be an individual paying only Income Tax at the standard rate or a company paying Income Tax at the standard rate plus the normal rate of Profits Tax. I did not understand why he thought that this did not matter from the point of view of the Government and was not a bad bargain. That investment would not take place to any lesser extent if the loophole were blocked, whereas now the Government are paying more for the concession and a certain number of individuals, even if a be limited number, may make an unreasonable profit out of the arrangement.

What I did not hear from the Economic Secretary was what was the great objection he had to the Amendment which we have moved. He has said that he does not think it would mean any great advantage although he half admitted that it would be of some advantage; but he has not set against that what would be the disadvantage. Some possible arguments might be deployed against the Amendment, but he has not done that. Our arguments for it are, I think he will admit, of some importance, and I hope that he can tell us what would be the disadvantage if he accepted this Amendment as it stands.

Sir R. Acland

I am a little concerned at the nature of the argument which the Treasury Bench is offering not only to this Amendment, but to a considerable number of other Amendments dealing with roughly the same point. The argument offered in reply to this, and to some others, is that the kind of abuse against which we want to raise safeguards, occurs only in rather particular cases; it is said that those cases will not happen on any large scale. In fact, we are told, people do not do the kind of things which we are suggesting certain people might do. I say that an argument in that particular form may turn out to be false. There is, of course, a very large number of people who would not do, or even dream of doing, the sort of thing which we envisage in this particular Amendment, or the sort of things which we have envisaged in a number of other Amendments of roughly comparable calibre.

But the fact that there are many people who would not dream of doing these things does not alter the fact that there is a considerable number of other people who do do these things; and who employ an enormous amount of ingenuity in looking for, and finding out, ways in which they can do these things. This, of course, gives rise to a disproportionate amount of dissatisfaction and loss of morale because the kind of things against which this Amendment is designed is being done on quite an appreciable scale.

If I may pass very briefly to the recent history of this country, I can show what extraordinary things people will, in fact, do to evade the clear intention of Parliament and this House of Commons. To show this one has only to divert one's attention to the keeping of pigs. When our party was in power we said that a person who kept pigs could have some pig food; and if anyone in this Committee had at that time solemnly warned that wealthy people would go down to farms and, seeing a litter of pigs, would buy one and then pay a farm worker 6d. a week to look after it, he might not have been believed.

Viscount Hinchingbrooke

On a point of order. May I ask whether the keeping of pigs is one of the qualifying purposes under this Clause?

4.45 a.m.

Sir R. Acland

Though it may surprise the noble Lord to know it, we are discussing the likely behaviour of persons, in particular wealthy persons. It seems not irrelevant to spend two minutes reminding the Committee, by reference to what actually happens, of the quite extraordinary things that people will do. They are things which had it been suggested in advance in the House of Commons that they would do, hon. Members now on the Treasury. Bench would have said, "That is not the sort of thing that anybody does."

In the case of the pigs it turned out to be exactly the sort of thing that people did. Later, when a regulation made that sort of thing impossible people actually entered into partnership with agricultural workers to keep pigs jointly. It seems to me that with that kind of behaviour before us we should bear in mind that, not most people and not most rich people, but an appreciable number of people will take advantage of exactly the kind of loophole that is provided in the Schedule.

It would be possible for a man paying a high rate of Surtax to run round, or get an agent to run round, and find a number of people in a small way of business, paying Income Tax only at the standard rate, who happened to want to purchase machinery. Arrangements could then be made whereby the rich man should make the purchase and pass it on and divide the spoils with those concerned. It only requires a few examples of that kind of behaviour to become known in any area for it to have a very damaging effect upon morale and a sense of responsibility.

If this device of an investment allowance requires a Schedule of three pages to safeguard it against abuse, and then we find on careful examination that even then it is very far from being adequately safeguarded, whereas the initial allowance when first introduced required no safeguarding at all, I ask my hon. Friends to consider whether that is not a strong indication that in advancing from an initial allowance to this investment allowance we have crossed over the line from that which can be tolerated to that which cannot be tolerated.

Mr. Maudling

We are very much averse to prohibiting a private or ordinary business deal between individuals if that deal does no harm to any interest. My right hon. Friend, how- ever, is very anxious to make sure that no racket of any kind should arise and he will certainly include consideration of this point within his consideration of other points on Surtax, to which reference has already been made.

Mr. Gaitskell

In view of that assurance I think that we might leave the Amendment. We shall come back to it, of course, on the Report stage if, by then, the Chancellor has not put on the Order Paper a similar Amendment. We feel convinced that it would be very much wiser to keep these words and I could expatiate at great length to the effect that, at any rate, they would do no harm. In view of the hon. Gentleman's assurance, however, I beg to ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Mr. E. Fletcher

I beg to move, in page 40, line 11, to leave out from "allowance" to the end of line 13.

I hope we hall find that the Chancellor is equally conciliatory to this Amendment, as he has been with regard to the last two, because I would assure him that in all these it is our design to assist him in what he has said is his purpose, of trying to prevent the evasion, to close all the loopholes and stop the abuse which he has realised are inherent in the scheme of the investment allowance.

The object of this particular Amendment is to impose a minor sanction on the person who deliberately conspires to take part in a collusive transaction with a view to getting benefit by way of the investment allowance, in circumstances in which he is not entitled to get it. We suggest that the net should be drawn tighter, so that in a case where manifestly the investment allowance ought not to have been granted, or, if granted, ought to be withdrawn, the buyer who, ex hypothesi, is party to the collusive deal, should not himself get any initial allowance, but should be debarred from making possible collusive transactions, and should be disentitled to an initial allowance in any circumstances, regardless of whether or not the investment allowance is withheld from the original purchaser of the plant and machinery in question.

