HC Deb 19 June 1956 vol 554 cc1241-70 If Her Majesty, by Order in Council, declares that arrangements specified in the order have been made with the Government of any territory outside the United Kingdom being a member of the British Commonwealth and Empire with a view to affording relief from the United Kingdom tax on income which has been relieved from tax payable under the laws of the territory concerned by specified concessions, the arrangements shall, notwithstanding anything in any enactment, have effect in relation to income tax and profits tax, in so far as they provide for relief from United Kingdom tax.—[Mr. Leather.]

Brought up, and read the First time.

3.43 p.m.

Mr. E. H. C. Leather

(Somerset, North): I beg to move, That the Clause be read a Second time.

The Chairman

I think it would be for the convenience of the Committee if we discussed with this new Clause the proposed new Clause in the name of the right hon. and learned Member for Kensington, South (Sir P. Spens), "Income tax exemptions for overseas trade corporations", and the proposed new Clause in the name of the right hon. Member for Huyton (Mr. H. Wilson), "Pioneer industries concession relief". We can discuss all three Clauses and when we get to the last two the Committee may have Divisions on them if it so wishes.

Mr. George Jeger (Goole)

Do I understand that the first new Clause on the Notice Paper in the name of my hon. Friend the Member for Nottingham, West (Sir T. O'Brien) is out of order and is not being called?

The Chairman

Yes, it is out of order.

Mr. Leather

The Clause I have moved and the other two Clauses cover virtually the same field and I am sure that there will be very little difference of opinion about the merits of any one of them on either side of the Committee. The point at issue is one which, while it has not been discussed in this Committee since 1953, has exercised a good many hon. Members almost continuously for the past five years.

It is that many of our Colonial Territories, although some foreign countries are also involved, but in particular, the underdeveloped territories of the Commonwealth, recognising the great need for capital and new industry, offer very considerable tax incentives to industries to establish factories, mines, farms and so on, so as to help raise the standard of living and employ the people there. As a result of the position of the tax law of this country at present, all these incentives of various kinds which have been introduced over the years since the war by many colonial countries are completely nullified for any businessman in this country.

3.45 p.m.

There are many different systems. The Chancellor of the Exchequer is in a better position than any of us to judge the exact wording and the modifications required in the law, but I am sure he will agree that we are interested in debating a principle and not in debating a particular technical application of it. Some territories have offered tax holidays for as long as five and even seven years. The Governments of Jamaica and Trinidad, for example, have said "We want industrialists from any part of the world to bring capital into our country where we are suffering from chronic unemployment. so that the standards of living here may be raised, and we are ready to give generous tax incentives to encourage such industrialists "In one case there is a complete tax holiday for five years it those concerned can qualify under a pioneer industry law. There has been no doubt whatsoever in the minds of the Governments of the Caribbean, both past and present, that this is eminently to be desired. The present Government of Jamaica have recently extended the benefits of incentives considerably.

My proposed new Clause refers to the whole of the Commonwealth. Some of my hon. Friends have asked that it should be adjusted to cover dependent territories in the Commonwealth only, and I think that that is virtually the effect of the new Clause proposed by right hon. and hon. Members opposite. There is yet another Clause in the name of my right hon. and learned Friend the Member for Kensington, South (Sir P. Spens) which suggests that this provision should be world-wide.

I know that I am speaking for many of my hon. Friends, with whom I have worked on this matter for some years, when I say that we do not mind which scheme or Clause the Chancellor accepts, but we are most vitally concerned with the Colonial Territories. We are not concerned with the pure theory or equity of tax law, with which the Royal Commission on the Taxation of Profits and Income was concerned, but rather with the responsibilities of the House of Commons towards our Colonial Territories. I hope that the Chancellor will deal with the matter on that issue. We are trying to press upon my right hon. Friend the responsibility of the House of Commons and the obligation which rests upon all of us to do everything in our power to assist in the development of our dependent territories.

This issue has been argued since 1952. In 1953, the then Chancellor of the Exchequer referred it to the Royal Commission as a matter of urgency. The Royal Commission of 1953 produced an interim Report in which it agreed that the state of our tax laws was "doing damage" to colonial development, and it suggested that "urgent action" should be taken.

That was in 1953. We are now in 1956 and still nothing has been done. The damage is greater and the need is more urgent. I would refer my right hon. Friend to one industrial development which I saw only a few weeks ago in one of the Caribbean Islands. There were no fewer than 19 factories going up on an estate. Seven nations were represented, only one factory was British. There were Canadian, American, French, Italian and German.

This may be looked at in two ways. It may be argued from our own purely selfish point of view that this is a bad thing for British exports and British industry; that we are allowing our foreign competitors to get a foothold right on the ground in Commonwealth Territories. It may be argued from the equally valid, broader point of view, that this indicates that Britain is not doing her duty by her Colonial Territories, that we are not making the contribution to the development of those territories which we should.

The reason for this in many cases is purely because of this tax disincentive. A Colonial Territory says to the industrialist, "Come and put up your plant here. We will give you a special rate of Profits Tax or Income Tax to offset the risk you are taking and to encourage you to come and help to develop our country" The British Treasury promptly says, "Oh, no, you don't. Every single farthing which the Colonial Territory gives you we will take away from you" That is what the Treasury has been doing. Apparently it does not seem to be the slightest bit interested in helping to develop the Colonial Territories.

Yet there are many of us who are desperately interested. Speaking for the party on this side of the Committee, I have always believed that if we are not a Commonwealth party we are nothing. The Conservative Commonwealth Council, as my right hon. Friend knows well, produced a strongly worded resolution on this subject which was sent to him only a month ago. It is not even that our Treasury and our tax law is neutral; it is operating as a positive disincentive. The tax law is worded and framed and administered in such a way as not merely to allow a fifty-fifty chance but to act as a positive disincentive to persuade anyone not to take a chance. I am sure that many of my hon. Friends can give instances of this, because I am not exaggerating the extent of the disincentive. In 1953, the Royal Commission on Profits, Taxation and Income said that it was causing "damage". I have no doubt, and neither have any of the colonial Governments, that the damage is increasing and that resentment is building up.

