HC Deb 16 July 1957 vol 573 cc959-81
Mr. Mitchison

I beg to move, in page 28, line 8, at the end to insert: recognised market" means a market declared by an order of the Board of Trade for the time being in force to be a recognised market for the purposes of this part of this Act". This is a point about the recognised market, Sir Gordon, and perhaps it would be convenient to discuss with this Amendment the one to page 28, line 13, namely, in page 28, line 13, at the end to insert: (2) No order shall be made by the Board of Trade under the last foregoing subsection except with the consent of the Treasury and an order so made shall be in the form of a statutory instrument and subject to annulment by a resolution of the Commons House of Parliament.

The Deputy-Chairman

Is it suggested that the first three Amendments to the Clause be discussed together?

4.0 p.m.

Mr. Mitchison

The first Amendment in line 8 and the one in line 13 go together. The second Amendment in line 8 is an alternative form. I understood that we were to discuss the first alternative, that is to say, the first Amendment in line 8 and the Amendment in line 13. However, I can, of course, refer to the other as well, that is to say, to the Amendment in page 28, line 8, at the end to insert: recognised market" means a market declared by an order of the Board of Trade in the form of a statutory instrument, made with the consent of the Treasury, laid before Parliament and for the time being in force, to be a recognised market for the purposes of this Act".

The Deputy-Chairman

I think that it would be for the convenience of the Committee if all three were discussed together.

Mr. Mitchison

The first Amendment in line 8 and the Amendment in line 3 were moved earlier in Committee. I do not want to repeat too much of what was said then, but, of course, dealings on a recognised market are a very material factor in this part of the Bill and the Bill contains no definition of a recognised market.

If in error a company misconceives what is or what is not a recognised market, it may find itself disqualified accordingly. It is, therefore, important that the character of a recognised market should be made perfectly clear. What was suggested in Committee was that, having regard to the number of doubtful cases, the right course would be to give the Board of Trade power—and this is what the Amendment proposed—to declare what was and what was not a recognised market and to make Orders for that purpose. It was further suggested that if those Orders were made, they should be in the form of a Statutory Instrument laid before the House and subject to annulment in the usual way.

On that point, we had a very definite undertaking from the Government. I having moved the Amendment and given the reasons for it, the Economic Secretary to the Treasury said: I am grateful to the hon. and learned Gentleman for moving the Amendment. He has made a very reasonable point. I think that there should be some closer definition of what the term means. "Some closer definition" is a slightly odd way of putting it, because there is no definition in the Bill. He went on: We do not want to accept his actual form of words, but we should like to consider the matter further, before Report. It clearly is the duty of the Board of Trade to draw up the list, in consultation, of course, with the Treasury, Whether the device of a Statutory Instrument is rather too ponderous a one, I do not know, but if the hon. and learned Gentleman would be good enough to withdraw the Amendment, we will consider the matter and raise it again on Report. With that definite undertaking to raise the matter again on Report, my right hon. Friend the Member for Huyton (Mr. H. Wilson) also made a short speech and ended by saying: We welcome the fact that the Chancellor has made this small concession, and if it is the wish of the Committee, we shall be glad to withdraw the Amendment."—[OFFICIAL REPORT, 27th June, 1957; Vol. 572, c. 576–8.] I then thanked the Economic Secretary and formally asked leave to withdraw the Amendment.

This is a case in which the Government gave a quite definite undertaking to raise the matter again. I have been scanning the Notice Paper from day to day waiting for the Government Amendment which was to raise the matter again. There being no Government Amendment on the Notice Paper, I have come to the conclusion that the Government are to carry out the undertaking which they gave to the Committee by accepting the Amendment which we put forward. If the Government say, in view of the last two or three sentences of the Economic Secretary's statement, that they do not like the Amendment in line 13 and propose to accept only the Amendment at line 8, I should feel that they had sufficiently carried out their undertaking.

However, I am bound to say, in face of that very clear statement, since they have not raised the matter as they undertook to do, that the only conclusion I can draw consistent with their carrying out their pledge is that they will now accept the Amendment. I do not wish to repeat all the arguments which were raised earlier. They appealed to the Government at the time and, quick though the Government are to change their mind, I cannot but think that that which convinced them earlier should convince them if it is repeated at this stage; it therefore seems a pity to repeat it.

I emphasise once again the importance to the Revenue, on the one hand, and to the taxpayer, on the other, of having a definition of a phrase which, if it is misunderstood, will result in the disqualification of companies which ought to be qualified, and the qualification of companies which ought not to be qualified, and which will affect the character of their dealings in ordinary trade.

The remaining Amendment, the second in line 8, was put down as a compromise. It goes a little further than the first, but not quite as far as the other two taken together. It provides for declarations by the Board of Trade to be in the form of a Statutory Instrument, to be made with the consent of the Treasury—as no doubt it would be made, anyhow—and to be laid before Parliament, but it does not contain the power of annulment to which the Economic Secretary may have some objection.

I repeat, the Government are in honour bound in the circumstances of the case to accept the first of the Amendments or the second. I cannot see that they are in honour bound to accept the third, but that is a matter upon which we shall no doubt hear their considered views. If I refrain from the arguments which they found so convincing and accepted so cordially earlier, I do so only to save the time of the Committee, because I am sure that even the Government could not have changed their mind so quickly.

The Economic Secretary to the Treasury (Mr. Nigel Birch)

The hon. and learned Member for Kettering (Mr. Mitchison) has given an accurate account of what happened when we were debating this matter earlier. Moved by his usual eloquence, I made the remarks to which he has referred. We undertook to consider this matter and to think whether it was right to do something on Report. We have examined the matter with very great care since then and considered the various alternatives.