Mr. Boyd-Carpenter

This Amendment deals, as I think the hon. Gentleman will appreciate, with a much narrower point than the previous ones which we have discussed, and would only arise, in practice, in a very limited class of case. The class of case in which it would conceivably arise would be that of the sale of hire cars which ceased to be used for hire, because, so far as I can see, in other cases in which the investment allowance would be withdrawn, there could be no claim for initial allowance. It is, therefore, a very small point: should the initial allowance be automatically eliminated in all such cases, or, where the investment allowance is withdrawn, should the initial allowance be permitted?

I think the only point that arises there is whether we are to assume that all the cases that come in this category carry with them such a degree of association, with some collusive arrangement, as to make it desirable to remove the normal granting of the initial allowance. I can well understand that the hon. Gentleman has in mind cases in which there might be collusion, in the strict sense, and in which it might well be said that, collusion having been detected, and, therefore, having failed, no allowance should go to anyone concerned in the matter. There is something to be said for that point of view.

On the other hand, there will be cases that come within paragraph (2) which are not of that order at all, and it seems perhaps a little unnecessary to remove, in this case, the initial allowance which normally would be permitted. This is not a very big matter, but, on balance, I think it seems a little oppressive to lay down in all cases that even where the investment allowance is withdrawn, an initial allowance should not be permitted.

I hope that in the light of that the hon. Gentleman will not feel it necessary to press this rather narrow point.

Mr. Gaitskell

This may be a narrow point, but, nevertheless, it does once again raise the question of enforcement. Had the Government shown any signs on the earlier Amendments of a desire to meet the proposals we put forward, had they shown any inclination to tighten the arrangements for ensuring that invest-

ment allowance are not misused, we might have been prepared to let this Amendment go, but I do not feel in the least convinced by what the Financial Secretary has said. There is no particular reason why the initial allowance should be retained by the buyer merely because the investment allowance is withheld or withdrawn from the seller. To register our disapproval in this matter, and in other cases, I propose that we divide the Committee.

Question put, "That the words proposed to be left out stand part of the Schedule."

The Committee divided: Ayes, 127; Noes, 100.