It builds up particularly in territories such as Jamaica and Trinidad—Trinidad is a very good example—in the Gold Coast, and in various other parts, where the local Governments say, "We voluntarily surrender tax to help industrialists to develop our country, and it goes to the benefit of the British Treasury". All of them feel that it is an unfair way to run things. I believe that my right hon. Friend will be aware that most of us, on this side of the Committee at any rate, and I think the party opposite, also, think that it is unfair.

Why cannot we do anything about it? It was argued by the then Economic Secretary to the Treasury, in 1953, that this was a complex and difficult matter. Yet other countries have found it possible to solve the problem. I know that the methods of solution are different in different countries. I know it may be argued that the American Government are now debating whether they should do this; indeed, that has recently been used as an argument as to why we should not do it. It is argued that it is not true that the American Government give tax incentives to industrialists to go into the Caribbean, that they are only arguing about it now, and that if they do not do it, why should we?

So far as that is a debating point—I put it no higher—it is an academic one, because, under what is known as the inter-American company legislation, American companies already have a great advantage anyway. What the American Government are now talking about is not giving American companies an advantage, but giving them a further advantage than they have already. Furthermore, the American Congress are under no obligation, nor are the American Government, to develop the Colonies of the British Commonwealth. We are. Surely there can be no difference of opinion between any of us on that matter.

How other countries do these things is irrelevant to the issue. Whatever may be argued as to how they do them, the fact remains that at least half a dozen of them do, whereas we are in the anomalous position that the United Kingdom, the only one of the Western industrial countries with a great colonial tradition, with a great mission agreed by every hon. Member of this House, with a very special responsibility to help to develop our Colonies, are the only people who so juggle our tax law that we make it almost impossible. I therefore hope that my right hon. Friend will not use the complexities and difficulties as being a reason for not taking action.

So far as revenue is concerned, that, of course, is anybody's guess. How much would this concession cost? My own guess, with respect, is that within two or three years it would show a profit to the Treasury, because what little we give up would be far more than offset by the new companies going in which at present are not going in at all. There is no question in my mind—and I am sure that other hon. Members in this Committee can give examples, too—that there are many companies which have surveyed and investigated the matter and have said, "Well, it is just about a deal. We would like to do it, but at our rate of tax it would be completely uneconomic. Of course, if we had the benefit of your West Indian tax laws, it would be quite another matter." I know of at least half a dozen from my own experience in the Caribbean. So far as revenue is concerned, therefore, I do not think that there can be any argument against what we are requesting.

It may be that my right hon. Friend thinks that he needs more time to consider this difficult matter. Could I plead with him that we have been considering it now for five long, weary years? I am sure that there can be nothing on this subject that the Treasury does not know already. I cannot judge, of course, whether all the Treasury knows on the subject has reached my right hon. Friend, but I do not believe, with all respect, that even he, with his vivid mind, can think of anything new on this subject that has not been thrashed over fifty times already in the last five years. Furthermore, everybody who has thrashed it over has come to the same conclusion, that it ought to be done.

The proposed Clause is possibly badly worded. I do not know, because I am not a Parliamentary draftsman. However, it puts forward the principle which we are pleading with my right hon. Friend to accept. Finally, if my right hon. Friend is moved, for reasons of his own, to accept the general principle of an overseas trade corporation, either now or at some future stage, and if he thinks it would be sound tax law and equity, I should be the last to object. However, that is not the point I am urging this afternoon. Whether that argument is a good one or a bad one, we in the House of Commons are under no obligation to develop the mining industry of Spain or the oil industry of Ecuador.

We are under no obligation to foreign countries. Whether it is a good thing for us to go in and assist their development or not is quite another argument. I am arguing that the House of Commons is under a great obligation to our Colonial Dependencies, that by a very minor alteration in our tax law we can bring about a situation which all those dependencies badly want; for which they have been pleading with Her Majesty's Government for five weary years; which many of us in the House of Commons have been advocating for five years; which the Royal Commission on Taxation Profits and Income has supported; which meets with virtually universal approval on both sides of this Committee.

We are pleading with my right hon. Friend that he should say now, or during the later stages of our discussions on the Bill, that he will find a method of inserting a Clause to deal with our obligations to our Colonial Territories to adjust this technical imperfection in our tax laws in such a way that British industry can go ahead and make a fuller contribution to the great colonial cause which we all have so much at heart and to which we are all pledged up to the hilt.

4.0 p.m.

Mr. Stan Awbery (Bristol, Central)

Is not the hon. Gentleman losing sight of the fact that poverty does not exist in the Colonies merely because we are not investing sufficient money there? Poverty exists in some Colonies not only because of lack of investment, but because we are taking money from the Colonies. If we did not take so much from Malaya, the standard of living there would be twice as high as at present.

Mr. Leather

That is another argument which I should be happy to pursue with the hon. Gentleman on another occasion. It is not the point I am discussing, and I do not wish to continue my speech longer or to distract from the main argument.

I plead with the Chancellor to deal this afternoon purely with the question of colonial development and our obligations to the Colonies. I ask him to remove this extraordinary anomaly whereby this great colonial Power imposes, for purely technical reasons—not for reasons of principle or revenue—a positive deterrent to British industry playing the part which we all want it to play in colonial development.

Mr. G. R. Mitchison (Kettering)

I listened carefully to the hon. Member for Somerset, North (Mr. Leather) and I found little with which to disagree in what he said. It is perfectly true that this subject has been raised and argued for many years, in one way or another. He took 1952 as the starting date. I think that is about right.

It is true that there is a great injustice in principle here, and I share his hopes that this question will be answered by the Government not on any drafting or detailed point but on the general question of principle which is involved both in his new Clause and in that in the name of my right hon. Friend the Member for Huyton (Mr. H. Wilson). I think that the third new Clause which we are discussing is rather a different proposition. It was so treated by the Royal Commission. It goes further and in a different direction from that which I should think right. But I find no quarrel, except in form and on some minor points, with the new Clause which the hon. Member for Somerset, North has moved.