Mr. Mitchison

I am sorry to interrupt the right hon. Gentleman, but it is important that these pledges should be honoured. The pledge was that the Government would consider the matter and raise it again on Report. That is to say, it was not merely a pledge to consider whether they would raise it on Report, but a definite pledge to do so. We all understood from the right hon. Gentleman that it was merely a question of the form of words.

Mr. Birch

Of course, we knew that the matter would be raised again on Report—even if we did not raise it ourselves—because the Amendment was bound to be called. I am giving the reasons which prompted us to act as we did.

The object of this provision—which is in line with what the Royal Commission wanted—is to ensure that overseas trading corporations can sell primary products in this country through brokers in terminal markets in the ordinary way without thereby losing their overseas trading corporation status and, at the same time, being put into a position in which they can evade taxation in any way. They are by this means put in much the same position as a company resident abroad, who can be charged to tax in this country in the name of an agent or factor but in whose case, by the provisions of the Income Tax Acts, a bona fide broker does not count as an agent or factor and therefore cannot be charged to tax in that way.

The object of the provision is to put overseas trading corporations into a similar position. The question that arises is one of procedure, namely, who should be responsible for determining this matter? Should it be the Board of Trade or some other Ministry, or should it be the Inland Revenue?

One of the troubles of putting the matter entirely into the hands of the Board of Trade—and this was a point which had not occurred to me when I replied to the hon. and learned Gentleman in Committee—is that many commodities which would be principally affected by this provision are agricultural products, such as tea. They are the responsibility of the Ministry of Agriculture, Fisheries and Food, in which case the Board of Trade would not be a very suitable Department to pronounce upon them.

It was, therefore, thought that it would be better to leave the matter in the hands of the Commissioners of Inland Revenue, with an appeal to the General Commissioners. There are a number of precedents for defining what we mean in general terms and then leaving it to the Commissioners of Inland Revenue to decide. For example, the question of what is an educational establishment for the purposes of taxation is not defined in a list by the Ministry of Education; it is determined by the Commissioners, with an appeal to the General Commissioners. Another perfectly good precedent concerns the question of what, for tax purposes, is a bank carrying on a bona fide banking business. No list is drawn up by the Treasury and published in that case.

I do not think that the hon. and learned Gentleman is right in saying that it would put the companies at risk if there were no list, because if the mistake were a genuine one the company would be protected by Clause 29 (2). We feel that it is more in accordance with usual tax procedure to keep the Bill as it is, and we feel that the procedure will work and that no genuine difficulties will arise. Therefore, I must say, with much regret —and I should like personally to apologise to the hon. and learned Gentleman and to the Committee for going further in Committee than I ought to have gone—that after having considered the matter with very great care we have come to the conclusion that on the whole it is better to leave the provisions as they are.

Mr. Harold Wilson (Huyton)

The right hon. Gentleman should not apologise for having gone too far in Committee; he should apologise for not having gone far enough today. The answer which he has given is quite unsatisfactory, both as regards procedure and the policy question which is involved in the Amendment. Indeed, the more detail into which the right hon. Gentleman has gone in giving his reasons for rejecting the Amendment the more he has produced reasons why he should accept it.

I do not want to repeat all the arguments that we had in Committee; I want to deal with a particularly piffling and silly point which the right hon. Gentleman made towards the end of his speech. He said that some of these recognised markets are in food, and how could the Board of Trade know about markets in food? If he will consult the precedents he will see that what he has said does not add up at all. The Board of Trade does consult the Ministry of Agriculture, Fisheries and Food.

We know that the Cabinet is meeting this afternoon and that it is split on the question of postal charges, which is probably why the Chancellor is not here, but surely the Government have not reached the point where Ministers are not speaking to each other, and officials are not ringing each other up or sending letters to each other. If the right hon. Gentleman will look at the procedure followed in the case of the monopolies legislation he will find that the Board of Trade was given the clear responsibility and duty of referring cases to the Monopolies Commission, some of which cases were within the purview of other Departments.

4.15 p.m.

Tea is the sort of commodity which the right hon. Gentleman had in mind as being under the aegis of the Ministry of Agriculture, Fisheries and Food. That commodity was referred to the Monopolies Commission by the Board of Trade. I have no doubt that it consulted the appropriate Ministry before doing so. When I referred the question of dental goods to the Commission there were consultations with the Ministry of Health—but we were then on speaking terms with each other.

It is very silly for the right hon. Gentleman to say that the Board of Trade can be responsible only for the items which come within its field. If he were to face that point, on consideration he would find that that is not one of the statutory duties of the Board of Trade. The whole of the Companies Act responsibilities involve action in respect of companies which, so far as parent Department responsibilities are concerned, fall elsewhere. I hope that the right hon. Gentleman will not try to persuade the Committee upon these lines, and also that that argument has not entered into the final decision which seems to have been taken by the Treasury.

The question of procedure was mentioned by my hon. and learned Friend. We would have pressed the matter much further in Committee, but for what the right hon. Gentleman said. We all thought that the argument used by my hon. and learned Friend and supported by myself carried conviction on both sides of the Committee. Who knows what a recognised market is, and who will now decide? We should probably all agree that the reason for this formulation is to preclude the possibility of overseas trading corporations selling to associated organisations at prices which turn out to be unreal ones, for the purpose of tax evasion or avoidance. It is because of the difficulty of carrying out these provisions about armslength that this is necessary.

We agree with the right hon. Gentleman that if these overseas trading corporations sell to a recognised terminal market where neither the supplier nor the buyer has any predominant power to determine prices the price can be assumed to be a real and effective one for tax purposes. That is why it is said that the rubber market, the tin market and, so far as it exists, the raw cotton market, are real markets, and that whatever prices are quoted as being ruling prices they are the real ones and there cannot be any question of tax "fiddling."