Division No. 148.] AYES [4.58 a.m.
Aitken, W. T. Hall, John (Wycombe) Noble, Comdr. A. H. P.
Allan, R. A. (Paddington, S.) Harris, Frederic (Croydon, N.) O'Neill, Hon. Phelim (Co. Antrim, N.)
Alport, C. J. M. Harrison, Col. J. H. (Eye) Ormsby-Gore, Hon. W. D.
Anstruther-Gray, Major W. J. Harvey, Ian (Harrow, E.) Page, R. G.
Arbuthnot, John Heath, Edward Pitman, I. J.
Baldock, Lt.-Cmdr. J. M. Henderson, John (Cathcart) Powell, J. Enoch
Baxter, Sir Beverley Hinchingbrooke, Viscount Price, Henry (Lewisham, W.)
Birch, Nigel Hirst, Geoffrey Prior-Palmer, Brig. O. L
Bishop, F. P. Holland-Martin, C. J. Raikes, Sir Victor
Black, C. W. Hollis, M. C. Rayner, Brig. R.
Bossom, Sir A. C. Hope, Lord John Redmayne, M.
Boyd-Carpenter, Rt. Hon. J. A. Hornsby-Smith, Miss M. P. Remnant, Hon. P.
Boyle, Sir Edward Hudson, Sir Austin (Lewisham, N.) Ridsdale, J. E.
Brain, B. R. Hylton-Foster, H. B. H. Rodgers, John (Sevenoaks)
Bromley-Davenport, Lt.-Col. W. H. Iremonger, T. L. Russell, R. S.
Brooman-White, R. C. Jenkins, Robert (Dulwich) Schofield, Lt.-Col. W.
Buchan-Hepburn, Rt. Hon. P. G. T. Johnson, Eric (Blackley) Scott-Miller, Cmdr, R.
Butler, Rt. Hon. R. A. (Saffron Walden) Kaberry, D. Shepherd, William
Campbell, Sir David Kerby, Capt. H. B. Simon, J. E. S. (Middlesbrough, W.)
Channon, H. Leather, E. H. C. Smithers, Peter (Winchester)
Clarke, Col. Ralph (East Grinstead) Legge-Bourke, Maj. E. A. H. Stevens, Geoffrey
Colegate, W. A. Legh, Hon. Peter (Petersfield) Steward, W. A. (Woolwich, W.)
Conant, Maj. Sir Roger Lindsay, Martin Studholme, H. G.
Cooper-Key, E. M. Linstead, Sir. H. N. Summers, G. S.
Craddock, Beresford (Spelthorne) Lucas, Sir Jocelyn (Portsmouth, S.) Teeling, W.
Crookshank, Capt. Rt. Hon. H. F. C. Macdonald, Sir Peter Thomas, P. J. M. (Conway)
Crosthwaite-Eyre, Col. O. E. McKibbin, A. J. Thompson, Lt.-Cdr. R. (Croydon, W.)
Crouch, R. F. Mackie, J. H. (Galloway) Thornton-Kemsley, Col. C. N
Darling, Sir William (Edinburgh, S.) Maclean, Fitzroy Turner, H. F. L.
Deedes, W. F. Maitland, Patrick (Lanark) Turton, R. H.
Digby, S. Wingfield Manningham-Buller, Rt. Hn. Sir Reginald Vane, W. M. F.
Donner, Sir P. W. Marlowe, A. A. H. Vaughan-Morgan, J. K
Drayson, G. B. Marples, A. E. Vosper, D. F.
Drewe, Sir C. Marshall, Douglas (Bodmin) Wakefield, Edward (Derbyshire, W.)
Fleetwood-Hesketh, R. F. Maude, Angus Wall, Major Patrick
Fletcher-Cooke, C. Maudling, R. Ward, Hon. George (Worcester)
Fort, R. Maydon, Lt.-Comdr. S. L. C. Ward, Miss I. (Tynemouth)
Galbraith, T. G. D. (Hillhead) Mellor, Sir John Waterhouse, Capt. Rt. Hon. C.
Garner-Evans, E. H. Molson, A. H. E. Wellwood, W.
Godber, J. B. Nabarro, G. D. N. Williams, Gerald (Tonbridge)
Gomme-Duncan, Col. A. Neave, Airey Wilson, Geoffrey (Truro)
Graham, Sir Fergus Nicholson, Godfrey (Farnham) TELLERS FOR THE AYES:
Grimston, Sir Robert (Westbury) Nicolson, Nigel (Bournemouth, E.) Mr. Oakshott and Mr. Wills.
NOES
Acland, Sir Richard Bowden, H. W. Champion, A. J.
Adams, Richard Braddock, Mrs. Elizabeth Chetwynd, G. R.
Albu, A. H. Broughton, Dr. A. D. D. Collick, P. H.
Baird, J. Brown, Rt. Hon. George (Belper) Craddock, George (Bradford, S.)
Bann, Hon. Wedgwood Burton, Miss F. E. Crosland, C. A. R.
Benson, G. Butler, Herbert (Hackney, S.) Dalton, Rt. Hon. H.
Blackburn, F. Callaghan, L. J. Davies, Ernest (Enfield, E.)
Blenkinsop, A. Castle, Mrs. B. A. Davies, Harold (Leek)
Delargy, H. J. Jenkins, R. H. (Stechford) Shackleton, E. A. A.
Dodds, N. N. Johnson, James (Rugby) Short, E. W.
Evans, Albert (Islington, S.W.) Jones, Frederick Elwyn (West Ham, S.) Shurmer, P. L. E.
Evans, Stanley (Wednesbury) Jones, Jack (Rotherham) Simmons, C. J. (Brierley Hill)
Fienburgh, W. Keenan, W. Slater, Mrs. H. (Stoke-on-Trent)
Finch, H. J. King, Dr. H. M. Slater, J. (Durham, Sedgefield)
Fletcher, Eric (Islington, E.) Lawson, G. M. Taylor, John (West Lothian)
Foot, M. M. Marquand, Rt. Hon. H. A Thomas, Ivor Owen (Wrekin)
Gaitskell, Rt. Hon. H. T. N. Mellish, R. J. Thomson, George (Dundee, E.)
Gibson, C. W. Mikardo, Ian Thornton, E.
Gordon-Walker, Rt. Hon. P. C Mitchison, G. R. Usborne, H. C.
Greenwood, Anthony Morgan, Dr. H. B. W. Wallace, H. W.
Grey, C. F. Morris, Percy (Swansea, W.) Warbey, W. N.
Griffiths, William (Exchange) Moyle, A West, D. G.
Hall, Rt. Hon. Glenvil (Colne Valley) Nally, W. Wheeldon, W. E.
Hannan, W. Noel-Baker, Rt. Hon. P. J. Whiteley, Rt. Hon. W.
Hargreaves, A. Oswald, T. Wilkins, W. A.
Hayman, F. H. Parker, J. Willey, F. T.
Herbison, Miss M. Peart, T. F. Williams, Rev. Llywelyn (Abertillery)
Hobson, C. R. Popplewell, E. Williams, Ronald (Wigan)
Hughes, Cledwyn (Anglesey) Price, J. T. (Westhoughton) Williams, W. R. (Droylsden)
Hughes, Hector (Aberdeen, N.) Proctor, W. T. Wyatt, W. L.
Hynd, H. (Accrington) Rhodes, H. Younger, Rt. Hon. K.
Janner, B. Robens, Rt. Hon. A.
Jay, Rt. Hon. D. P. T. Robinson, Kenneth (St. Pancras, N.) TELLERS FOR THE NOES:
Jeger, George (Goole) Rogers, George (Kensington, N.) Mr. Pearson and Mr. Holmes.
Jeger, Mrs. Lena Ross, William

Question put, and agreed to.

5.0 a.m.

Mr. Stevens

I beg to move, in page 40, line 42, after "times." to insert "the tax on."

There are provisions in every taxing statute with which I am familiar for penalties in respect of Purchase Tax and Customs duties, as well as Income Tax, upon a person who improperly avoids the payment of the tax concerned. The normal provision is for the person who errs in that way to be sent to prison, or certainly to be fined the amount of tax or duty multiplied by a number, frequently three. It is very rare for the penalty to be three times the amount of the allowance, as distinct from the tax with allowance. I suggest that this is a dangerous and unwelcome precedent.