There are some minor differences. We take the view that we should follow very closely the Royal Commission's recommendations on this occasion and we provide accordingly for a rather narrow Clause—narrow because it is confined to Colonies and does not include Dominions, narrow because it is confined to Income Tax and does not cover Profits Tax. We did that because we want to get the Government to accept the principle. Let them add Profits Tax, as the hon. Member for Somerset, North did; we certainly shall not complain. What he has done—and I hope he will not mind my saying so—is to take Section 347 of the Income Tax Act, which is the double taxation Section, and adapt it to this case.

My difficulty about his new Clause—and it is not a very serious difficulty—is that in paragraph 58 of the Royal Commission's Report, to which we are both referring, the Commission said it did not want any general statutory provision. Although I agree that his new Clause is not quite a general statutory provision of the type the Commission had in mind, it certainly leaves the matter entirely at large as to what is to be done afterwards in the Orders in Council which he contemplates.

We thought it right to emphasise that what we are concerned with primarily is the special case of developing enterprises in the Colonies and dependent territories which the Governments of those Colonies and dependent territories themselves think of such a character as to be entitled to special relief. We regard the Clause which we put forward as a means of promoting what has always been very much in the heart and in the forefront of the programme of the Labour Party—the responsibilities which we in this country have towards underdeveloped countries in general and particularly those in the Commonwealth, where we have a special responsibility.

For that reason we have confined ourselves to what I refer to as the Colonies, and the machinery we propose is this: there are, of course, overseas holidays of the type mentioned, and there are other forms of Income Tax concession, and we suggest that it should rest with the United Kingdom Government to describe in general terms the type of concession which will attract this relief. That is, in fact, the suggestion of the Royal Comsion's Report.

I turn for a minute to make perfectly clear what happens at present. A colonial Government, for the reasons I have indicated and being themselves the best judge of what is required in the Colony, give special relief by way of a remission of Income Tax in one form or another. I turn to paragraph 53 of the Royal Commission's Report—its first Report, in February, 1953—and take the following very short statement of what happened. I shall have occasion to differ about only one word. If a concern qualifying for this relief —that is, the colonial relief— is resident in the United Kingdom, the relief is valueless to it because it still bears the full United Kingdom tax. Paradoxically, the benefit of the relief would redound to the United Kingdom Exchequer, which would have that much less double taxation relief to give. The only word with which I quarrel is "paradoxical". It seems to me to be not unusual Treasury practice, but pushed too far. The weak partner, the one who stands most in need of development and relief, makes a special concession in order to get it. It is valueless from that point of view because the people for whom the concession is made get nothing out of it. Who gets the lot? Answer—the Treasury. And the Treasury is the stronger partner and the partner which has a special responsibility towards this somewhat undeveloped country.

It is highly significant that today we see sitting in front of us on the Government benches distinguished and competent representatives of the Treasury, but not a single soul do we see from the Colonial Office. If we are to have watertight compartments as tight as that and to consider the whole question of our responsibility to the Colonies from the point of view of the British Treasury, we shall never get anywhere towards discharging it. It is disgraceful, as a matter of Government machinery, that no one should be here who has a direct responsibility towards the Colonies. No doubt the Chancellor has a collective Cabinet responsibility, but I have a suspicion that this is the Treasury—and I put it quite bluntly—at its most grasping and its most short-sighted.

These are no doubt hard words. They may be easier for the Opposition to say than for hon. Gentlemen opposite, but they are what the Royal Commission said in rather more polite language than I used. It was an impartial and competent body, which had had this question referred to it in 1953 as a matter of urgency.

There is one other point, and this perhaps may give some of the explanation of the Treasury objection. The Commission proposed that when relief of this kind was given it should got go to the Treasury, but to the taxpayer concerned. That is what it comes to. As to the amount of the relief, the Commission made it perfectly clear, as we do in our proposal, that it should only he such relief as was given by the direct operation of the colonial concession, and, further, when that relief was so given, the certificate of the colonial Government as to how much it was should be accepted by the British Treasury.

I suppose the Treasury did not like it, but it is right that that should be done, for, after all, there is no reason at all why, if it has protection in listing the agreements, and protection in making Orders in Council, we should, all over again, go through the process of trying to find out from this end what the result of the direct operation of the concession was at that end.

Therefore, I say to the hon. Member for Somerset, North and his hon. Friends that we listened to him with interest and in very great agreement indeed. Speaking for myself, there was only one point upon which I felt some hesitation. It was whether, if I may put the matter quite bluntly, the hon. Gentleman's legs were as good as his voice: in other words, whether he will go into the Lobby in support of his own proposal. We felt a little hesitation about that.

The hon. Gentleman was amazingly eloquent about it, and he spoke with fervent conviction. Indeed, he reminded me of the last occasion when I met him, when we both appeared in an overseas programme, though he may have forgotten it, because it was so long ago. At any rate, I listened with sympathy and attention to his eloquence, and I trust that he and his hon. Friends will put into deeds what they have so eloquently said in words. We shall do our best to support them, and we would not rest on the distinction which I have indicated between our proposed new Clause, which we would prefer for the reasons I have given, and theirs.

I cannot give quite the same measure of support to whatever the right hon. and learned Member for Kensington, South (Sir P. Spens) may be going to say. I am sure that his eloquence will be great, but the history of his proposed new Clause is a somewhat different one. This was the urgent remedy for a crying scandal. That is really what it was that the Royal Commission first recommended, and it was asked to make recommendations in more general terms. The Commission said, "We will give you a first effort, and will bring forward final recommendations later."

Some time afterwards, in 1955, came its final Report, and in it the Commission devoted a whole chapter of 22 pages—and Royal Commissions write closely—to the question of overseas profits. It produced a recommendation, but it had very great difficulty in doing so. It began with general observations, and then came to the problem ascertained, and when it got to that, it divided the members of the Royal Commission into three classes—those who were for what they were going to propose, those who were against what they were going to propose, and those who were partly for and partly against what they were going to propose. This was a somewhat discouraging beginning.

The Commission then produced an extremely long discussion of the pros and cons, and what I might call the sideways arguments. I do not venture to trouble the Committee with all that, but the minority Report, which came later, does not agree with it a bit. What we are getting today from the new Clause in the name of the right hon. and learned Gentleman is the majority Report, adapted, as I see it, to meet some of the difficulties which the majority stated themselves and some of the objections which were taken by the minority.