That is all very clear, but there are these marginal cases which my hon. and learned Friend mentioned. He quoted the case of diamonds. Are they a recognised market? If the Bill is as clear as the right hon. Gentleman thinks, and if it does not require the Amendment, he should tell us whether diamonds are a recognised market for this purpose.

The right hon. Gentleman has muddied the waters considerably with his reference to recognised brokers, because that reference alters the whole position, as I am sure many of his hon. Friends will recognise.

Mr. Birch

The phrase "bona fide broker" is used in one of the Income Tax Acts.

Mr. Wilson

It may be that the phrase "bona fide broker," which is a usual phrase and appears in tax legislation, has different meanings in relation to one commodity market as distinct from another. When the right hon. Gentleman looks the matter up I think he will find that it means one thing in the case of some of these terminal markets, such as rubber, and another thing in relation to other markets. What about timber? I assume that that market was excluded as not being a recognised market. It is not a terminal market. There is no speculation, and no price is quoted each day. I think he will find that it will only confuse the issue if he talks about bona fide brokers in this way.

I mentioned in Committee the question of bulk buying, but no reference has been made to it this afternoon by the right hon. Gentleman. My right hon. Friend the Member for Smethwick (Mr. Gordon Walker) was taking part in that debate, and we welcome him back to the Committee from his wire-tapping activities. Both he and I made the point on that occasion. If the Government mean business about Commonwealth trade they will have to reintroduce bulk buying.

In the one case where it still continues, which, as the right hon. Gentleman knows, is that of jute, does the Jute Control, which is responsible for buying raw jute, constitute a recognised market or not? Will O.T.C.s be free to sell to the control, or will it be said that the control does not comprise bona fide brokers and that this is not a recognised market?

The right hon. Gentleman says that this point has been fully considered. Would he therefore tell us what is the position about bulk buying and Government trading under the Clause as he wants to see it, unamended by my right hon. and learned Friend's Amendment?

Sir John Barlow (Middleton and Prestwich)

Before my right hon. Friend answers those questions, may I put one or two questions to him very much on this point? It is easy to recognise the ordinary brokers in most commodity markets, but there are instances in which produce or minerals are sold in this country other than through the recognised brokers, and they may cause a little difficulty.

The question of selling tea has been mentioned. Most of the tea brought from abroad is sold to recognised brokers, but some is sold through merchants' in the ordinary course of events and not through technically recognised brokers. In some of the smaller markets, too, not only of produce but of minerals, where the trade is too small for there to be a recognised market and an official broker, the imports are disposed of through recognised merchants and not, technically, through brokers in any sense of the word.

I think it is the intention of the Economic Secretary that these usual methods of selling through brokers or merchants should be covered, but I hope that he will make the position a little clearer. The main point, I imagine, is that this produce is sold at arms' length to the best advantage in this country, whether it is technically through a recognised broker or through usual merchants through whom it has been sold for many years.

Mr. Birch

Replying, first, to my hon. Friend the Member for Middleton and Prestwich (Sir J. Barlow), I agree that many difficulties would arise in these cases, but the only way to solve them if there is no recognised market is to hive off that part of the business.

The right hon. Member for Huyton (Mr. H. Wilson) raised several points. I understand that in spite of bulk purchase the jute market would rank as a recognised market.

Mr. H. Wilson


Mr. Birch

Because it is a market which exists. The timber market would not so rank, because there is not a recognised market for timber. The Clause mentions "brokers in a recognised market." It does not refer to "a bona fide broker"; I quoted that phrase from another Act.

Mr. Mitchison

This is the most unsatisfactory answer which even this Government have produced throughout the Bill. They gave a perfectly clear undertaking, but they did not carry it out. I say no more about that, and I turn to the Economic Secretary's defence of what it is proposed to do.

What is his defence? First, there was this ridiculous point about tea. Tea was the very first example which I mentioned when I raised this subject in Committee. The right hon. Gentleman knows perfectly well that tea is not often grown in this country and that the activities of the Minister of Agriculture, Fisheries and Food in the matter of tea are, to say the least, somewhat limited. It is obviously a question for the Board of Trade.

What was the right hon. Gentleman's second argument? This seemed to me to be a complete misunderstanding of the difficulties to which he is putting people in this matter. He says that if a company makes a mistake, it is protected by Clause 29 (2), which refers to inadvertent acts, and in this way the company can be fished out of its difficulties. There are two points about that. First, it is not an inadvertent act. The company is selling jute or timber or whatever it is, and there is no question of inadvertence; the company is doing what it intends to do, except that it does not know what is and what is not a recognised market. It will not be the only company which does not know.

Suppose that company A gets out of its difficulties under the provisions of what I call the slip subsection. What about company B, company C and company D? Is the fact that company A has made a slip, in thinking that the market in timber was recognised when, in fact, it was not recognised, to be published and are we to have a list in the country of what are and what are not recognised markets? If we are, it seems to me a ridiculous and absurd way of giving effect to what ought to be a simple administrative matter; but if we are not to have such a list, then every other company in the trade will be in complete ignorance and they will all have to slip up one after another, or half of them will have to slip up one after another, and be rescued individually and separately under a Clause which was not intended to cover this point at all and, in fact, does not cover it properly.

The plain English of the matter is that when a Government are taxing people they ought to make it clear what taxes they are imposing, on whom and in what circumstances. In this case, the question of the liability of a company to tax in selling commodities of the kind which it produces in this country depends in part on what is and what is not a recognised market. The phrase is the Government's phrase. It is an extremely difficult phrase to understand, and if they intend to keep it in the Bill it is their business to make clear to the taxpayer and to the companies concerned what they mean by it.

Two or three examples have been given today. We could think of many—jute, timber, diamonds, copper, sherry, and half a hundred other commodities. These people are sincerely and properly carrying on their trade in these commodities in the City of London. What are they to do about this Clause? How do they know what the Government or the Commissioners or anybody else mean by recognised markets unless they are told in the Act which uses the phrase and imposes a liability which varies according to its meaning?