The Solicitor-General

I am sorry that I cannot meet the request of my hon. Friend, and that the Government cannot accept the Amendment. It would mean that in some cases where there was a loss on the year there was, in fact, no tax benefit, in which case a penalty of three times the tax benefit would be no penalty. There seems to be a case for departure from precedent and ground for the imposition of a penalty which is related to the amount of the investment allowance rather than the tax on the investment allowance. If my hon. Friend will look further into this I think he will be satisfied that his proposal would not operate effectively in some cases.

Mr. Stevens

I have been impressed by what the Solicitor-General has said, but I wonder whether multiplying the figure three times is not excessive. I hope he will look at the matter again before the Report stage. I beg to ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Motion made, and Question proposed, "That this be the Second Schedule to the Bill."

Mr. Gaitskell

Before we part with this Schedule, there are one or two questions which must be put to the Government. First, does the Chancellor feel able to say anything on this matter? We have had conciliatory speeches from the Economic Secretary, and not quite such conciliatory speeches from the Financial Secretary. The Chancellor has been silent. We would like to hear whether he is prepared to examine this Schedule with a view to tightening it to prevent various forms of misuse which have been discussed during this debate.

I would also ask whether he will say something about Part 11, to which there has been no reference. It requires comment. The purpose of this part of the Schedule is not clear to me. I do not think the Schedule should be allowed to go without some answer on that point. Perhaps the Chancellor will be good enough to say what he feels about the Schedule generally.

Mr. R. A. Butler

To the best of my ability I will certainly say a word about the Schedule. The right hon. Member for Leeds, South (Mr. Gaitskell) asked me whether we would look at the Schedule and review it carefully with a view to making any amendment which we could make. I was sitting beside the Economic Secretary when he gave his two answers on the possibility of looking at drafting points in the Schedule with a view to tightening it up in the sense of the two debates—to which I listened—and the Amendments moved to avoid what hon. Members regard as abuses.

I was impressed by the point made by the hon. and learned Member for Kettering (Mr. Mitchison), which seemed to me to sum up the main difficulty. I would draw the right hon. Gentleman's attention to the fact that para. (2, d), with reference to which he moved his main Amendment, relates to sale or transfer: in contemplation of which the expenditure was incurred, and it ought to be easier to tighten up provisions relating to a sale or transfer which is in contemplation than to tighten up conditions about a sale or transfer made later.

In the earlier discussion on this subject, in which I joined, on the Clause, I drew attention to the fact that I did not think it would be as easy to lay down conditions for later sales or transfers as it might be to lay down conditions for sales or transfers in contemplation. As the right hon. Gentleman's last Amendment, to which he attached particular importance, related to the latter, to that extent it should be easier to deal with it; but, in supplement to what the Economic Secretary said, I would tell the right hon. Gentleman that this is not an easy business to draft and I am not satisfied that the method of drafting which the right hon. Gentleman and his hon. Friends propose will meet the case which they have in mind. From our point of view it would be too restrictive.

Therefore, while I approve what the Economic Secretary said, I must warn the Committee of the difficulty of making drafting Amendments so as to tie the conditions up in such a way as to meet the type of case which the hon. and learned Member for Kettering referred—namely, to the high Surtax payer who perhaps transfers the assets on which he has an investment allowance to somebody else, the Treasury thereby losing in the process. Although the Treasury may, of course, refresh itself with the thought that the user of the asset is still for productive purposes.

I have listened carefully to the debates, both on the Clause and on the Schedule, and I have the points clearly in mind. Perhaps hon. Members opposite, without the resources at my command, would appreciate the drafting difficulty even with those resources. It will be a difficult task to achieve absolute justice in tying this matter up. If they realise that, I can add that I will do my best for them. The rest of the Schedule, as I have previously indicated, was designed to stop a deliberate traffic in gain and especially the deliberate gain envisaged at the time the investment allowance is given.

The right hon. Gentleman wanted a small talk on the other part of the Schedule at this hour of the morning, and it provides for the withdrawal of the investment allowance when an asset goes outside the British industry—in other words, goes abroad. Part II is designed to effect two technical amendments to provisions in the consolidated Income Tax Act, 1952, relating to balancing Allowances and charges on the sale of machinery and plant. The need for this arises largely from the fact that the initial allowance is not to be given while an investment allowance may be claimed. At this late hour I will not go into the details of the manner in which that is to be achieved because hon. Members may, if they so desire, study it in detail in the second part of the Schedule.

The right hon. Gentleman may be surprised at the lucidity with which I have explained the details to him, but it so happens that I have attended the debate throughout and, if I do not always speak, at least I sit at the Box.

Mr. Gaitskell

I am not surprised at the right hon. Gentleman's lucidity. I want to put only one specific point to him. My hon. and learned Friend the Member for Kettering (Mr. Mitchison) and my hon. Friend the Member for Islington, East (Mr. E. Fletcher) put down two Amendments to the Schedule which were not selected, but which were considered with an earlier amendment about Surtax. I should like an assurance from the Chancellor that he will consider the substance of those two Amendments, because I think they may be of considerable help to him in trying to stop up loopholes in the Bill. They are the Amendments at the bottom of page 3294 and the first one on page 3295.

5.15 a.m.

Mr. Butler

Yes, we studied them. They were not selected but were referred to by the hon. and learned Member for Kettering (Mr. Mitchison) in the course of his speech. The difficulty about them is that we make up the sums, which they are supposed to arrive at, to achieve almost exactly the opposite effect which the hon. Gentleman had in mind and we were, from his point of view, somewhat relieved when the Chair did not call them. This is the real cream of complexity, but, with advice, I shall see whether anything can be done in that direction.