4.15 p.m.

It really covers a far wider field than anything that is in the other two new Clauses. It is not concerned with limitations with regard to our colonial responsibilities. It might cover, I agree, as the Report said it would, the particular point that we have been talking about in connection with the other two new Clauses, but it would cover an enormous amount of other material, too. I should have thought that the right thing to do at the moment, considering the general financial mess in which the Government have landed us, would be to confine ourselves to the urgent and immediate question of this special relief with regard to Colonies, and that the new Clause about which we shall no doubt hear shortly goes far wide of that.

I think there is no geographical limitation at all, except that it must be an overseas corporation. Without going into it in detail, I believe it would be unworkable, because it depends on a large number of fine distinctions, as was pointed out in both parts of the Royal Commission's Report. Further than that, I believe it would again open the door—I will not say to schemes designed specially for the purpose of taking advantage of it, because one appreciates that they may be proper schemes—but to schemes which, by their character, would not commend themselves to the Committee in general and would be tailored to meet this rather sweeping provision.

I say no more about it than that at the moment. After all, it is to be dealt with, and we shall all listen with interest to what is said in support of it. My right hon. and hon. Friends and I feel very strongly indeed with the hon. Member for Somerset, North and his Friends that the question of pioneer tax concessions granted by Colonies and then pinched by the Treasury is a crying scandal, which has gone on much too long. It is high time, for the benefit of our good name and our position in the world with regard to other countries, and also our special responsibilities to the Colonies, that, however much the financial mess may be, that particular matter, at any rate, should be deal with without delay.

Sir Roland Robinson (Blackpool, South)

I rise to support very strongly the new Clause which has been moved by my hon. Friend the Member for Somerset, North (Mr. Leather). I feel that he has done a service to the Committee in bringing before it this important question of colonial development and the overseas tax holiday. I am also pleased that he has been able to attract such powerful support from the other side of the Committee, and I hope that the significance of that will not be lost on the Treasury, for I feel that this is a matter in which, basically, the Committee is united.

We in the Conservative Party feel that we have a duty in the economic development of the Commonwealth and, above all, that of our Colonies. At this time it is right that we should ask ourselves whether we are doing our duty in this matter. There is no question that the events of the past week concerning Trinidad oil have caused a great deal of heart-searching on this subject.

We can truthfully say that the answer is that United Kingdom taxation tends to make it much easier for the foreigner to compete and operate in the Colonies than it is for us. That state of affairs is quite wrong. Oil is not an isolated case. There are many similar things, such as bauxite, in Jamaica and British Guiana, where the main developments are in the hands of the United States and Canada, whose Governments adapt themselves to the local taxation systems and who help their own nationals when they are operating overseas.

I agree that it is the Colonies in particular which need our help, and from the West Indies and Africa we have had this idea of overseas tax holidays. It is impossible for companies domiciled in the United Kingdom to take advantage of this proposed legislation. There is no doubt that in one way or another other nations have adjusted their tax laws to give their nationals the greatest advantages to be derived in the taxation in our Colonies. We should approach the matter in the same spirit.

It would not be a fair answer to say that this particular method is not used by the American, or any other Government. Other Governments try to help their people in these matters and we, in turn, must help our people. There is no question that the Committee is very interested in the Commonwealth development. I remind the Chancellor of the Exchequer that on the Order Paper there is a Motion on this subject signed by more than 150 Members and which has appeared because all of us feel very strongly about this subject. The Motion reads: That this House, being of the opinion that the development of raw materials throughout the Commonwealth is vital in assisting the balance of payments and is essential to the prosperity of the United Kingdom and of all other countries within the Commonwealth, urges Her Majesty's Government, by achieving an annual economy in national expenditure to make available an amount equal to five per centum of the annual revenue of the United Kingdom for the exclusive purpose of providing facilities of communication, water and power which are essential to such development. Both the Commonwealth Relations Office and the Colonial Office are anxious to foster the development of the Colonies and the Commonwealth, and the Treasury should do nothing to nullify that policy. I agree with the hon. and learned Member for Kettering (Mr. Mitchison) that our economy should not appear to be milking the Colonies to fill its own coffers. I remember a practical experience when, a few years ago, I was talking to the colonial treasurer of one of our Colonies about plans for development in his own area. It was a matter in which I was interested and I suggested that, subject to certain tax concessions, we could do certain things. He agreed and said, "We would willingly give you all those concessions if you could keep them, but as your Chancellor of the Exchequer is taking them all from you, we must come first, because, after all, the money is earned in this Colony." He was quite right in that view.

The present system of taxation forms a great disincentive to United Kingdom developers who wish to play their part in the expansion of Commonwealth resources. This subject affects the Commonwealth as well as the Colonies. It is a great tragedy that we in this country have not been able to play a larger part in the development of vast oil resources in Canada. At the moment a great deal of that is falling into American hands. In the oil industry the United States Government give to their own nationals tax advantages much greater than we give, which is one reason why the Americans can compete with us in oil so successfully.

Another new Clause suggests that this concession should apply to all overseas territories. I must confess that I am not carried that far. It would be a mistake to give these concessions to the rest of the world. We have no obligation to develop the rest of the world, but we have an obligation to those people whom we lead in the British Commonwealth. We should turn our attention to them first and the other problems can well wait. It could be a great disadvantage to industry in this country if British capital were encouraged to go out and support in foreign countries industries which would compete with our own employers and our own labour in this country. We should not go that far, but I whole-heartedly support the idea of giving the concession to the British Commonwealth and Colonies.

I urge on the Chancellor, as did my hon. Friend the Member for Somerset, North, that this is not a new problem in any way. I cannot see that more time to consider it is necessary. It was very fully debated in 1953, and the interim Report of the Royal Commission on the Taxation of Profits and Income covered this among other matters. In the three years which have elapsed since then, the Treasury has had ample time to make up its mind one way or another. I am sure that the Chancellor would not think of telling us that the matter has come as a surprise to the Treasury.