We have been told, "It is all right. Leave it all to the Commissioners of Inland Revenue". We have been told that the Board of Trade does not know enough about tea. How much more do the Commissioners know about tea than do the Board of Trade? I do not know what they will do. Will they consult all the Ministries concerned? Let us turn the right hon. Gentleman's point upon himself. If the Board of Trade is thought to be incapable of deciding what is a recognised market and what is not, by what singular virtue are the Commissioners of Inland Revenue qualified to do it? This is a piece of bureaucratic arrogance from that point of view, and from the point of view of legislation it is a case of a Government including a vague phrase in a Bill and leaving companies to take their chance on the meaning which may be given to it by people who have no particular qualifications to give it a meaning.

Commander C. E. M. Donaldson (Roxburgh, Selkirk and Peebles)

On a point of order. I have been in the Chamber for less than a minute, because the clock has not moved since I arrived. The hon. and learned Member for Kettering (Mr. Mitchison) has fixed his eyes on me and has concentrated his argument on me all that time. He has not been concentrating on the Government, to whom he should be addressing his remarks.

The Deputy-Chairman

Hon. Members should address their remarks to the Chair.

Mr. Mitchison

I am sorry, Sir Gordon. I can only assure the hon. and gallant Member for Roxburgh, Selkirk and Peebles (Commander Donaldson) that it was undoubtedly the unconscious attraction of his countenance which induced me to do it.

4.30 p.m.

Mr. H. Wilson

Is this matter to go unanswered by the right hon. Gentleman? The Bill uses the phrase, "recognised market". But it has no meaning in the English language unless we know by whom the market is recognised. The right hon. Gentleman says, "recognised by the Board of Inland Revenue", but the Bill does not say so.

This phrase could give rise to considerable litigation and there could be great uncertainty during the operation of the Act. One can imagine cases going before the Special Commissioners and to the High Court, all because of the right hon. Gentleman's laziness in not dealing with the point adequately. The whole Committee must bear the responsibility if the time of companies and of the Board of Inland Revenue is involved in litigation as the result of this slipshod drafting.

The right hon. Gentleman ought to be the first to realise that the phrase causes very great uncertainty. I have heard commodity traders say that they do not know whether they are covered by this phrase or not. The right hon. Gentleman did not answer any of the references made by my hon. and learned Friend the Member for Kettering (Mr. Mitchison) or myself to such markets as diamonds, shellac and some of the rather small, specialised markets.

I think that they would be called "recognised" markets in the sense that if we look at the excellent book by Sir Oscar Hobson, "How the City Works", we find a description of them and they therefore take their places on the map. Whether Sir Oscar Hobson is to be the authority on this matter or anyone else is a very arguable proposition. Is there a market in furs? There are auctions.

We are told that, in the end, the unfortunate inspectors of taxes will have to decide these matters for themselves. One of the curses of the Bill, as we have said many times, is that it places more responsibility on the tax inspectors, who have quite enough work to do and who

already, because of the unfortunate legislation which they have to operate, have to discharge far too much discretion in matters on which legislation should be clear. The Bill would put on them the responsibility of deciding what is and what is not a recognised market.

If the right hon. Gentleman goes on like this he will get a reputation rather similar to that already enjoyed by the Minister of Housing and Local Government, who wasted the time of the House earlier this afternoon for about half an hour because he could not accept a proposition which anyone in his senses would have accepted. But I should be out of order if I developed that point further.

By refusing to accept the Amendment, the right hon. Gentleman is creating great uncertainty, and unless he proposes to tell us that he will accept the Amendment or will, at the very least, publish for the benefit of the Committee and, possibly, for debate a clear list of what the Board of Inland Revenue will accept as recognisd markets, we shall have no alternative but to carry this Amendment to a Division. Hon. Gentlemen who have followed the debate, including the hon. and gallant Member for Roxburgh, Selkirk and Peebles (Commander Donaldson), who came into the Committee a few minutes ago, will recognise that on the merits of the case there is nothing in the Economic Secretary's argument at all.

Question put, That those words be there inserted:—

The Committee divided: Ayes 212, Noes 276.

