Clause 24.—(INCREASE OF PROFITS TAX.)

HC Deb 12 June 1956 vol 554 cc441-63

Motion made, and Question proposed, That the Clause stand part of the Bill.

Mr. J. Grimond (Orkney and Shetland)

This is a most important Clause which is completely contrary to the general tenor of the Finance Bill. The Chancellor has impressed upon us that he introduced a "savings Budget." The country is notoriously short of savings, and particularly savings for investment. In fact, the trouble over Trinidad Oil is largely due to the fact that the company has not been able to put aside sufficient profits for its development and cannot raise the amount needed on the market. Yet, the Government are actually increasing tax on what one might call risk savings. The Government put up the rate of Profits Tax and, in so doing, not only hit the savings but also go contrary to the findings of a very distinguished Committee.

What are the reasons advanced? We are told that this is done to appease the trade unions; but I do not believe that it will succeed, nor deserve to succeed. The trade unions are not interested in this Clause in the least, and I do not believe that they will abate their wage demands one jot or iota because of it. It is also said that it is necessary for the Chancellor to be helped in getting his surplus, but if that is so, then he could hardly have chosen a worse means than this, bearing in mind that he tells us he has introduced a "savings Budget." The case for this Clause, of course, is that profits, distributed or undistributed, belong to the shareholders, but the number of shareholders in public companies in this country is very small. The time has come to spread this ownership so that many more people benefit from any increase in profit.

As this Clause stands at present, it is contrary to the Chancellor's announced intentions, and contrary to various proposals put to him from different parts of the Committee. Secondly, I cannot believe that anyone would defend it as being of any benefit to industry at the present time. Indeed, it will reduce the amount of savings available for risk investment at the very moment when we need a large increase in that direction.

Mr. H. Lever

I am sorry that my earlier contribution against the conferring of sectional benefits should result only in my being likened to a much-respected but now deceased Member of the House who used to ornament the back bench opposite. I hope that my contribution upon this Clause will not result in even more irritating and, perhaps, unfair—to the deceased person—comparison; but again I find myself rather in a minority view about the mechanism of the tax law which is so confidently used by successive Chancellors, of both parties.

Ever since I have been here, there has been a myth prevalent in the House that there is virtue in a company ploughing back its profits and sinfulness in a company handing them out in the form of dividends, and that the community interest is best served inevitably and in all cases if money is ploughed back into companies and not handed out in dividends to shareholders.

All this fits in with what I have long known to be a typical British habit. Anything that sounds pleasant must be regarded as liable to be harmful and discouraged and, therefore even those who are not shareholders must regard the handing out of dividends as causing pleasure to somebody: and there must be a feeling by everybody, if people can accept this strange and wholly illogical doctrine, that we must at all cost stop that pleasure of dividend receipt by the shareholder, and that if we do so the nation as a whole is bound to benefit.

That theory is preposterous. There is not a word of logic to justify it as a generality. That is to say, merely to hear that a company has ploughed back its profits and has not given them away to shareholders is neither necessarily beneficial to the community nor to the Inland Revenue.

In the first place, it all depends what kind of company one is dealing with. If dealing with a great engineering concern making turbines to satisfy the insatiable appetite for these export goods on world markets, it is perhaps wise to encourage the ploughing back of profits to expand the business, obtain new capital, keep it up to date, and so on. If, on the other hand, one is dealing with an enterprising owner of pin-table saloons, there is no national advantage in discouraging him from paying out his money in dividends but encouraging him to plough back the money into his pintable business, thereby enabling him to push up the rents of shops which might be more usefully engaged, thereby giving him the liquid funds which enable him to put orders into engineering works, who thereupon proceed to make pin-table mechanisms instead of something which might be useful for turbines and other things.

Let it be seen at once, therefore that none of these axioms like most of those which have activated successive Chancellors of the Exchequer, have any foundation at all. There is no general proposition which can be supported by any intelligent or knowledgeable individual that a gain for the community necessarily results if profits are ploughed back rather than paid out as dividends to all the shareholders.

I had to point out, in connection with the insurance company Clause, that the Chancellor was giving away public money without taking even the kind of steps that were taken 50 years ago by his predecessors to protect the public interest. Oddly enough, we find the same sort of thing happening here. The Chancellor, who thinks he is progressive and forward-looking, has fallen into the error of supposing that by discouraging the payment of dividends he will make a net benefit to the revenue.

1.30 a.m.

Quite a long time ago—I think as long ago as 30 years—it was realised by the Inland Revenue that there was nothing the average capitalist liked better than to plough back his profits and not pay them away as dividends. This, of course, applied whether he was making pintables or electrical machinery. What happened was that he would pay the standard rate upon profits, keep the rest in the business and spend from his other resources, knowing perfectly well that he was building up a capital fund in his business which one day would repay the capital he had spent from his other resources.