We want some action now. The matter is important and it is not enough that we should make speeches and pass pious resolutions supporting it. The case for the development of our Colonies and Commonwealth demands action now and not merely lip service. It is, from the point of view of our people and the Commonwealth, more important than ever, in view of what has happened in Trinidad and what may well happen elsewhere. Now is the time for action. This is the time for a great gesture on our part which would give faith and courage to those in the Commonwealth and Colonies who believe in us and accept our leadership.

Mrs. Eirene White (Flint, East)

As do my hon. and right hon. Friends, I support the principle behind the new Clause and, naturally, that which is put forward by hon. Members from this side of the Committee. I should say that I have no shares, nor any prospect of a directorship, in any of the companies concerned. I think that some Members have certain interests in this matter, although I am not for one moment suggesting that they are supporting the principle for that reason. It is a principle which should be supported by the Government Front Bench, and I hope that before the debate is concluded we shall have that support.

I am surprised that this provision has not already been included in the Finance Bill. In recent Finance Bills we have dealt with narrower matters, because of the difficulties at home. This was an opportunity for the Chancellor of the Exchequer to show that he had an imaginative touch in this topic. He has dealt with one of the subjects to which the interim Report of the Royal Commission on the Taxation of Profits and Income referred, unremittable profits. Certain provisions for that have been made in the present Bill. This was an occasion on which the Government might have dealt with the other part of the interim Report.

Although hon. Members have referred to 1953, it was in August, 1952, that the former Chancellor of the Exchequer wrote to the Royal Commission and asked it to consider this subject "as a matter of importance and urgency". The Commission did so and its opinion was quite emphatic. As hon. Members have pointed out, we have previously discussed this subject. There is general support for the proposal and I see no reason why the Treasury should not come forward with positive proposals. I recognise that there may be difficulties of detail, but "where there's a will there's a way" and I give the right hon. Gentleman credit for sufficient ingenuity to find a way round any difficulties which may be occasioned by concessions of this sort.

I do not wish to weary the Committee by again going over the arguments, because we are all seized of them. The only point on which there may be slight difference of opinion is precisely where the line is to be drawn about what type of territory is to be covered. In supporting these new Clauses we are confining ourselves in the Commonwealth, but within the Commonwealth there are so many differences of status among different territories that that might be a point of argument on detail.

4.30 p.m.

What I have particularly in mind is territories such as the Gold Coast and Nigeria, which are now Colonial Territories in the full sense of the word, although they may cease to be so, but will be in great need of the kind of development we are discussing. The same might apply to the Caribbean Federation. To be quite clear on that question, we should have more discussion of it at a later stage. We had the Premier of the Western Region of Nigeria visiting this country recently and he said that he spent only a couple of days in the United Kingdom because it was not worth his while to spend longer here to find investors in Western Nigeria. I am certain that if this proposal had been adopted Mr. Awolowo would have spent a great deal longer here than he did.

This gives the Chancellor an opportunity of doing something which would be of immense benefit and which it is urgent to do. I presume that the Chancellor is paying some attention to the remarks which are being made, but he seems to have been asleep for a great deal of the time. I am deeply disappointed that there is no representative of the Colonial Office present. I think it extremely regrettable that apparently so little importance is attached to this new Clause, which was proposed from the other side of the Committee, that there is no one here from the Colonial Office.

We all know that the Assistant Postmaster-General used to take an interest in these matters, but I can hardly imagine that in his new position he would have the same direct influence as the Colonial Secretary. It is regrettable that the Government appear to be taking a very half-hearted interest in the question. However, it is still open to the Chancellor to put that right. If he announces that he accepts the new Clause we shall not be too hard on the Colonial Secretary.

Sir Patrick Spens (Kensington, South)

I wish to start by saying that had I not put a new Clause on the Notice Paper, "Income Tax exemptions for overseas trade corporations", I should have contented myself by supporting everything that had been said in favour of the new Clause we are discussing. I do not intend to repeat the arguments which have been put forward in its favour. As an immediate and attractive measure I believe it would be of very great use and it certainly would carry out our primary obligation of taking some steps to develop our Colonies and Colonial Dependencies.

I want to occupy a very few moments in dealing with the wider Clause in my name. That, as the hon. and learned Member for Kettering (Mr. Mitchison) pointed out, is founded on the Third Report of the Royal Commission. In paragraph 642 of the conclusions of the majority of that Commission, the Report states: These considerations, taken together, show that the present system of taxing overseas profits is neither fair to the individual trader who makes them nor conducive to the true economic interests of the country as a whole. Some change of the system is urgently required; and the principle that should govern a revised system should be that overseas trading profits should be altogether exempt from United Kingdom taxation so long as they remain at the service of the business in which they are made but that once they are withdrawn from the purpose of the business by any form of distribution to proprietors they should be taxed according to the scheme of taxation of personal incomes and as the personal income of each recipient. The main reason why those recommendations were made was the fact that the whole of our industrial activities overseas, in the Commonwealth, in the Colonies, in the dependent territories and elsewhere, were and are being slowed up entirely by the Income Tax provisions prevalent in this country. At present, any company which sets out to develop any territory overseas has to bear the full burden of our Income Tax provisions here. That burden is so great that, quite apart from what we have been discussing, it makes it quite impossible for them to compete successfully in many areas of the world with foreign countries, to whom concessions are given by their Governments.

Some British companies have sought to try to relieve themselves of these difficulties by going overseas, leaving this country altogether and registering themselves overseas, either in the Commonwealth, in the Colonies or even in foreign countries. Thereby this country loses the whole taxation imposed upon them except in so far as individuals receive profits from overseas and become subject to taxation here on receipt of those profits. The inconvenience of going overseas in the last five or six years since the war has proved very great.

Those companies lose particularly resources of technical education and research in this country. They cannot find the young men they want, they are not in touch with suppliers and cannot make contracts so satisfactorily if their headquarters are in Rhodesia, South America, South Africa or Australia as they would if their headquarters were in England. It is universally felt that this method of transferring registration overseas results in many difficulties through leaving the centre of activities in this country. It was very largely because of that and the burden of Income Tax on the British registered company that the Royal Commission, in its Third Report, thought this far and away the worst burden on British industry and made this recommendation.