Mr. Jay

While the Chancellor is in a lucid state of mind, can he have a look at the words "where it appears" in subparagraph (d)? Might it not be better draftsmanship to say "where it appears to the Commissioners of Inland Revenue" or the persons to whom something will appear?

Mr. Gaitskell

I beg to move "That the Chairman do report Progress, and ask leave to sit again."

At this hour of the morning I notice there is a considerably larger number of hon. Members in the Committee. That may, of course, be due to the feeling that there are important debates about to take place, that hitherto they have been rather dull and are now to be more interesting. If hon. Members believe that, I ask them to turn to Clause 16 and seriously ask themselves whether they think that that Clause is really the kind of thing that will lead to a lively and animated debate, in which they would take part.

I must say that we really did hope that the hon. Member for Edinburgh, South (Sir W. Darling) and even the hon. Member for Kidderminster (Mr. Nabarro), and other hon. Members, who have been sitting patient and silent, all through the night on those benches, would be taking part in these debates. It would have made it more attractive for us. But even that would not make the prospect of discussing Clause 16 at this hour of the morning particularly appetising. I have the idea that hon. Members are here, not really because they are so concerned about Clause 16, which is a highly complicated affair, but because they think the Chancellor may at last relent and allow us to go home.

Now we have reached, not only Clause 15, but the Schedule to Clause 15, which is an appropriate moment to break off. Clause 16 deals with an entirely different matter, a highly complex matter, connected with one company being converted into another, a matter which my hon. Friend the hon. Member for Ashton-under-Lyne (Mr. Rhodes) pressed last year and in which he is very interested. If the Chancellor compels us to stay, we shall stay and do our duty and discuss the Clause very carefully and very thoroughly and be most anxious to press the Amendments which are called and, of course; we shall discuss the Clause on the Question that it stand part of the Bill.

I think myself that it would be very much better and lead to a far better debate, if we were to adjourn now and return to Clause 16 and the other Clauses that follow at a convenient date next week. Let me once again remind the Chancellor, if he is worried about the time we are taking, that we are quite prepared, on this side of the Committee, to go on discussing the Finance Bill next week, the week after next and the week after and the week after. We are not yet completely bored by it and we are prepared to sit as long as he likes, but if he does want us to discuss this Clause he should allow us to do it when we are fresher than we are now.

Once again I would say that the Chancellor ought to consider his own health. After all, the Prime Minister and the Foreign Secretary have not been in very good health. One can see signs of the Government breaking up and having trouble with their back benchers. It is essential that the Chancellor, at least, should remain properly composed and ready to deal with any revolts there may be about any question that arises. We certainly would not wish him to be overthrown by an unruly mob of followers. Therefore, very much in his own interest as well as in the interest of the whole Committee, I move the Motion.

Mr. R. A. Butler

This is the sort of hour when it is valuable to make a little progress. I do not think that it would be reasonable to go on very much after the ordinary transport facilities start. They are just starting now, but I think that we might make a little progress until they are running really smoothly.

Clause 16 is one which the Opposition welcomed. It would be valuable to the Government to hear the views of the hon. Member for Ashton-under-Lyne (Mr. Rhodes) on the question of retrospection to see what we can do about it. It is a point which it would be worth getting over. As this is not a Clause which is controversial, I should have thought that it would have been wiser to make progress on it.

On Clause 17, I am aware that the Amendments on the Paper are complex and although they are not very controversial they are technical. It would be reasonable therefore to take Clause 16 and then call it a day. I do not think that need take very long. We shall be glad to hear what the hon. Member for Ashton-under-Lyne has to say. In that case, I would then undertake that the complexities of Clause 17 would not be considered now. That is a reasonable arrangement which need not take very long. If the Committee agree I think that it is the best course to adopt.

Mr. Roy Jenkins

That is a most disappointing reply. The last time the Motion was moved the Chancellor suggested that we should take the Schedule and then see how we had got on, and we agreed readily that the Schedule should be taken out of order. I think that he would agree that we have managed to get through an extremely complicated discussion with a great degree of expedition. It is true, as he said, that the points arising on the Schedule were closely related to the points which arose on the Clause. There was something to be said for taking them while our minds were still fresh on the subject of the Clause.

That argument does not apply to Clause 16. It is not only extremely complicated, but it deals with quite a different point from that which we have been discussing throughout yesterday afternoon and evening and the whole of the night. It is most unreasonable for the Chancellor to ask us to go ahead and to turn our minds to this complicated Clause.

The Chancellor would agree that the Clause raises a number of important issues. He said that we welcomed it. Of course, in a sense, we welcomed Clause 15 but nonetheless we felt it our duty to put forward certain Amendments to that Clause and to discuss them not at undue length but fairly carefully. Because we accept the principle of Clause 16 it does not follow, any more than it did on Clause 15, that the matter can be rushed through at this hour of the morning without adequate discussion and without our minds being fairly fresh.

The Solicitor-General has come back into the Committee in the last few minutes. His return is at once a symbol that we are approaching a complicated and confusing part of the Bill and a guarantee that the confusion will not be cleared up. In those circumstances, and in view of the fact that the Treasury Bench, although it has been fighting hard throughout the night, is showing signs of wear and tear, we should adjourn consideration. The Chancellor, as my right hon. Friend the Member for Battersea, North (Mr. Jay) said, was in a fairly lucid frame of mind, but even he told us that when he was not intervening in our debates he was sitting on the Box. If he is going to adopt this posture during Clause 16 it will make it very uncomfortable for himself and very inconvenient for the other Government spokesmen.

