HC Deb 25 June 1956 vol 555 cc220-4

Where in the case of a number of bodies corporate to which this section applies one of those companies holds a stock of goods which have been acquired from another of those companies, it may value those goods at the same value as the company which sold those goods to it would have valued them if they had not been sold but had remained in the ownership of that company but were in the same condition and situation as they are at the accounting date of the first-named company. The difference between such value and the actual cost of the goods in their then condition and situation may either be deducted from the value of the stocks or carried to a reserve on the liability side of the balance-sheet and, in either event, may be deducted in arriving at the trading profit of the first-named company for the purposes of the income tax and the profits tax.

The companies to which this section applies are the companies referred to in section twenty-two of the Finance Act, 1937, as amended by section forty-two of the Finance Act, 1938, for certain purposes of the profits tax.—[Mr. Arbuthnot.]

Brought up, and read the First time.

Mr. Arbuthnot

I beg to move, That the Clause be read a Second time.

This is the last new Clause that my right hon. Friend the Chancellor proposes to take tonight. It is, in fact, one that is almost self-explanatory, so I do not propose, therefore, to take up more time than necessary.

We feel that the concession which is asked for in this Clause on stock valuation for inter-group sales is a subject which, in equity, merits close consideration and, I hope, acceptance by my right hon. Friend the Chancellor of the Exchequer.

Mr. Mitchison

I hope this Clause will not be read a Second time. I do not like the look of it a bit, and I hope that at this late hour we are not going to have a hasty acceptance of the whole Clause, or a hasty acceptance of the underlying spirit of the Clause, or even a promise to look at it again, or one of these postdated cheques to the effect that it will be brought in on the next Budget and antedated to this one.

My objection to the Clause is very simple. I cannot see what the purpose of it is. I have not been enlightened in that respect by the hon. Member for Dover (Mr. Arbuthnot). I think his brief must have run a bit short at that point. So far as it seems to do anything, it appears to encourage one company in a group to sell at a fictitious or unreal figure to another company in the group, and then to get some kind of fiscal absolution for this somewhat unnecessary process. That, I feel certain, is the voice of ignorance.

I shall, no doubt, be sat upon quite heavily by the Solicitor-General, but I thoroughly mistrust it, and this is not the sort of hour at which to sanction fictitious sales and give them the blessing of the Chancellor of the Exchequer.

The Solicitor-General

The advantage, perhaps, to the hon. and learned Gentleman the Member for Kettering (Mr. Mitchison) in what I am about to say is that before this topic next appears he will be able to refresh his memory of what the Millard Tucker Committee said about it and what hon. Members opposite when they were the Government said about a parallel matter in 1951.

I confess that I thought that both sides of the Committee would really be in agreement in supporting the principle which underlies the Millard Tucker recommendation, and perhaps this Clause. Certainly there are cogent arguments which may be advanced in favour of it, but I cannot deal with those now.

I would say, whether with regret or not, that there is one argument over-whelmingly cogent to any Chancellor of the Exchequer, and that is one which necessarily obliges my right hon. Friend to say that he could not accept this important new Clause now. It is the firm and savage argument of cost. It is difficult to estimate precisely what the cost of the new Clause would be. It involves a once-and-for-all loss to the Revenue and, making the best approximate estimate we can make, it is about £25 million, so that no one knowing the aspects of this Budget to which my right hon. Friend has drawn attention could for a moment suppose, whatever the merits of the proposal may be—not now to be discussed—that that is a loss to the Revenue which could be accepted this year. In view of the hour, I would say in answer to my hon. Friend that I do not now discuss the merits, but I should be compelled on that ground alone to advise the Committee not to accept the new Clause now.

Mr. H. Wilson

It is a great relief to hear from the Solicitor-General that the Government have managed to dig their heels in somewhere. There seems to be a tendency at about midnight for the Government to give way sometimes to rather dangerous-looking Amendments from their own side of the Committee. The £25 million seems to have been a conclusive argument with the Chancellor, and we can understand that. After all, he could have saved four or five hours of discussion earlier for the sake of, I think, £1¾ million. He was obdurate about that, and I am glad that he is being consistent now in not giving way on the £25 million in what appears to be an extremely dubious new Clause.

One of the big difficulties we are in when looking at Clauses such as this is that various hon. Members on both sides of the Committee, and right hon. Members on this side, have looked at the Millard Tucker Report or the Report of the Royal Commission and have produced an Amendment or new Clause to give effect to a particular proposal or recommendation in those Reports, or sometimes in the minority report of the Royal Commission. In many cases the Chancellor has refused to act, sometimes very much to our regret, but at a time when the Government are doing so little to bring forward recommendations based either on the Millard Tucker Report or the Report of the Royal Commission—with the exception of the special Millard Tucker Report on savings—of course—it would appear to us to be wrong for some of these quite small matters to be taken out of their context and given legislative effect.

The Chancellor will be aware that in the minority and majority Reports there are very long sections about the valuation of stocks, and there is a long appendix as well. The old and historical battle between "last in, first out" and "first in, first out," as they are known technically, is carried on at great length. It would be undesirable and wrong for the Government to accept so dubious a proposal without going very fully into the whole question of stock valuation, and particularly the "lifo" versus "fifo" argument. I tend to support the general Inland Revenue view on "lifo" and "fifo," but I should be out of order—or certainly I should not be very popular—if I were to embark on that at any length now. I am sure that the Solicitor-General was right to recommend the Committee to reject this new Clause.

Mr. Arbuthnot

If the hon. and learned Member for Kettering (Mr. Mitchison) would like it, I could go into great detail giving reasons for the new Clause, but I thought that hon. Members on both sides of the Committee knew the Report on which it was based so well and had studied it for so long that at a late hour like this it could be taken as read and everybody would realise what it was all about.

I should like to say how grateful I am to my hon. and learned Friend the Solicitor-General for the courteous terms in which he felt it necessary to turn down the new Clause. I hope that I would not be wrong in reading into what he said that, when the financial condition of the country is less stringent than it is today, my right hon. Friend the Chancellor of the Exchequer will find it possible in a later Budget to accept the new Clause. In view of what the Solicitor-General has said, I beg to ask leave to withdraw the Motion.

Motion and Clause, by leave, withdrawn.

To report Progress and ask leave to sit again.—[Mr. H. Macmillan.]

Committee report Progress; to sit again this day.