I go somewhat further than that. My personal inclination, like that of all hon. Members who have spoken so far, is for the development of the Colonies, Dependencies and underdeveloped areas of the world. I am quite convinced that they are not going to be developed adequately, sufficiently fast and sufficiently well, unless British private enterprise plays a very large part in doing that. British private enterprise has developed most of the underdeveloped parts of the world during the last couple of centuries. British private enterprise is required today to develop the remaining underdeveloped territories, as much as when it started 150 years ago. British private enterprise will not be able to do that unless it gets some relief from this burden of taxation.

One knows that a great deal of development can be done by way of loans from governments through banks, and so on, but in any scheme for development of any territory an enormous percentage of effort still has to come from private enterprise of one sort or another. For that development to go on at the rate at which it has to go I cannot believe that it can be effectively done merely through public loans or development corporations. I believe that a very special tax concession has to be given to companies which will go abroad and do this work while still being registered here.

While it is unknown what would be the cost of this concession, if it resulted in a great increase of British industrial activity overseas the profits would come back here, of course, and the Government would get their money eventually. Therefore, although it is impossible to say that what they would lose on the roundabouts they would gain on the swings, one thing is certain, and that is that there are enormous advantages which would come from this concession if it could be made.

I want to say a word about the details of the Clause. It is perfectly true that this Clause has been drafted to try to meet as many objections as possible. I am not a Parliamentary draftsman nowadays—there was perhaps a time when I was, but I am certainly not nowadays. I do not pretend to be the draftsman of it, and there may be drafting errors in the Clause that I have put forward, but we do not want to discuss drafting mistakes. We want to know how far Her Majesty's Government are with us on this great principle and how far they are willing to go in assisting us.

I hope that at least the Government will accept the principle and content of the Clause put forward by my hon. Friend, and that they will consider the great advantages to the whole future industrial activities of this country by giving the most serious consideration to the new Clause which I have tabled.

The Chancellor of the Exchequer (Mr. Harold Macmillan)

I think that it might be convenient if I were now to give the view of the Government on the very interesting debate which we have had so far. I think that it has been a convenience to us all to take these three new Clauses together. Although they vary very much in scope and effect, they at least give us the opportunity, as my hon. Friend has said, to discuss the principle rather than the precise drafting or the exact effects of any of these Clauses as put upon the Paper. As he has said, this is not a new problem. It is, on the other hand, quite a complicated problem and it has taken a good deal of time to consider because it raises very big questions which require careful examination.

On the broadest issue, I think the Committee would agree that this has been, with very few minor deviations, a non-partisan debate. The request that my right hon. Friend the Colonial Secretary should be present at this discussion is the usual one that is put up.

Mr. Mitchison

Disgraceful.

Mr. Macmillan

The right hon. Member knows quite well that Government Departments and Ministers are in close touch with each other, and for him to say that it is disgraceful for the Colonial Secretary not to be here can only show how little experience of actual practice of administration he has had.

Mr. Mitchison

May I confirm the right hon. Gentleman on his last point? I have no practice of administration whatever. May I correct him on one other point? No one has ever been so misguided as to make me a Privy Councillor.

Mr. Macmillan

I hope that that may be rapidly corrected. It would cause very great pleasure to us all. But these are minor points and it is the debate as a whole that is important.

Everyone knows quite well that the Colonial Secretary has a great deal of work to do and it would be very foolish of him to feel compelled to be here today. I have a certain loyalty to my colleagues and I propose to defend them when they are attacked. I know that that is sometimes considered to be rather an unusual thing, but it is a principle to which I hold. Apart from these deviations in partisanship, this has been quite a nonparty debate and, as the hon. and learned Gentleman knows, they have only affected minor individual points.

4.45 p.m.

I must remind the Committee that, broadly speaking, the future of our investments overseas, whether in the Colonies, in other Commonwealth countries or in any other countries, depends upon the provision of sufficient savings through our own economic efforts to make these investments practicable. That is the fundamental problem and it is one which I think all of us in this Committee, though we may have different points of view, recognise as the biggest problem which confronts us.

Nevertheless, it is perfectly true that the taxation system could be so adjusted and moulded as to assist at a time when it is perhaps particularly difficult to make available savings on a sufficient scale to carry out what is both our duty and in our interest. We have a right to look to the taxation system to be so arranged as to assist in our general purpose.

I would point out to my hon. Friend the Member for Somerset, North (Mr. Leather), who in an admirable speech moved this new Clause, that, quite frankly, I do not think that the Trinidad oil question is very relevant to this Clause. I cannot conceive how this Clause, had it been in existence, could have affected so long established a concern as the Trinidad Oil Company. The new Clause deals with reliefs over a quite short period—I think a five-year period —and therefore could not have been effective in connection with this matter.

I would also point out that it is not the fact, as is sometimes said, that other countries have made wide provisions of this kind. My hon. Friend the Member for Somerset, North quite frankly stated that the United States taxation system was still under discussion, and I do not think it is really the fact that other countries have made a wide series of adjustments which we have not been able to make here.

In these Clauses I am being asked to deal, if I may just summarise the position of the Government, with what is known as "frustration"—I think that is the technical expression—that is to say, "frustration" by the United Kingdom tax system of those pioneer industry reliefs which are given in some countries abroad. It is a very simple problem to state, although not a very easy one to solve. It is perfectly true that a company which is managed and controlled in the United Kingdom is liable to tax in the United Kingdom on the whole of its profits, wherever those profits are earned, and if it pays overseas tax on profits earned in a particular overseas territory, it is given relief against United Kingdom tax for the overseas tax.

When, as is usually the case, the overseas rate of tax is less than the United Kingdom rate, it therefore bears, in total, tax equal in amount to the United Kingdom tax. But if the overseas territory exempts those overseas profits from tax for a period of years—and this is what I think we are dealing with and why I have referred to these long-established companies as a different problem—or, as is sometimes done, charges them at a specially low rate as an incentive to a company to establish itself or perhaps to extend its activities, then it is quite true that the company derives no benefit from this exemption or reduction.