I can well believe that after some of the speeches we had from his assistants at the Treasury, particularly I regret to say from the Financial Secretary earlier, the Chancellor should wish to keep a very close eye on them when they are addressing the Committee. I noticed with interest in his last speech he said that when the Economic Secretary was replying he was sitting close beside him. That was wise and I expect he wished he had done it with the Financial Secretary earlier. But whether he is going to sit closely beside the other Members on the Treasury Bench, or on the Box in front of him, we are to be forced to carry on this debate in rather unusual and inconvenient circumstances. In view of this fact alone the Chancellor, for the sake of his own health and convenience and the dignity and self-respect of the Committee, ought to reconsider the position and see whether he cannot take Clause 16 at a later stage, when all minds are fresher.

Mr. William Ross (Kilmarnock)

I sincerely hope that the Chancellor will think again. If he reads HANSARD I think he will find that he has a very English complex. In the stand he is taking he does not seem to have given a thought to his hon. Friend the Member for Edinburgh, South (Sir W. Darling) or to the hon. Member for Berwick and East Lothian (Major Anstruther-Gray) who, five hours hence will be acting as Chairman of the Scottish Standing Committee and guiding us through the Town and Country Planning Bill. It is a simple Bill, but the Lord Advocate has a remarkable facility for being able to make the simplest things confusing.

Hon. Members

Where is he?

Mr. Jay

He is in the Box.

Mr. Ross

We also have to cope later this morning with the Secretary of State for Scotland who, I understand, is to inform us that the Scottish Standing Committee, in order to get the Scottish Office out of the same kind of legislative muddle that the Leader of the House has put this Committee into, will have to sit next week on Tuesday, Wednesday and Thursday, morning, afternoon, and possibly evening as well. The Chancellor is very much concerned about the progress of his Bill, but he is surely bound to realise that what he is subjecting us to will have an effect on the Scottish Standing Committee this morning and that we are not likely to make very much progress there. I sincerely hope he will consider the legislative programme not only from his point of view, but from the wider aspect of the House generally.

5.30 a.m.

Mr. R. A. Butler

I have listened to the various appeals which have been made, but I would point out that it was my wish to go up to the Clauses dealing with Estate Duty. The fact that I have suggested that we should end on Clause 16 is really much more lenient and agreeable than the hon. Gentleman realises, because we have got certain Clauses leading up to the subject of Estate Duty; we have the big question of aggregation on insurance policies, and then we have all the new Clauses. We are, therefore, in a position where we ought to make progress whenever we can.

Clause 16 is welcomed by the Opposition; it is one with which I believe they agree. It is one of which we can dispose without very much time, and it is one on which I should like to hear the views of hon. Members on this question of retrospection so that we may get an idea of what is the volume of the objection on this one point in the Clause. I really think it is reasonable to make that kind of progress, particularly as I do not propose now to go beyond Clause 16. I do not like to use the word "concession" because that would not be accepted by the Opposition, but it is, in fact, a concession.

Mr. Adams

I think the Chancellor is still being very unreasonable. He keeps using different arguments on different occasions. The last argument that he used was that he wanted to keep going until public transport started again. We have given him an assurance that public transport has started once again, and, therefore, hon. Members are able to make their way home. I should have thought that that was a very thin reason for the Chancellor to give for continuing this debate.

I would remind the Committee that it was only about two hours ago that he said he wanted to continue with Clause 15 because it was very much in the minds of hon. Members, and we agreed to accept the suggestion that, having discussed Clause 15, we should turn our attention for two hours or so to discuss the Second Schedule which, he said, was linked up with Clause 15. We met him on that point, and the discussion on the Second Schedule has been very brief and to the point. Many of my hon. Friends had points to make in connection with the Second Schedule, but deferred their remarks until the Report stage in the hope that we could make some progress and get home at a reasonable hour.

The Chancellor, having suggested, two hours ago, that he wanted to complete Clause 15 and the Second Schedule because it was very much in our minds, now uses the very different argument that he wants to switch to Clause 16, which involves very different issues. He is placing a strain upon my hon. Friend the Member for Ashton-under-Lyne (Mr. Rhodes) who, having sat through Clause 15 and the Second Schedule, is now to be asked to give his views on Clause 16. Clause 16 is a most difficult Clause. There are many difficult matters to discuss in connection with it, and it really is most unreasonable, at 5.30 a.m., to expect us to turn our attention to that fresh matter.

I wonder whether the Chancellor's attitude is due to the fact that the Leader of the House and the Government Chief Whip are sitting next to him at this moment. I think that the Chancellor, having sat through the night with us, might be more reasonable if those two right hon. Gentlemen were to remove themselves from the Chamber so that we could get the Chancellor's views on this matter. I am certain that he might then listen to the views expressed from these benches.

It really is quite impossible at this hour, having gone through the night discussing difficult and complex matters, to turn our attention to a completely new matter full of complexities. It would be much more reasonable to adjourn now. There is at least one hon. Member opposite who was equipped for Ascot yesterday and is still equipped for Ascot today, and it would be most reasonable that he could be free to set off now in order to get to Ascot in time, whereas if we start on Clause 16 it will mean that we shall be here for many hours yet.

After all, if we adjourn now and we make a fresh start on Clause 16 next week, my hon. Friend the Member for Ashton-under-Lyne will be much clearer in his mind and we shall all be able to dispose of that Clause much more effectively and quickly than we can hope to do now. I press the Chancellor even now to change his mind so that we can all go home.