Let me just take an illustration, because it will explain to a great many people who are unable to understand it how it is possible to enjoy an earned income of even £50,000 or £100,000 a year under present tax regulations. The interesting thing is that the Chancellor is encouraging the process.

A man may own a business which earns £100,000 per annum in a limited liability company; after standard tax the company is left with roughly £60,000—say £55,000. Let him take no dividends out and he genuflects appreciatively towards the Chancellor and tells the Inland Revenue, "Because the Chancellor does not want me to pay dividends I am not going to pay any at all", so he keeps the £55,000 in his company. He can then afford to take out £20,000 from his private account of his own personal resources, if he has any, with confident assurance that as fast as he spends his personal assets outside the business he is accumulating in the wholly owned company of his own at the rate of £55,000 addition to his wealth. In that case, if a man has ten years reasonable prosperity he has a company with £500.000 cash or money's worth in the business; and even if he spends £200,000 outside, of his other resources, he will be £300,000 better off at the end of ten years than if he had paid it out in dividends.

Mr. Albu

He is more likely to be in gaol.

Mr. Lever

My hon. Friend says that, but he betrays a lamentable ignorance of the law upon the subject in making any such suggestion. I should like him to tell me where there is anything unlawful in the illustration I have just given, even in civil law, still less in criminal law.

Mr. Albu

I imagine the gentleman would be assessed for Surtax. That is all.

Mr. Lever

My hon. Friend is letting his imagination carry him away. I think it was Voltaire who once said it was men who spoke from knowledge and women from imagination, but apparently the fair sex are not alone in that capacity. The facts of the matter are, of course, that he becomes assessed for Surtax only if he is not paying as much dividend as he paid when the Cripps "umbrella" was put up, because in the normal expectation he was then paying only a small sum, or no sum at all; there would be no Surtax applied against him in his business. It is perfectly possible—and in fact happens—for very large sums to be accumulated in business which are not attracting Surtax at all. My hon. Friend is completely away from an understanding of the point if he supposes that the man does anything unlawful or improper in accumulating.

As we are speaking on the subject of accumulation and the like, let me say at once that I often hear violent denunciations from both sides of the Committee of those people who do this sort of thing, accumulating money in that way, rather than deliberately incurring a Surtax liability. I am an eccentric upon this point too. I have never been anxious to pay the Chancellor of the Exchequer a farthing more than I may be lawfully compelled to pay. I know that in that respect I am an exception. All the rest of the hon. Members who speak on this subject are violent enthusiasts for paying the maximum amount possible, and under no circumstances take any sort of advantage of any concessions which are available.

I have heard these denunciations from both sides of the Committee. The more radical of those who make the denunciations are saying that the citizen should make the decision at what point he is to inflict upon himself the burden of taxation. Shall he tax himself at 16s in the £ by doing a little covenanting of his income to dependent relatives and girl friends? Shall he tax himself at 18s. in the £ by restricting the covenants to girl friends and letting the relatives go hang, or shall he pay no Surtax at all by means of the many devices which are available?

What is being said is that the citizen is to blame if he makes the decision at the wrong point or at a point which does not give enough of his income to the Inland Revenue to satisfy the hon. Member who is denouncing him for his evil guile and rapacious greed. The odd thing is that the moral responsibility in the matter rests not upon the man—

The Deputy-Chairman

The hon. Member seems to be getting wide of the Clause.

Mr. Lever

Sir Rhys, I am talking about the consequences of the Clause and trying to enlighten the Committee. It is obvious that very great ignorance exists.

The effect of this sort of legislation is that it is we who are responsible and not individuals outside who apply the legislation in order to give themselves the minimum tax liability. Hon. Members are in a position to alter the law. With tax rates as high as they are, we must not complain if people take every lawful step open to them to reduce the onerous burden. If one must complain to anybody, one must address one's complaints to the Chancellor, but not to the individuals who are asked to decide at what point they should take advantage of the tax law, at what point they should stop taking advantage of it, and what rate of taxation they should apply to themselves. It is a curious belief that it is for the citizen to decide as a matter of moral principle how far he will reduce his tax liability—

The Deputy-Chairman

The hon. Gentleman is, no doubt, giving a very valuable dissertation on the general principles of taxation, but he is not dealing with the specific provisions of the Clause.

Mr. Lever

I am very much assisted Sir Rhys, in coming back to the point that I was seeking to make. The Clause encourages not a gain to the revenue, as it purports to do, but a loss.