Division No. 164.] AYES [4.34 p.m.
Ainsley, J. W. Brockway, A. F. Dalton, Rt. Hon. H.
Albu, A. H. Brown, Rt. Hon. George (Belper) Darling, George (Hillsborough)
Allaun, Frank (Salford, E.) Brown, Thomas (Ince) Davies, Ernest (Enfield, E.)
Allen, Scholefield (Crewe) Burke, W. A. Davies, Harold (Leek)
Awbery, S. S. Butler, Herbert (Hackney, C.) Davies, Stephen (Merthyr)
Bacon, Miss Alice Butler, Mrs. Joyce (Wood Green) Deer, G.
Bellenger, Rt. Hon. F.J. Callaghan, L. J. de Freitas, Geoffrey
Bence, C. R. (Dunbartonshire, E.) Carmichael, J. Dodds, N. N.
Benson, G. Castle, Mrs. B. A. Donnelly, D. L.
Beswick, Frank Champion, A. J. Dye, S.
Bevan, Rt. Hon. A. (Ebbw Vale) Chapman, W. D. Edelman, M.
Blackburn, F. Chetwynd, G. R. Edwards, Rt. Hon. John (Brighouse)
Blenkinsop, A. Clunie, J. Edwards, Rt. Hon. Ness (Caerphilly>
Blyton, W. R. Coldrick, W. Edwards, Robert (Bilston)
Boardman, H. Collick, P. H. (Birkenhead) Edwards, W. J. (Stepney)
Bottomley, Rt. Hon. A. G. Collins,V.J.(Shoreditch & Finsbury) Evans, Albert (Islington, S.W.)
Bowden, H. W. (Leicester, S.W.) Craddock, George (Bradford, S.) Fernyhough, E.
Bowles, F. G. Cronin, J. D. Finch, H. J.
Boyd, T. C. Crossman, R. H. S. Forman, J. C.
Braddock, Mrs. Elizabeth Cullen, Mrs. A. Fraser, Thomas (Hamilton)
Gaitskell, Rt. Hon. H. T. N. McKay, John (Wallsend) Shinwell, Rt. Hon. E.
George, Lady Megan Lloyd(Car'then) Macpherson, Malcolm (Stirling) Short, E. W.
Gibson, C. W. Mahon, Simon Shurmer, P. L. E.
Greenwood, Anthony Mallalieu, E. L. (Brigg) Silverman, Julius (Aston)
Grey, C. F. Mann, Mrs. Jean Silverman, Sydney (Nelson)
Griffiths, David (Rother Valley) Marquand, Rt. Hon. H. A. Simmons, C. J. (Brierley Hill)
Griffiths, Rt. Hon. James (Llanelly) Mason, Roy Skeffington, A. M.
Griffiths, William (Exchange) Mayhew, C. P. Slater, Mrs. H. (Stoke, N.)
Hale, Leslie Mellish, R. J. Slater, J. (Sedgefield)
Hall, Rt. Hn. Glenvil (Colne Valley) Messer, Sir F. Smith, Ellis (Stoke, S.)
Hamilton, W. W. Mikardo, Ian Sparks, J. A.
Hannan, W. Mitchison, G. R. Steele, T.
Harrison, J. (Nottingham, N.) Monslow, W. Stewart, Michael (Fulham)
Hastings, S. Moody, A. S. Stonehouse, John
Hayman, F. H. Morris, Percy (Swansea, W.) Strachey, Rt. Hon. J.
Healey, Denis Morrison, Rt. Hn. Herbert(Lewis'm,S.) Strauss, Rt. Hon. George (Vauxhall)
Henderson, Rt. Hn. A. (Rwly Regis) Mort, D. L. Stross, Dr. Barnett (Stoke-On-Trent, C.)
Herbison, Miss M. Moss, R. Summerskill, Rt. Hon. E.
Hobson, C. R. (Kelghley) Moyle, A. Swingler, S. T.
Holman, P. Mulley, F. W. Sylvester, G. O.
Holmes, Horace Noel-Baker, Rt. Hon. P. (Derby, S.) Taylor, Bernard (Mansfield)
Houghton, Douglas Oliver, G. H. Thomas, Iorwerth (Rhondda, W.)
Howell, Charles (Perry Barr) Orbach, M. Thomson, George (Dundee, E.)
Hoy, J. H. Oswald, T. Thornton, E.
Hubbard, T. F. Owen, W. J. Timmons, J.
Hughes, Emrys (S. Ayrshire) Padley, W. E. Tomney, F.
Hughes, Hector (Aberdeen, N.) Paget, R. T. Usborne, H. C.
Hunter, A. E. Paling, Rt. Hon. W. (Dearne Valley) Viant, S. P.
Hynd, H. (Accrington) Palmer, A. M. F. Weitzman, D.
Hynd, J. B. (Attercliffe) Pannell, Charles (Leeds, W.) Wells, Percy (Faversham)
Isaacs, Rt. Hon. G. A. Pargiter, G. A. Wells, William (Walsall, N.)
Jay, Rt. Hon. D. P. T. Parker, J. West, D. G.
Jeger, Mrs. Lena (Holbn & St. Pncs, S.) Parkin, B. T. Wheeldon, W. E.
Jenkins, Roy (Stechford) Paton, John White, Mrs. Eirene (E. Flint)
Johnson, James (Rugby) Pearson, A. White, Henry (Derbyshire, N.E.)
Johnston, Douglas (Paisley) Peart, T. F. Wigg, George
Jones, David (The Hartlepools) Pentland, N. Wilkins, W. A.
Jones, Elwyn (W. Ham, S.) Plummer, Sir Leslie Willey, Frederick
Jones, jack (Rotherham) Popplewell, E. Williams, Rev. Llywelyn (Ab'tillery)
Jones, J. Idwal (Wrexham) Prentice, R. E. Williams, Ronald (Wigan)
Jones, T. W. (Merioneth) Price, J. T. (Westhoughton) Williams, W. R. (Openshaw)
Kenyon, C. Probert, A. R. Willis, Eustace (Edinburgh, E.)
Key, Rt. Hon. C. W. Proctor, W. T. Wilson, Rt. Hon. Harold (Huyton)
King, Dr. H. M. Randall, H. E. Woodburn, Rt. Hon. A.
Lawson, G. M. Rankin, John Woof, R. E.
Lee, Frederick (Newton) Redhead, E. C. Yates, V. (Ladywood)
Lewis, Arthur Reid, William Younger, Rt. Hon. K.
Lipton, Marcus Rhodes, H.
Logan, D. G. Roberts, Albert (Normanton) TELLERS FOR THE AYES:
Mabon, Dr. J. Dickson Roberts, Goronwy (Caernarvon) Mr. J. Taylor and
MacColl, J. E. Robinson, Kenneth (St. Pancras, N.) Mr. G. H. R. Rogers.
McInnes, J. Ross, William
Agnew, Sir Peter Boyd-Carpenter, Rt. Hon. J. A. Dance, J. C. G.
Aitken, W. T. Braine, B. R. Davidson, Viscountess
Allan, R. A. (Paddington, S.) Braithwaite, Sir Albert (Harrow, W.) D'Avigdor-Goldsmid, Sir Henry
Alport, C. J. M. Brooke, Rt. Hon. Henry Deedes, W. F.
Arbuthnot, John Brooman-White, R. C. Digby, Simon Wingfield
Armstrong, C. W. Browne, J. Nixon (Craigton) Dodds-Parker, A. D.
Ashton, H. Bryan, P. Donaldson, Cmdr. C. E. McA.
Astor, Hon. J. J. Bullus, Wing Commander E. E. Doughty, C. J. A.
Atkins, H. E. Butcher, Sir Herbert Drayson, G. B.
Baldook, Lt.-Cmdr. J. M. Butler, Rt. Hn. R. A. (Saffron Walden) du Cann, E. D. L.
Baldwin, A. E. Campbell, Sir David Dugdale, Rt. Hn. Sir T. (Richmond)
Balniel, Lord Carr, Robert Duncan, Capt. J. A. L.
Barber, Anthony Gary, Sir Robert Duthie, W. S.
Barlow, Sir John Channon, Sir Henry Eden, J. B. (Bournemouth, West)
Barter, John Chichester-Clark, R. Elliot, Rt. Hon. W. E. (Kelvingrove)