Mr. E. Fletcher

I must put this point to the Chancellor. What did the right hon. Gentleman mean when he said he wanted to hear our views on Clause 16? Did he mean that he wanted to hear them and then adjourn? Did he mean that he did not want to give his own views? Did he want to come to a decision on Clause 16? Did he want to consider retrospectively the arguments on Clause 16? If that is what he meant, would he say so clearly?

The right hon. Gentleman was less than frank with the Committee on this subject. He said that Clause 16 was welcome to the Opposition. He knows perfectly well that it was inspired by the Opposition in the Budget debate last year and that the Government voted against it then. The issue on the Amendment of my hon. Friend is whether it should be made retrospective so as to catch those who were warned in express terms by the Treasury Bench last year. The Chancellor knows that, in view of the notorious views of the Financial Secretary with regard to retrospective legislation, what will no doubt be said on both sides of the Committee on the Amendment is not something that can be disposed of in a short time at this hour of the morning.

It might facilitate the discussion if we knew the views of the Chancellor, so I hope that we shall have further enlightenment from the right hon. Gentleman. It is no use telling us that this Clause can be disposed of easily. If the Chancellor merely wants to hear the opening speeches from this side of the Committee and then to adjourn so that he can answer them next week, will he make that plain before we part with this Motion?

Mr. Gaitskell

I want to make one further appeal to the Chancellor. I want to talk to him, so to speak, confidentially for a minute. What will he gain by being so obstinate in this matter? It is unlike him. I agree that Clause 16 is approved by us in principle and that it is not a major issue, but it is a Clause in which we are interested precisely because it was proposed from these benches. The right hon. Gentleman said he would like to hear the views of my hon. Friend the Member for Ashton-under-Lyne (Mr. Rhodes). We are all anxious to hear them, but I am sure that my hon. Friend will not mind if I say that we feel that we should be in better shape to listen and to understand his views tomorrow or next week than we are now. He may even feel himself that he could explain what is in his mind more lucidly next week than now.

It is not convincing to us when the right hon. Gentleman says that he is anxious to hear the views of my hon. Friends. We have to take into account the atmosphere in which the views are expressed. It is no use listening at the wrong moment. The Chancellor will not gain much time. Inevitably, at this hour of the morning, we speak more slowly, words like "Box" come out instead of "Bench"—[An HON. MEMBER: "Stocks."] Yes, "Stocks" too, as my hon. Friend says—"Stocks" instead of "Stokes"; all sorts of queer things are said, and that gives rise to hilarity which also delays the proceedings. I can assure the right hon. Gentleman that he will gain no time at all. If he refuses to accept this Motion, we shall be obliged to divide on it, and he will lose more time.

The Chancellor is good at making those generous concessions in a pleasant manner—the kind of thing which Queen Elizabeth I is supposed to have done with particular grace. In fact, I thought that the Chancellor was always rather able

to behave like Queen Elizabeth I. He has a most charming manner and I do appeal to him to consider what we ask.

Lieut.-Colonel Bromley-Davenport

I will not detain the Committee for long but I would like to ask my right hon. Friend not only to reach Clause 16, but to press on to Clause 24; because if he presses on, the thick-headed Lobby fodder opposite will run out of prepared speeches and we shall then get on very quickly.

Question put.

The Committee divided: Ayes, 97: Noes, 125.