I wish the Chancellor would look at the point again. He will find that his predecessors 30 years ago not merely encouraged dividend distribution in privately-owned companies but took unpleasant, uncomfortable statutory powers to compel dividends from companies which were unwilling to pay them. When a dividend is paid, of course, Surtax has to be paid on the receipts.

I suppose the Chancellor himself is under the delusion that the Revenue is the gainer as the result of his Clause and policy. The Revenue, of course, loses very considerably, and has done so, by the application of this principle, which, I am afraid, has been in existence since the late Sir Stafford Cripps first introduced it.

Mr. Houghton

Is my hon. Friend supporting the recommendation of the Radcliffe Commission for a flat-rate Profits Tax on distributed and undistributed profits alike?

Mr. Lever

Being rather more cautious than most of the theorists in the Committee, I should not like to commit myself. I should like to reflect upon the different types of company and perhaps suggest different rates for different companies, but I cannot subscribe to the general principle here evidenced that it is a good thing necessarily to plough back profits and a bad thing necessarily to pay them out in dividends. On the whole, I lean towards the recommendation of the Royal Commission that there should be a flat rate rather than the complex differential which exists.

The Chancellor is supposed to be discouraging unnecessary capital expenditure. One of the great sources of unnecessary capital expenditure has arisen because of the peculiarities of our tax system, especially the manifestation which we are discussing at this moment, because, as a result of this differential between the dividend distributions of the company and the ploughed back profits, a good many company directors who own very little of the share capital are thus encouraged to plough back money into the company whether or not they need to do so, because that is what successive Chancellors tell them is the right thing for the company, for the country, for the Revenue and for everybody. They continue to do so whether or not it is needed in the business.

Then, after a while, a Mr. Clore comes along and sees this company as a juicy plum because, by reason of the discouragement of dividends, the price of the shares stands very low on the market, whereas the company has a large sum of money. There is therefore a dual pressure. The company's dividends will go down and down because of the policy of the Chancellor, although it is no doubt admired by all the economists—because whenever there is a wrong policy we can depend upon the economists to be behind it 100 per cent.

I am not making an attack upon all the people who interest themselves in economics. I am referring to those who guide the very often palsied and trembling hand of the Chancellor as he writes one more unintelligible tax Section after another into our tax law. Chancellors have been guided by all these experts, who have worked very considerable ruin to our economy for the last eleven years. All these people naturally favour this differential.

Mr. Albu

My hon. Friend is much more convincing than the Sunday Times.

Mr. Lever

I hope that my hon. Friend's next intervention will be more to the point at issue. We have this cohort of Treasury experts and the like on the one hand, and our Chancellors on the other, who are too harassed and too busy with their political speeches and moralising and telling us how we should save, to understand the position. They tell us we should not go for a lump sum but should use it up in the form of weekly payments. They tell us of disasters to come—and disaster probably will come if this sort of policy continues.

The only relaxation the poor Chancellor is permitted is to lecture and to lard his lecture with some of his less well-known jokes, and even then he is chivvied and attacked and harassed.

The Deputy-Chairman

I do not want to interrupt the hon. Member, but he is getting rather wide of the Clause.

Mr. Lever

I am bound to say that one gets more clarity when one is not so insistent upon brevity.

The Deputy-Chairman

The first point which concerns me is that of relevance.

Mr. Lever

I would have said that in reference to this Clause nothing could have been more pertinent than my remarks about the harassed position of the Chancellor, but if you say that is going a little too wide, Sir Rhys, I will keep off that point.

But it is quite plain that the Chancellor does not understand the workings of the Clause, which provides a differential rate. He is very keen to damp down unnecessary capital expenditure. As he must know by now—though he probably did not at the beginning—his policy is designed more or less to wreck all kinds of capital expenditure and discourage all kinds of useful ploughing back of our resources into capital investment in order to make us competitive in world markets. But still, officially, he says he wants to damp down unnecessary capital expenditure.

1.45 a.m.

What greater likelihood have we of getting this unnecessary expenditure when we encourage all companies irrespective of their business—it does not matter whether they provide dubious furnished accommodation or make the latest form of electric motors—to plough back profits and not to pay them out in dividends and thus attract Surtax from the recipients of those dividends? The point I was getting to a little while ago, when perhaps we were diverted from the straight path of the argument, was where we were referring to some companies which collected large funds at the request of the Chancellor and paid no Surtax and did not need the money and did not pay any proper dividends to the shareholders and consequently the shares were low on the market. Then along comes the take-over man. To him, of course, it is an absolute plum, because the activities of the Government—

The Deputy-Chairman

Order. I have heard this argument before. The hon. Gentleman is now repeating himself.

Mr. Lever

I was diverted from completing that argument and I was just recapitulating the points I had made before I was diverted because of the lateness of the hour.