Baxter, Sir Beverley Churchill, Rt. Hon. Sir Winston Elliott, R. W. (N'castle upon Tyne, N)
Beamish, Maj. Tufton Cole, Norman Emmet, Hon. Mrs. Evelyn
Bell, Ronald (Bucks, S.) Conant, Maj. Sir Roger Errington, Sir Eric
Bennett, F. M. (Torquay) Cooke, Robert Erroll, F. J.
Bennett, Dr. Reginald Cooper, A. E. Fell, A.
Bevins, J. R. (Toxteth) Cooper-Key, E. M. Finlay, Graeme
Bidgood, J. C. Cordeaux, Lt.-Col. J. K. Fisher, Nigel
Birch, Rt. Hon, Nigel Corfield, Capt, F. V. Fletcher-Cooke, C.
Bishop, F. P. Craddock, Beresford (Spelthorne) Fort, R.
Black, C. W. Crosthwaite-Eyre, Col. O. E. Fraser, Sir Ian (M'cmbe & Lonsdale)
Boothby, Sir Robert Crowder, Sir John (Finchley) Freeth, Denzil
Bossom, Sir Alfred Cunningham, Knox Galbraith, Hon. T. G. D.
Bowen, E. R. (Cardigan) Currie, G. B. H. Gammans, Lady
Garner-Evans, E. H. Kirk, P. M. Raikes, Sir Victor
George, J. C. (Pollok) Lagden, G. W. Ramsden, J. E.
Gibson-Watt, D. Lambert, Hon. G. Rawlinson, Peter
Glover, D. Lambton, Viscount Redmayne, M.
Glyn, Col. R. Lancaster, Col. C. G. Remnant, Hon. P.
Godber, J. B. Leather, E. H. C. Renton, D. L. M.
Gomme-Duncan, Col. Sir Alan Leavey, J. A. Ridsdale, J. E.
Goodhart, Philip Leburn, W. G. Robertson, Sir David
Gower, H. R. Logge-Bourke, Maj. E. A. H. Robinson, Sir Roland (Blackpool, S.)
Graham, sir Fergus Lindsay, Hon. James (Devon, N.) Rodgers, John (Sevenoaks)
Grant, W. (Woodside) Lindsay, Martin (Solihull) Roper, Sir Harold
Grant-Ferris, Wg Cdr. R. (Nantwich) Linstead, Sir H. N. Ropner, Col. Sir Leonard
Green, A. Lloyd, Maj. Sir Guy (Renfrew, E.) Russell, R. S.
Gresham Cooke, R. Longden, Gilbert Sandys, Rt. Hon. D.
Grimond, J. Low, Rt. Hon. A. R. W. Schofield, Lt.-Col. W.
Grimston, Hon. John (St. Albans) Lucas, Sir Jocelyn (Portsmouth, S.) Scott-Miller, Cmdr. R.
Grimston, Sir Robert (Westbury) Lucas-Tooth, Sir Hugh Sharples, R. C.
Hall, John (Wycombe) McAdden, S. J. Shepherd, William
Harris, Reader (Heston) Macdonald, Sir Peter Simon, J. E. S. (Middlesbrough, W.)
Harrison, A. B. C. (Maldon) Mackeson, Brig. Sir Harry Smithers, Peter (Winchester)
Harrison, Col. J. H. (Eye) Mackie, J. H. (Galloway) Smyth, Brig. Sir John (Norwood)
Harvey, Sir Arthur Vere (Maeclesfd) McLaughlin, Mrs. P. Spearman, Sir Alexander
Harvey, Ian (Harrow, E.) Maclay, Rt. Hon. John Speir, R. M.
Harvey, John (Walthamstow, E.) Maclean, Sir Fitzroy (Lancaster) Spence, H. R. (Aberdeen, W.)
Hay, John McLean, Neil (Inverness) Spens, Rt. Hn. Sir P. (Kens'gt'n, S.)
Heald, Rt. Hon. Sir Llonel Macmillan, Rt. Hn. Harold (Bromley) Stanley, Capt. Hon. Richard
Heath, Rt. Hon. E. R. G. Macpherson, Niall (Dumfries) Stevens, Geoffrey
Henderson, John (Cathcart) Maddan, Martin Steward, Harold (Stockport, S.)
Henderson-Stewart, Sir James Maitland, Cdr. J. F. W.(Horncastle) Steward, Sir William (Woolwich, W.)
Hesketh, R. F. Maitland, Hon. Patrick (Lanark) Stoddart-Scott, Col. Sir Malcolm
Hicks-Beach, Maj. W. W. Markham, Major Sir Frank Storey, S.
Hill, Rt. Hon. Charles (Luton) Marlowe, A. A. H. Taylor, Sir Charles (Eastbourne)
Hill, Mrs. E. (Wythenshawe) Marples, Rt. Hon. A. E. Taylor, William (Bradford, N.)
Hill, John (S. Norfolk) Marshall, Douglas Teeling, W.
Hinchingbrooke, Viscount Mathew, R. Temple, John M.
Hirst, Geoffrey Maude, Angus Thomas, Leslie (Canterbury)
Hope, Lord John Maudling, Rt. Hon. R. Thomas, P. J. M. (Conway)
Hornby, R. P. Maydon, Lt.-Comdr, S. L. C. Thompson, Kenneth (Walton)
Hornsby-Smith, Miss M. P. Milligan, Rt. Hon. W. R. Thompson, Lt.-Cdr. R. (Croydon, S.)
Horobin, Sir Ian Molson, Rt. Hon. Hugh Thorneycroft, Rt. Hon. P.
Horsbrugh, Rt. Hon. Dame Florence Moore, Sir Thomas Thornton-Kemsley, C. N.
Howard, John (Test) Mott-Radclyffe, Sir Charles Tilney, John (Wavertree)
Hudson, W. R. A. (Hull, N.) Nabarro, G. D. N. Turton, Rt. Hon. R. H.
Hughes Hallett, Vice-Admiral J. Nairn, D. L. S. Tweedsmuir, Lady
Hughes-Young, M. H. C. Nicholls, Harmar Vaughan-Morgan, J. K.
Hulbert, Sir Norman Nicholson, Godfrey (Farnham) Vickers, Miss Joan
Hurd, A. R. Nicolson, N. (B'n'm'th, E. & Chr'ch) Wade, D. W.
Hutchison, A. M. C. (Ed'burgh, S.) O'Neill, Hn. Phelim (Co. Antrim, N.) Wakefield, Edward (Derbyshire, W.)
Hutchison, Sir Ian Clark (E'b'gh, W.) Ormsby-Gore, Rt. Hon. W. D. Wakefield, Sir Wavell (St. M'lebone
Hutchison, Sir James (Scotstoun) Orr, Capt. L. P. S. Walker-Smith, Rt. Hon. Derek
Hyde, Montgomery Orr-Ewing, Charles Ian (Hendon, N.) Wall, Major Patrick
Hylton-Foster, Rt. Hon. Sir Harry Osborne, C. Ward, Rt. Hon. G. R. (Worcester)
Irvine, Bryant Godman (Rye) Page, R. G. Ward, Dame Irene (Tynemouth)
Jenkins, Robert (Dulwich) Pannell, N. A. (Kirkdale) Waterhouse, Capt. Rt. Hon. C.
Jennings, J. C. (Burton) Partridge, E. Watkinson, Rt. Hon. Harold
Jennings, Sir Roland (Hallam) Peyton, J. W. W. Whitelaw, W. S. I.
Johnson, Dr. Donald (Carlisle) Pickthorn, K. W. M. Williams, Paul (Sunderland, S.)
Johnson, Eric (Blackley) Pike, Miss Mervyn Williams, R. Dudley (Exeter)
Joseph, Sir Keith Pilkington, Capt. R. A. Wills, G. (Bridgwater)
Joynson-Hicks, Hon. Sir Lancelot Pitman, I. J. Wood, Hon. R.
Keegan, D. Pitt, Miss E. M. Woollam, John Victor
Kerby, capt. H. B. Powell, J. Enoch Yates, William (The Wrekin)
Kerr, Sir Hamilton Price, David (Eastleigh)
Kershaw, J. A. Price, Henry (Lewisham, W.) TELLERS FOR THE NOES:
Kimball, M. Prior-Palmer, Brig. O. L. Mr. Oakshott and Mr. Legh.
Mr. Mitchison