Division No. 149.] AYES [5.40 a.m.
Acland, Sir Richard Greenwood, Anthony Popplewell, E.
Adams, Richard Grey, C. F. Price, J. T. (Westhoughton)
Albu, A. H. Griffiths, William (Exchange) Proctor, W. T.
Bonn, Hon. Wedgwood Hall, Rt. Hon. Glenvil (Colne Valley) Rhodes, H.
Benson, G. Hannan, W. Robens, Rt. Hon. A.
Blackburn, F. Hargreaves, A. Robinson, Kenneth (St. Pancras, N.)
Blenkinsop, A. Hayman, F. H. Rogers, George (Kensington, N.)
Bowden, H. W. Herbison, Miss M. Ross, William
Braddock, Mrs. Elizabeth Hobson, C. R. Shackleton, E. A. A.
Broughton, Dr. A. D. D. Holmes, Horace Short, E. W.
Brown, Rt. Hon. George (Belper) Hughes, Cledwyn (Anglesey) Shurmer, P. L. E.
Burton, Miss F. E. Hughes, Hector (Aberdeen, N.) Simmons, C. J. (Brierley Hill)
Butler, Herbert (Hackney, S.) Hynd, H. (Accrington) Slater, Mrs. H. (Stoke-on-Trent)
Callaghan, L. J. Janitor, B. Slater, J. (Durham, Sedgefield)
Castle, Mrs. B. A. Jay, Rt. Hon. D. P. T. Thomas, Ivor Owen (Wrekin)
Champion, A. J. Jeger, George (Goole) Thomson, George (Dundee, E.)
Chetwynd, G. R. Jenkins, R. H. (Stechford) Thornton, E.
Collick, P. H. Jones, Frederick Elwyn (West Ham, S.) Usborne, H. C.
Craddock, George (Bradford, S.) Jones, Jack (Rotherham) Wallace, H. W.
Crosland, C. A. R. Keenan, W. West, D. G.
Dalton, Rt. Hon. H. King, Dr. H. M. Wheeldon, W. E.
Davies, Ernest (Enfield, E.) Lawson, G. M. Whiteley, Rt. Hon. W.
Davies, Harold (Leek) Marquand, Rt. Hon. H. A. Wilkins, W. A.
Delargy, H. J. Mellish, R. J. Willey, F. T.
Dodds, N. N. Mikardo, Ian Williams, Rev. Llywelyn (Abertillery)
Evans, Albert (Islington, S.W.) Mitchison, G. R. Williams, Ronald (Wigan)
Evans, Stanley (Wednesbury) Morgan, Dr. H. B. W. Williams, W. R. (Droylesden)
Fienburgh, W. Morris, Percy (Swansea, W.) Wyatt, W. L.
Finch, H. J. Moyle, A. Younger, Rt. Hon. K.
Fletcher, Eric (Islington, E.) Noel-Baker, Rt. Hon. P. J.
Foot, M. M. Oswald, T. TELLERS FOR THE AYES:
Gaitskell, Rt. Hon. H. T. N. Parker, J. Mr. James Johnson and
Gibson, C. W. Pearson, A. Mr. John Taylor.
Gordon-Walker, Rt. Hon. P. C. Pearl, T. F.
NOES
Aitken, W. T. Conant, Maj. Sir Roger Hall, John (Wycombe)
Alport, C. J. M. Cooper-Key, E. M. Harris, Frederic (Croydon, N.)
Anstruther-Gray, Major W. J. Craddock, Beresford (Spelthorne) Harrison, Col. J. H. (Eye)
Arbuthnot, John Crookshank, Capt. Rt. Hon. H. F. C. Harvey, Ian (Harrow, E.)
Baldock, Lt.-Cmdr. J. M. Crosthwaite-Eyre, Col. O. E. Heath, Edward
Baxter, Sir Beverley Crouch, R. F. Henderson, John (Cathcart)
Birch, Nigel Darling, Sir William (Edinburgh, S.) Hinchingbrooke, Viscount
Bishop, F. P. Deedes, W. F. Hirst, Geoffrey
Black, C. W. Digby, S. Wingfield Holland-Martin, C. J.
Bossom, Sir A. C. Donner, Sir P. W. Hollis, M. C.
Boyd-Carpenter, Rt. Hon. J. A. Drayson, G. B. Hope, Lord John
Boyle, Sir Edward Drewe, Sir C. Hornsby-Smith, Miss M. P.
Brains, B. R. Fleetwood-Hesketh, R. F. Hudson, Sir Austin (Lewisham, N.)
Bromley-Davenport, Lt.-Col. W. H. Fletcher-Cooke, C. Hylton-Foster, H. B. H.
Brooman-White, R. C. Fort, R. Iremonger, T. L.
Buchan-Hepburn, Rt. Hon. P. G. T. Galbraith, T. C. D. (Hillhead) Jenkins, Robert (Dulwich)
Butler, Rt. Hon. R. A. (Saffron Walden) Garner-Evans, E. H. Johnson, Eric (Blackley)
Campbell, Sir David Godber, J. B. Kaberry, D.
Channon, H. Gomme-Duncan, Col. A. Kerby, Capt. H. B.
Clarke, Col. Ralph (East Grinstead) Graham, Sir Fergus Leather, E. H. C.
Colegate, W. A. Grimston, Sir Robert (Westbury) Legge-Bourke, Maj. E. A. H.
Legh, Hon. Peter (Petersfield) Oakshott, H. D. Studholme, H. G.
Lindsay, Martin O'Neill, Hon. Phelim (Co. Antrim, N.) Summers, G. S.
Linstead, Sir H. N. Ormsby-Core, Hon. W. D. Teeling, W.
Lucas, Sir Jocelyn (Portsmouth, S.) Page, R. G. Thomas, P. J. M.(Conway)
Macdonald, Sir Peter Pitman, I. J. Thompson, Lt.-Cdr. R. (Croydon, W.)
McKibbin, A. J. Powell, J. Enoch Thornton-Kemsley, Col. C. N.
Mackie, J. H. (Galloway) Price, Henry (Lewisham, W. Turner, H. F. L.
Maclean, Fitzroy Prior-Palmer, Brig. O. L Turton, R. H.
Maitland, Patrick (Lanark) Raikes, Sir Victor Vane, W. M. F.
Manningham-Buller, Rt. Hn. Sir Reginald Rayner, Brig. R. Vaughan-Morgan, J. K.
Marines, A. E. Redmayne, M. Wakefield, Edward (Derbyshire, W.)
Marshall, Douglas (Bodmin) Remnant, Hon. P. Wall, Major Patrick
Maude, Angus Ridsdale, J. E. Ward, Hon. George (Worcester)
Maudling, R. Rodgers, John (Sevenoaks) Ward, Miss I. (Tynemouth)
Maydon, Lt.-Comdr. S. L. C. Russell, R. S. Wellwood, W.
Mellor, Sir John Schofield, Lt.-Col. W. Williams, Gerald (Tonbridge)
Molson, A. H. E. Scott-Miller, Cmdr. R. Wills, G.
Nabarro, G. D. N. Shepherd, William Wilson, Geoffrey (Truro)
Neave, Airey Simon, J. E. S. (Middlesbrough, W.)
Nicholson, Godfrey (Farnham) Smithers, Peter (Winchester)
Nicolson, Nigel (Bournemouth, E.) Stevens, Geoffrey TELLERS FOR THE NOES:
Noble, Comdr. A. H. P. Steward, W. A. (Woolwich, W.) Mr. Vosper and Mr. Robert Allan.