What happens at this point—and this is a completely new argument—is that the directors who have these large funds realise that they will attract the attention of the take-over bidder if they remain with £500,000 or £200,000 in the bank and pay no dividends. The discontented shareholders—who often are not devotees of the Chancellor's economic theories, and have no honours graduates in economics at their elbows to assure them how wise and pleasant is the whole policy—are ready to sell out at any moment to a take-over bidder. What do the directors do to guard against that? They have to lock up the money and put it out of reach of the take-over bidder.

Mr. Houghton

Or distribute it.

Mr. Lever

They dare not distribute it because of the costs of distribution, and in any case, the Chancellor will wag his finger at them and the economists will denounce them. Let us be fair and admit that many hon. Members on this side of the Committee would get up and denounce them for paying dividends to bloated shareholders.

They dare not hold on to the cash. They have to invest it, whether they need the capital goods in which they invest or not. I am certain that the substantial pressure on the capital goods market is caused by companies fearful of a takeover bid, who will not allow the company to accumulate large liquid funds or pay out dividends because the Chancellor and the economists will not like it and some of my hon. Friends will scream at them. They will not leave the cash in the company because the take-over bidder will disturb their dictatorial sinecure. So they have to take the liquid funds of the company and invest them in something which ostensibly is an expansion of business.

The Chancellor should give a little thought to his habit of discouraging the payment of dividends. We know that he intended it only as window dressing and that it does not affect the industrial situation. On the other hand, he is doing economic damage. He should take note of the Royal Commission which sat on the subject. After all, the Commission considered the matter carefully and had the advantage of knowing what was the effect, an advantage which is denied to most of us including the Chancellor. The right hon. Gentleman is a busy man. He has to worry about repairing the damage done by the credit squeeze and the Bank Rate and the like. He has no time to study this Clause and understand it.

It is a difficult task to get into the prose style of the Economic Survey and to understand and master it. But now we have to master the language of this Clause, and I defy anyone who has even given a great deal of attention to the preceding Clauses to understand the complex provisions of these Profits Tax Clauses. This raises a further point which must be of importance to this House. Are we to go on passing laws, very often with criminal consequences, without even understanding what we have passed? At least in former days one would not get a Clause like this before the Committee—certainly not under a Labour Government—a Clause thrown at the Committee for anyone to elucidate, explain or illustrate, for he, like the Chancellor with the women Conservatives, is liable to be harassed by the Chair—

The Deputy-Chairman

Yes, but the hon. Member has been harassed in his argument when it has been irrelevant.

Mr. Lever

I am not saying this with any disrespect to the Chair, Sir Rhys, but I do believe that the danger against which the Chair should guard is not excessive discussion of these Clauses but inadequate discussion.

The Deputy-Chairman

The Chair does not interfere with the relevant discussion of this Clause at all. What I object to is the irrelevant discussion of it.

Mr. Lever

It is not always apparent on these complicated Clauses what will prove relevant in the end. I might start by saying I was going to tell the Committee a story of what happened to a famous French poet of the eighteenth century, and the direct relevance of that to the Clause might not be clear, but the ultimate unwinding of the story might prove to the Committee that I was making a point of direct pertinence, relevance and interest to the Clause in hand. For example, one always knows that these Clauses can sometimes be so tedious, complex and difficult to understand that hundreds of my hon. Friends who would normally be on these benches are sitting in the libraries of the House, driven to feel that their time is better spent there than in attempting to cope with highly unintelligible Clauses, which are not fully explained by the Minister.

Does the Chancellor intend to explain to us on this Committee stage—and the Committee stage of the Finance Bill is something rather special and different from the Committee stage of any other Bill—this Clause which affects the taxation of every limited liability company in the land? Relevant to that, if I were to discuss the effects of this Clause on the textile industry, it would be relevant to go into almost any of the industries affected by this Clause. Certainly we want to know whether the Chancellor understands his own Clause. We have not heard anything from the Government about the Clause, or why, on this Committee stage, it should be any advantage to perpetuate a system which is definitely harmful in its effects, as I have tried to illustrate. In case the Chancellor is going to ride off because I am a lone eccentric in these matters—and, by the way, I could present him with a complete answer to all my arguments from my Division records—

The Deputy-Chairman

I cannot possibly see how the hon. Member's Division record is relevant to this Clause.

Mr. H. Wilson

Further to that point of order, Sir Rhys, is my hon. Friend aware that the only thing which is stopping us producing the retort for which he is asking is the fact that we cannot speak while he is on his feet?