I beg to move, in page 28, line 20, after "companies", to insert: and to be a subsidiary of each of two, three or four other companies, if and so long as more than one-eighth of its ordinary capital is owned by each of those other companies and more than two-thirds thereof by those other companies together, in each case whether directly or through another company or partly directly and partly through another company or other companies". A subsidiary company is defined in the Bill at present as a company in which more than half the capital is held by the principal company. A great deal depends on this status; that is to say, the question whether a company is a subsidiary company or not is one of very considerable importance. We have been invited by the Financial Secretary, during the course of our discussions in Committee, to follow him through quite a family of overseas trade corporations. There were the children—the subsidiaries—the grandchildren, and there were uncles and aunts and heaven knows what in this family, and at one point I think the hon. Gentleman came to this conclusion.

I am now referring to the OFFICIAL REPORT for 27th June, at column 520, to a passage in which the Financial Secretary was explaining the effect of a proviso. I cannot do better than quote his own singularly lucid language. It consisted of two sentences, both models of their kind. Let me take them in order: So far we have been considering a nonresident shareholding company in an overseas trade corporation, but if that non-resident shareholding company were itself the subsidiary—let us say the mere puppet of a United Kingdom company—the practical effect would be that a United Kingdom company or a United Kingdom resident could be drawing the tax-exempt profits of an overseas trade corporation by drawing them through a nonresident shareholder. It is to prevent this method of avoidance that the case where the non-resident company is a subsidiary of the United Kingdom principal is ruled out. I then made some observations to the Financial Secretary and I suggested that two or three companies might combine to have a dummy company, and so, without having anything that was a subsidiary of any one of them under the Bill as it is at present drawn, they might, nevertheless, have something that was, in fact and in intention, a subsidiary of two or three of them. As I put it: … to combine, the three of them, and to put up a dummy between them, and they will get the benefit. I then said: I should like to know what is the answer to that. I expect that there is one. The Financial Secretary replied: I will certainly pursue that point"— [OFFICIAL REPORT, 27th June, 1957; Vol. 572, c. 520–1.] It was an engaging picture—the Financial Secretary pursuing the point—and he has been pursuing it ever since, because nothing whatever on this matter has appeared among the Government Amendments on the Notice Paper. I suppose that in the small hours of the morning, one finds the Financial Secretary running round St. James's Park pursuing this particularly elusive point. We are trying to help. At some stage or another he might catch it, and, accordingly, we have tabled this Amendment, the object of which is really quite a simple one, though I agree that it makes the sentence slightly more complicated.