The overseas territory gives up, as it were, or reduces its tax, but the company has to pay the United Kingdom tax at the full rate on its profits and gets no relief against that tax for the tax "saved" in the overseas territory. Therefore, it is true to say that the United Kingdom Exchequer is the only beneficiary. That has been going on for a very long time under a great number of Administrations. [HON. MEMBERS: "That does not make it right."] I know that does not make it right, but I am trying to explain the situation before I say what I am going to propose. I think it necessary to do that for the record.

The United Kingdom Exchequer is the only beneficiary, in that it does not have to give relief for the overseas tax that would have been charged had there been no pioneer industry relief. Thus the technical phrase is that it is "frustrated" by the United Kingdom tax system, and the desire of overseas Governments—particularly in the Colonies—to foster industrial development is thereby thwarted.

Let us take the history of this. In 1953, the Royal Commission recommended that remedial action should be taken. It was discussed—I am bound to say that I was not present—in the Finance Bill debates of that year. The Government took the view at that time that they would prefer, before dealing with this problem, to await the final Report of the Royal Commission on the general question of the taxation of overseas profits, in other words, on the problem raised by my right hon. and learned Friend the Member for Kensington, South (Sir P. Spens), before they dealt with the problem raised by my hon. Friend the Member for Somerset, North.

That Report is, of course, available, but I must frankly confess that it contains revolutionary and far-reaching proposals on the taxation of overseas profits; and, of course, in that, as the greater would include the less, the problem of my hon. Friend the Member for Somerset, North, who moved the first Clause, would automatically be solved. The Commission recommended that companies whose trading operations were wholly overseas, to which it gave the name of "overseas trade corporations," should be relieved from Income Tax on their trading profits and that United Kingdom tax should be charged only upon dividends and other distributions made out of those profits. That was a tremendous recommendation. It would then be the case that their undistributed profits would bear only the tax charged by the country in which the company was trading.

I have a great deal of sympathy with this proposal, but I cannot conceal from myself that it is a very big proposal. To alter the tax law in the way proposed by the Commission would require very long and complicated legislation. Nor is that the end of the story. The proposal involves other large questions, wider than the mere taxation problem, which have had to be weighed, most carefully. The cost would be substantial and, I must say frankly, quite out of keeping with the circumstances of the Budget of this year.

My right hon. Friend the Financial Secretary, in answer to a Question in December last, gave as an estimate of the cost of implementing the recommendation a figure as high as £75 million a year. I must ask the Committee to see my difficulties and to appreciate that anything of that order must take its place among other possibilities of making reductions in taxation, or concessions to the public. It is a very big thing. One does not just deal with a £75 million concession in a new Clause on an afternoon at the end of the Finance Bill discussions. It would completely overthrow the whole balance of the Budget. I am not saying that it is wrong in principle, but I am saying that it involves very large issues. Then I have to look at the background, because not only would it involve very big Budgetary losses, but it would have a very considerable effect on the balance of payments. So we have a double pressure on us I am not making these points as objections, but am stating them as facts. Something involving that amount of money, regarded both from the Budgetary and balance of payments point of view, is not lightly entered into. Therefore, I considered very carefully whether I should put forward in this year's Finance Bill a scheme based on the recommendation of the Royal Commission. Of course, I recognise the force of the arguments deployed by those -embers of the Commission who supported the recommendations. I also recognise, as was said by the hon. and learned Member for Kettering (Mr. Mitchison) that there were different teams on the Commission.

I have great sympathy with the argument in principle, and I take particular account of the importance attached to this scheme by United Kingdom concerns who operate overseas. But I was driven to the conclusion that I could not introduce this year proposals which, whatever their long-term advantage—and I think that the effect might be considerable—would have a very adverse short-term effect both on the Budgetary position and on the balance of payments. I intend, therefore, to consider these proposals in the light of the developing economic circumstances to see whether it may not be possible to introduce legislation in next year's Finance Bill to deal with the large issue raised in the last new Clause, the comprehensive issue raised particularly by my right hon. and learned Friend the Member for Kensington, South.

Of course, I realised that my decision to defer action on the Commission's broader recommendations would lead to pressure, very determined and sincere pressure, for the early implementation of the recommendations on pioneer industry reliefs, and I realised, too, that there was special force in this argument in relation to the Commonwealth and colonial countries. The first Clause is limited to these territories and therefore has a special claim for the reasons which have been very well expressed by my hon. Friends, I think that, in passing, I ought to say that much as I recognise these special claims —nobody recognises them more—I do not think that we ought to exclude the consideration of other countries; partly in our own interests, because we have great interests in countries other than the Colonial and Commonwealth Territories, and partly because of our duty to the under-developed parts of the world. So I do not think that this is a mutually exclusive consideration, although, of course, we have a natural sense of priority towards our own traditional responsibilities.

I think, therefore, that when we come to deal with the matter we ought to consider, not merely the question of the Commonwealth and Empire, but the wider problem raised by the right hon. and learned Gentleman. It is urged upon me that in the interests of Colonial and Commonwealth development, I should not delay putting into effect the proposal about pioneer industry reliefs until I have finally decided my attitude towards the overseas trade corporations. Of course, I have great sympathy with this point of view and it is true that the pioneer industry concession, the more limited concession, would be much less costly than the other. But I must say, frankly, that it would be extremely difficult, if not impossible, in the short time available to produce a satisfactory Clause for the Report stage. And I must point out that the connection between the two reliefs remains.

This is as far as I can go, but I will add this. If in next year's Budget the Government should be able to introduce reliefs for overseas trade corporations generally, then, of course, the bigger question would settle the smaller one. If, however, circumstances are such, either from the Budgetary or the balance of payments point of view, that I cannot go the whole way—I may be able to do so—but if I cannot go the whole way and deal with the wider questions raised by my right hon. and learned Friend, I will give this assurance; I will bring forward legislation next year to deal with the matter of the frustration of pioneer industry reliefs, and I will make it apply to profits earned after 6th April, 1956. In other words, I could hardly do more if I were introducing legislation this year. I cannot draft a Clause now—it is a very complicated matter—but I will give this undertaking. Either I will deal with the larger question—if, as I hope, the Budgetary and balance of payments situation allows it—or, at any rate, I will deal with the smaller question and date it back to April of this year. I hope, therefore, that hon. Members will feel that in the situation we have done the best we can to meet a view which is equally felt on both sides of the Committee.