Mr. Lever

As those who are prepared with a retort cannot be repetitive and tedious by each of them making it, I am making it on their behalf in advance. I should like to revert to the merits of the Clause rather than to the merits of myself as a regular attender at debates. I shall soon release to my right hon. Friend or anyone else the opportunity of making any witticisms at my expense, and no one will enjoy it more than I shall, but all those hon. Members who are inclined to make the retort should make it on the Clause.

The Chancellor must not try to ride away on the fact that all the sound thinkers on economics in this Committee are against me on this. We all know that they are against me on this. We all know that they will be in favour of anything that is calculated to cost the Revenue money; but they must not ride away on the answer that the only person who criticises this is the insignificant hon. Member for Cheetham. The Royal Commission, which studied this question, has seen all the evils of the differential, which are not only perpetuated but made worse by this Clause.

May I ask the Chancellor to disturb his somnolence to say why it is that, if he is too idle to abolish the differential, he has greatly increased it? Can he tell the Committee why that is a good thing and how it will reduce the pressure on capital goods if he thinks it will encourage companies to pay Surtax on their profits? Can he tell us why he has no proposals to make to the Committee which will result in the ploughing back of profits and why, on the other hand, he forces companies not engaged on essential work to distribute their profits with the usual Surtax consequences?

In these circumstances, I shall be very reluctant to divide the Committee but, on the other hand, I hope that we shall have an explanation. I can see that no one else is prepared to divide the Committee, and I shall have to do so with the aid of such sympathy as I can command, from both sides, but I hope the Chancellor will mollify my antagonism by a reply at least to the point at which I might defer a more lengthy, careful and bitter opposition to this Clause to Report stage and avoid any such Division at this late hour.

Mr. H. Wilson

I hope my hon. Friend the Member for Cheetham (Mr. H. Lever) will forgive me if I do not follow him in all the arguments he has made, but I am sure I shall be speaking for both sides of the Committee when I say what a pleasure it is to hear his voice and to compliment him on the speech he has made. He has addressed the Committee with great authority, and I can assure him that we shall be very glad to hear from him again on another occasion—not tonight—if he is successful in catching your eye, Sir Rhys.

When my hon. Friend got up to speak, I must say my heart was full of sympathy for a number of right hon. and hon. Members opposite, for none more than the Patronage Secretary, because he will probably remember—not the last time my hon. Friend spoke, but the last time I heard him, on 20th November, 1953—when he entertained the House for more than three hours with a very powerful speech. I know the Patronage Secretary must have been afraid that was going to be inflicted on us tonight. I was also sorry for a number of hon. Members who had to restrain themselves with great difficulty from entering the debate on this Clause.

I was going to raise this on a point of order, Sir Rhys. Why is it that the Amendments in the name of the hon. Member for Wycombe (Mr. John Hall): In page 34, line 42, to leave out "twenty-seven" and to insert "thirty"; and In page 35, line 2, to leave out "twenty-seven" and to insert "thirty". have not been called? Were they not selected, or not moved by the hon. Member who put them on the Notice Paper? It is very obvious to the Committee that a number of hon. Gentlemen, not to mention noble Lords, opposite who feel very strongly on this Clause are restraining themselves and showing great patience tonight, and it must have been rather galling, however much some of them may have agreed with my hon. Friend to have felt that he was expressing their arguments while they felt precluded from addressing the Committee on this Clause.

2.0 a.m.

I do not intend to detain the Committee for more than two or three minutes on this particular Clause, though, as my hon. Friend has pointed out, it is a very important one. There are one or two points on which we would hope that the Chancellor or the Economic Secretary would give us an answer. I thought that my hon. Friend, if I may say so, was a little less than fair when he referred to the palsied hand of the Chancellor being guided by some economic theorist—

Mr. H. Lever

Of this Chancellor.

Mr. Wilson

Yes, of this Chancellor—being guided by some economic theorist on the permanent staff of the Treasury.

We have all had doubts about the Chancellor's capability, especially two or three hours ago, but none of us has ever felt that his hand was palsied. If my hon. Friend attended our economic debates with rather greater frequency he would know by now that, whoever is the Conservative Chancellor, his hand, palsied or otherwise, is guided not by the Civil Service but by the Economic Secretary, who has succeeded year by year in persuading Chancellors to embark on all kinds of disastrous policies. The responsibility should really be placed on the shoulders of the hon. Gentleman.

It has been said by the Liberal Chief Whip who spoke a few minutes ago—and we were all very glad to hear his intervention, even if most of us, on this side at any rate, disagreed with him—that the only motive that could have impelled the Chancellor to put this Clause into the Bill and to put this idea into the Budget was an attempt to appease—I think that was the idea of the Liberal Chief Whip—the trade unions; to buy them off from further wage claims.