4.45 p.m.

It is simply this. If two, three, or four companies have another company in which between them they own more than two-thirds of the capital, and, to eliminate the case of some small shareholder, each of them holds at least one-eighth of the capital, for the purposes of the Bill that company is to be treated as the subsidiary of each of them. I say at once, and I know that the Financial Secretary will agree with me here, that this is about as complicated a bit of legislation as any Government have ever produced, but—and here I know that the hon. Gentleman will not agree with me—it is about as full of holes as the average sieve.

I have been referring to that sieve several times, but this seems to be a rather large hole—this method of combining to form a subsidiary of two or three companies—and it presents intriguing possibilities when it is a sort of family conspiracy. To take the Financial Secretary's little family, perhaps uncles and nephews will combine to form a subsidiary between them. The relationship at this point really baffles the prohibited marriages notice that appears on church walls occasionally, but perhaps we need not go any further into that metaphor for fear of shocking unnecessarily those concerned with the collection and payment of taxes.

It is abundantly clear, and here I speak most seriously, that one of the easiest ways to get the benefit of this, and to go beyond what is the intention of the Committee and beyond the intention of the Government, is to have subsidiaries—a couple of companies combining to form a single company which will, in effect, act as a subsidiary of both of them. To meet that difficulty, to help the Financial Secretary to end his tiring chases at night and to catch at last the elusive point which he has been following for so long, we submit this Amendment.

Mr. Powell

This is the point which, on 27th June, as the hon. and learned Member for Kettering (Mr. Mitchison) has so literally reminded the Committee, I undertook to pursue. I agree with the hon. and learned Member that there is here, certainly in theory, the possibility of avoidance. Two or more United Kingdom companies might set up a milch cow, non-resident, company in order to draw the tax free trading profits of an overseas trade corporation.

I also agree with the hon. and learned Member that the only way in which that possibility could be dealt with would be by a quite elaborate extension for this purpose of the normal meaning of "subsidiary company." My advice to the Committee, having considered this, is that, although this theoretical possibility of avoidance exists, the danger—at any rate as so far advised—is not so serious as to involve the really extensive recasting which would be necessary if we were to include in the Bill such a redefinition of a subsidiary company. The Amendment might, indeed, serve the purpose in regard to Clause 25 which the hon. and learned Member had particularly in mind, but it would involve a drastic recasting of most of the other parts of the Bill where a subsidiary company appears in a quite different role and function.

I can assure the Committee that this is a possibility which the Inland Revenue will watch very carefully. It will be able to trace the payments made by overseas trade corporations to non-resident companies and will, in turn, be able to trace the receipts of resident United Kingdom companies from non-resident companies. Therefore, it will have the material in its hands for discovering whether this theoretical avoidance device becomes a practical one.

I can assure the Committee that should that be the case the Government would accept the necessity of dealing with it in subsequent legislation, but the danger does not at this stage appear to be so serious as to justify what, in effect, would be a recasting of the provisions of Part IV of the Bill wherever they affect relations between a subsidiary and a principal company.

Mr. H. Wilson

We all recognise the difficulties in which the Financial Secretary is placed. I must confess that my heart goes out to him in sympathy, having heard that he started pursuing the point, but, when half way round St. James's Park, it became a dummy and now, he tells us, it has become a milch cow.

Mr. Powell

There always was a mulch cow in St. James's Park.

Mr. Wilson

I did not know that Financial Secretaries were in the habit of chasing round St. James's Park in the middle of the night. To encourage the hon. Gentleman to run a little faster and to be more energetic in pursuit of this milch cow, I thought that we should give him some encouragement by dividing in favour of the Amendment, but he has made it clear that this point is very much in the minds of the Revenue which, therefore, will watch it.

The hon. Gentleman has produced a fair argument that this Amendment would entail a lot of consequential changes in other parts of the Bill. Therefore, I think that with a warning we might be prepared to let this go, but in doing so I would draw to his attention the warning given on a not very dissimilar question to a predecessor, the present Minister of Housing and Local Government.

The Committee may recall the autumn Budget of 1955 when, in the Finance Bill, there was an important Clause to deal with the question of dividend stripping. It was a very thoroughly drafted Clause and in the course of the debate on it I expressed a doubt whether an ingeniously minded gentleman might find a way round it. I asked that the Government should devise legislation to deal with that point more speedily. The right hon. Gentleman replied that certainly they would do so. If they found new measures were introduced for the purpose of avoiding that legislation, they would introduce retrospective legislation.

I understand that since then three new methods have been worked out for getting round the provisions in respect of dividend stripping, but none has been introduced because of the fear that the Government would introduce retrospective legislation. I hope that the warning that the Financial Secretary has just given, that the Inland Revenue will be watching whether people will "fiddle" their way round it, will be taken as a similar discouragement to setting up special tax arrangements, the kind of dummy companies to which my hon. and learned Friend referred, and that they will be stopped from doing so.

I will not press the hon. Gentleman now to give an assurance that any action introduced to deal with this matter will be retrospective, but I hope that he will bear that previous case in mind. I hope that the realisation that the Inland Revenue will deal with evasions of this kind might be as effective in the long run as if the Government had accepted the Amendment.

Mr. Mitchison

In view of what has been said, I beg to ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Clause ordered to stand part of the Bill.

Bill reported, with an Amendment; as amended (in Committee and on recommittal), considered.