5.0 p.m.

I am not without hope that we can deal with the larger question. I honestly think that it is very much in our interests, as well as our duty, to deal with countries other than those in the smaller field, large as it is, of the Commonwealth and Colonies. There are great interests which it is very much our interest to promote. If, however, we cannot do that—I am making no pledge—I will take the step which will have the same effect as if we had been able to meet the smaller question this year. I hope that with this assurance my hon. Friends will feel that I have done my best to meet a difficult and complicated situation.

Sir James Hutchison (Glasgow, Scotstoun)

My right hon. Friend has given a figure as to how much the Treasury would lose on the broader, all-embracing question. How much is at stake on the lesser question of the dependent territories and the Colonies only?

Mr. Macmillan

I cannot say; I have no figure to give, but obviously it would be much smaller. Even then, however, the definitions, the rules and the regulations as to how the money is to be brought back, will all need a great deal of thought. We will do it, but it will need quite a lot of working out and it is more than I could undertake to do at this stage in our Finance Bill.

Mr. Gordon Walker (Smethwick)

We on this side were glad to hear the closing words of the Chancellor's intervention. I am sorry, however, that the change was not made in this year's Finance Bill. It is better that it should be done retrospectively than not at all, but it would have been better if it had been done clearly and prospectively instead of retrospectively. The Chancellor must have known about this matter beforehand, for this is not the first time it has been brought to his attention by his hon. Friends and others who are interested in it.

We must, of course, look carefully at the proposals when they come next year, if the right hon. Gentleman is, in fact, then in a position to bring them forward. There are, however, one or two points I should like to draw to his attention on this occasion. One is that we pay much more attention to the question of the Colonies than to the larger question raised by the right hon. and learned Member for Kensington, South (Sir P. Spens). We are by no means committing ourselves to agreement on the major issues which the Chancellor is thinking about bringing in.

For the reasons given by my hon. and learned Friend the Member for Kettering (Mr. Mitchison), we on this side have many doubts about the bigger issue, but we are completely in favour of the principle raised by the hon. Member for Somerset, North (Mr. Leather) and supported by other hon. hon. Members on both sides.

We would like to see the legislation drawn in such a form that it can confer the benefits on countries like the Gold Coast, Nigeria and Malaya, which will pass out of the state of being dependent territories into one of being full and sovereign members of the Commonwealth. We would not like the legislation—this is the point made by my hon. Friend the Member for Flint, East (Mrs. White)—so drawn that these countries become automatically excluded as they move out of the status of being dependent territories.

Subject to those remarks, which I hope the Chancellor will bear in mind, we are grateful that he has made this concession but sorry that he did not make it in this Finance Bill. It would have been happier and more handsome if he had done so, but we must be grateful for what we can get.

Mr. H. Macmillan

Perhaps the very point that the right hon. Gentleman has raised has made it clear to him why the matter is a little more complicated than it appears. We might have drawn the Clause this year in such a way as to exclude the very territories in which he is most interested. We must make provision for them. I am grateful for the generous way in which the right hon. Gentleman has spoken.

There are one or two points, which I ought, perhaps, to have added in replying to my hon. and right hon. Friends, among the things we will have to do. We should have to make it a condition that we were able to get full information about the operation of the relief in particular cases in the other countries; and we should need power to prescribe methods of calculating the United Kingdom tax relief which would be appropriate to the particular form that the overseas tax relief might take. We might also need power to levy the appropriate tax on dividends received by persons in this country from profits which would have been relieved in the hands of the operating companies. There are one or two points of this kind, which would ensure that the money was used to fructify and not merely to make greater distributions in this country, that we would have to include in our Clause.

Mr. Mitchison

If the Chancellor introduces the minor Measure next year, I hope he will bring the Colonial Secretary with him.

Mr. Leather

I do not think I have ever been conducted from the depths of despair to the broad uplands of delight more artistically than my right hon. Friend the Chancellor of the Exchequer has conducted me in the last 15 minutes.

Mr. John Rankin (Glasgow, Govan)

Do not get emotional.

Mr. Leather

Why not? This is something about which a lot of us feel very emotional, My devotion to the cause of the Colonial Empire contains a large element of emotion, and I do not withdraw it even on behalf of Scotland.

This concession is something for which many people who are concerned in the development of the Colonies, on both sides of the Committee, and particularly the Colonial Governments, will be for ever in my right hon. Friend's debt. We are most grateful. This pledge could not have been more specific. All I can do is to say "Thank you" and beg to ask leave to withdraw the Motion.

Mr. Glenvil Hall (Colne Valley)

Before the hon. Member for Somerset, North (Mr. Leather) withdraws the Clause, may I say that although, like my hon. Friends on the Front Bench, I am duly grateful for the promise which the Chancellor of the Exchequer has made, I find the whole thing extremely unsatisfactory? What the right hon. Gentleman is doing is to promise that next year—and I should like an assurance that his promise goes for any successor who may occupy his place next year—he will introduce retrospective legislation, which all of us deplore and most of us dislike. It is an unsatisfactory situation and one which should never have arisen.

It is obvious that the Clause has been on the Order Paper for some time. The right hon. Gentleman must undoubtedly have had his attention drawn to it. He cannot have made up his mind about it this afternoon. If he has clone, it is a shocking situation for any Chancellor to be in. If he has been minded to accept the situation as it has been put this afternoon, he should not have left the matter in this way. Therefore, while being duly grateful for what the right hon. Gentleman will do next year, if he is then occupying the same position, I must register my protest at the way in which it is being done. It is another example of the shocking muddle in which the Chancellor leaves our affairs.

Mr. H. Macmillan

If I may say a word in reply to that very gracious speech, I do not think retrospective legislation is to be deplored so long as due notice is given of it. What has always been deplored is retrospective legislation that people did not know would happen. There are many precedents in the additional allowances and other such arrangements.

As regards my having accepted in spirit one of the new Clauses, I am bound to say, in view of the very large Order Paper, that if I am to be reprimanded for having accepted one suggestion, it would certainly fortify me in refusing all the rest.

Motion and Clause, by leave, withdrawn.