I must say that the same suspicion had occurred to me, and I think that I gave voice to it in the debate on the Budget. I then said that if the Chancellor really hoped to solve the economic problems of the country and to put an end to the wage-price spiral by this increase in Profits Tax he was going about it in entirely the wrong way. I am sure that any trade union leader, or any member of the rank and file of the trade union movement, wondering what answer to give to the Chancellor's Newcastle speech—that very expensive speech; I do not know how many millions of dollars per word it cost us as a nation—would not be moved in the slightest degree by this Clause 24. The one thing that would move him would be a halt in the continuing and sharpening rise in the cost of living in recent months. If that is the motive of Clause 24, I must tell the Chancellor—what he must know by now—that it has failed. It may be that that was not his motive.

Another suggestion put forward, not this evening—or rather this morning—is that the Chancellor has some mystic faith in the old Gladstonian principle of the division of tax revenue between direct and indirect taxation. Indeed, certain words in his Budget speech suggested that he felt that if he had to raise £X million more in revenue, half of £X million should go to indirect taxation and the other half to direct taxation. One could almost hear him—when he could divert his attention from Dickens to Gladstonian speeches—repeating, though not in the very words, the passage of Gladstone's most famous speech in which he referred to the two attractive sisters to whom a Chancellor should pay court—indirect and direct taxation.

My hon. Friends have already warned the Chancellor of the effect on the cost of living and on wage demands of the increase in indirect taxation—

Mr. Douglas Glover (Ormskirk)

Perhaps the right hon. Gentleman would agree that the two attractive sisters have by this time become a couple of old shrews.

Mr. Wilson

I would like to go into the question with the hon. Member, but I fear that I should be very much out of order if I were to follow him in that particular argument. It is an important point, and I hope we shall have an opportunity on some future occasion of debating the point he has raised. As far as I know, no one has suggested any substitute for the old shrews he has in mind.

The main point raised in the debate so far is the question of continued differentials between distributed and undistributed profits. It is true that the Royal Commission's Report recommended in favour of a unified system of profits taxation. I am bound to say, though it is rather difficult to develop the point, and I do not intend to do so, that that recommendation of the Royal Commission is not one which commends itself to my hon. Friends and myself.

It is important to hear from the Chancellor, or the Economic Secretary, what attitude they take. When the Lord Privy Seal, in the ill-fated autumn Budget which spelled the end of his own regime at the Treasury, increased Profits Tax, he went out of his way to say that it was entirely without prejudice to the question of unifying the two rates of Profits Tax; that he would consider the merits in due course, and that if he had widened the gap between the two rates, that did not mean that he had decided against the Royal Commission's recommendation.

The present Chancellor spoke rather in these terms during the Budget debate but we would like tonight to hear the Treasury spokesman's view on this important question. It would be out of order to debate this, but I suggest to the Chancellor that he ought not to rush into any proposal, even though it is pressed upon him by two hon. Members, for amalgamating the two Profits Tax rates. I hope that, before he considers doing so, he will study the minority report. It is true that the Report of the Royal Commission has some favourable words about the possibility of amalgamating the two rates, but they make them conditional upon the acceptance of a capital gains tax first.

I cannot tonight put to the Chancellor any of the argument in favour of a capital gains tax; but in case the Treasury spokesman is in danger of committing himself to unifying the rates, I hope he will, in his mind at least, make a reservation that it can only be considered if and when a capital gains tax has been introduced. When my hon. Friend, between references to eighteenth century French poets and other subjects, referred to take-over bids and to the danger of the activities of Mr. Clore affecting companies which have large sums tucked away in undistributed profits, he was making the strongest case for a capital gains tax, because it would be impossible for these things to happen if there were a capital gains tax.

I will not pursue that point, but I hope I have said enough to make clear that, if this Clause was intended as a sop to us, we reject it with contempt. [Interruption.] I am sorry that we have not heard the noble Lord on this Clause tonight, because I know that he is burning with feeling about it. I will not try to provoke him. There can be only one or two reasons why the Chancellor introduced this Clause. One is as a sop to the trade unions. We have heard that argument raised and discussed and I think rejected.

The other reason was that perhaps he felt that if he offered something which we would welcome we would fail to notice the more sinister and objectionable parts of his Budget. The noble Lord may have noticed that in the Economist it was suggested that the Chancellor was doing this as a sop to this side of the Committee. If that was his intention, he will know how utterly he has failed.

However, we do not think that the Clause is as disastrous as the noble Lord and my hon. Friend the Member for Cheetham feel. Subject to what may be said from the Treasury Bench, I do not suggest to my hon. Friends that we should divide the Committee against it. I think that we are prepared to tolerate the Clause, though we do not feel very enthusiastic about it.

Many of the arguments of my hon. Friend the Member for Cheetham—and in some quarters of the Committee they were felt to be cogent and powerful—cannot be dealt with by Amendments to the Bill. For instance, we cannot deal with the capital gains tax or some of the other abuses to which he referred, and I do not propose that we should do so. It is, however, a great pity that we should be discussing an important question like this at quarter past two in the morning on a Bill which, like the last one we discussed, is very narrow in its approach, however objectionable it may have been. I suggest that, so that the whole Committee can get its ideas clear, not only on Profits Tax but on other aspects raised during the debate, it would be very desirable, as soon as we have got this Bill out of the way and before we get the Finance (No. 3) Bill for the current Session, to devote a full day to a perhaps relatively uncontroversial debate on taxation generally.

The Deputy-Chairman

The right hon. Gentleman is really now covering a very wide area.

Mr. Wilson

Naturally I will not press the point. If we could have such a debate, I could make the point I have in mind much more fully, and I trust that I should be in order the whole time. Some very important matters are dealt with in the Clause. I know that the Chancellor will be able only to touch on them in his reply, but it is very important that on some occasion we should discuss the whole issue of Profits Tax, Income Tax and all the issues raised by the Clause.

Mr. H. Macmillan

I listened to the speech of the hon. Member for Cheetham (Mr. H. Lever) with a great deal of pleasure, because it is very rarely that we have the opportunity of listening to views somewhat divergent from the more hackneyed, partisan and party positions which are taken up normally on both sides of the Committee. He claims to be an eccentric, and I must say that I welcome his eccentricities. Perhaps it is one of his eccentricities that he only gets going at a rather late hour in the night. We should enjoy his speeches perhaps even more if he would sometimes give us the pleasure of listening to them in the afternoons.

The right hon. Member for Huyton (Mr. H. Wilson) covered a very wide range of topics and made a number of observations about quite a lot of other things. I did not gather from him any very clear picture, except that he wanted to have a debate on some other occasion on the broad problem of taxation. That was the good part of it—some other occasion. On this occasion I understood that he was not proposing to rally and marshal his great forces into the Lobby against the Clause.

Mr. H. Wilson

I am sure that the right hon. Gentleman does not want to misrepresent what I said. I said that whether we shall rally our great forces against the Clause very much depends on the answer we have from him.

2.15 a.m.

Mr. Macmillan

I hope that I shall give an unsatisfactory answer and force the Opposition to divide. I shall do my best to do that. Then we shall see what real enthusiasm the Opposition have for carrying on.

All sorts of reasons have been attributed to me for having put forward this proposal. One is to appease the right hon. Gentleman. He is already so agreeable that I have no need to appease him. Another is to mark some view about the position taken on the Royal Commission about Profits Tax. That was not my intention. I still think we have to consider—and so I welcome the right hon. Gentleman's proposal that we should on some due occasion—this very difficult question of just how this matter should best be dealt with. I know the views of many of my hon. Friends on this subject, and they have, with great reticence, for which I am grateful to them, reserved them for that day's full-dress debate we are to have on some suitable occasion.

I am not going to refer now to the Amendments which have not been moved, but there are some who feel that we ought not to have a tax on the undistributed profits at all. I think that that was the view of the Chief Whip of the Liberal Party. Had I done that, I think I should have turned the Profits Tax into a dividends tax entirely, with no character of a Profits Tax about it at all. Had we wiped out altogether tax on undistributed profits, we should have been changing the character of the tax from that of a Profits Tax to that of a dividends tax. That I did not wish to do.

What I wished to do—and I put it frankly to the Committee—was to raise some money to fortify the surplus and to raise it in a way which would make the least disturbance of the present system. I leave over for future consideration what ought to be—it is a difficult question for us to settle—the proper position of Profits Tax in our taxation system.

Since there seems to be a general agreement that this Clause is not to be violently opposed, I hope it may be approved by the Committee, and I hope that as all those motives attributed to me are wrongly so attributed, the Committee will accept it from me that the quite simple purpose of the Clause is to raise a certain amount of money.

Mr. H. Wilson

I am not sure whether the right hon. Gentleman's intention was to give a reply so satisfactory that we could welcome the Clause and let it go through, or so unsatisfactory we might feel called upon to divide against the Clause. I think that, in accordance with the principle he enunciated at a much more timely hour of the day, he seemed to be following the middle way between the two courses. He has certainly not filled us with any enthusiasm for anything in the Bill, not even this Clause, by what he has said. He suggested that he will give more thought to the question of Profits Tax before the great debate which, apparently, both sides of the Committee hope to have in the not too distant future.

I can, perhaps, reply to the point made by the right hon. Gentleman about the possibility of our dividing on the Clause. He seemed to suggest that we were somewhat few in number here tonight—a suggestion which I thought rather surprising, because he referred to the enthusiasm with which we were fighting this Bill and our enthusiasm for being here at all. We have no enthusiasm for being here to discuss this Bill tonight. We shall be happy if the right hon. Gentleman immediately moves to report Progress so that we can go home to bed now and, and a more timely hour, discuss these important issues.

The Deputy-Chairman

The right hon. Gentleman is departing far from the Clause now.

Mr. Wilson

Yes, Sir Rhys. I come back to it at once. I do not know what is the wish of my hon. Friend the Member for Cheetham (Mr. H. Lever), but I do not propose to divide the Committee on this Clause; nor do I feel that we should have more people here for this particular type of Clause. We on this side believe that the controversy for which most of the hon. Members opposite are waiting will not be found in Clause 24 but in Clause 34.

Mr. H. Lever

As I am, apparently, the only opponent of this Clause, I for my part would say that the answer given by the Chancellor has been completely evasive on the points which I raised. But, on the other hand, the answer was framed in so courteous a manner that I cannot believe the Chancellor intended any discourtesy by ignoring my remarks. Because of the late hour, he could not, perhaps, deal comprehensively with the matter, and I feel that I should defer dividing the Committee.

Hon. Members

Divide.

Mr. Lever

That is all very well, but the difficulty is that some hon. Members have only just arrived in the Committee. [An HON. MEMBER: "Oh."] Well, I observed that I was interrupted by the Chair when I referred to my attendances in the Committee, and I was ruled out of order; but apparently everybody else can refer to them.

The Deputy-Chairman

The non. Member must restrain himself. We are now discussing the Question. "That the Clause stand part of the Bill."

Mr. Lever

It appears that when I am trying to elaborate, in as simple a form as possible, what are my views, hon. Members come into the Committee and interrupt.

The Deputy-Chairman

The hon. Gentleman is interrupted because he is irrelevant; and he is being irrelevant at the moment.

Mr. Lever

Surely, Sir Rhys, one may refer to the personal attitude of right hon. and hon. Members. The Chancellor is no more a Member of this Committee than back benchers.

The Deputy-Chairman

The Motion under discussion is that Clause 24 stand part of the Bill, and the hon. Member is completely out of order.

Sir Robert Boothby (Aberdeenshire, East)

If the hon. Member is really maintaining that every time another hon. Member enters the Chamber then all the preceding arguments have to be repeated for his benefit, we should stay here for a very long time indeed.

Mr. Lever

I was not attacking the hon. Gentleman. I am merely saying that it is idle for him or any other hon. Member to come into the Committee and urge me to divide, but if I am urged to express my view, I am bound to say that we are in a most unsatisfactory position. But I will certainly arrange to contribute to further discussions on this and other matters if I am fortunate enough, Mr. Chairman, to catch your eye.

Mr. Houghton

Or to get the time off.

Mr. Lever

Or not be engaged in other activities, of which I have many outside this Chamber.

But may I proceed? It is abundantly clear that some vigilance, actually in this Chamber, is required on matters which affect the whole of industry in this country. There has been no explanation from the Chancellor. If the Chancellor were to say that he was too tired to deal with the points I have raised and wanted to adjourn the discussion. I might be agreeable not to divide the Committee.

I have raised direct points concerning taxation. It is no good saying that the Report stage is to follow. The Committee stage is the time when the Clause should be carefully rehearsed through the minds and judgment of hon. Members, on both sides, and the stage at which the Minister responsible should answer the arguments which have been addressed to him. The fact that the arguments have been addressed to him by one who neither has the backing of any school of economic thought nor is a member of the Privy Council does not absolve the Chancellor from his duty.

I must raise certain questions in the hope that the Chancellor, like myself, will exercise his option of speaking twice—

Mr. H. Wilson

As I feel some responsibility for getting my hon. Friend on his feet again, may I put this to him? It is an extremely late hour and there are still some important Clauses before us. The Chancellor has, quite agreeably and co-operatively, met the proposal that we should have an opportunity of debating the whole range of taxation. In view of that, would it not be more helpful to the progress of the Committee as a whole if my hon. Friend came quickly to a decision whether to divide the Committee?

As far as we on this side are concerned. I do not wish to put any pressure on my hon. Friend as to how he comes to his decision, as long as he does it reasonably quickly. If he decides to divide the Committee, while we reserve our own freedom of action, it will be a demonstration to the Chancellor what freedom means in my party.

Mr. Lever

Having been thus encouraged, I will divide the Committee upon the Clause. I object to the Chancellor not merely not giving effect to the considered recommendations of the Royal Commission, but going far in the opposite