HC Deb 27 June 1957 vol 572 cc525-35

9.0 p.m.

Mr. Powell

I beg to move, in page 21, line 12, at the end to insert: (3) Where in computing for the purposes of the profits tax the profits from a trade or business carried on by any person there is to be included a dividend or a part of a dividend which is to be so regarded as paid out of exempt trading income, then for the purposes of Part XIII of the Income Tax Not, 1952, as it applies for the allowance of credit against the profits tax such part, if any, of the taxes falling to be taken into account under the last foregoing section in the allowance of credit against income tax chargeable by reference to that exempt trading income as remains after the allowance of credit against that income tax shall be deemed to have been paid by that person in respect of profits of which the dividend, or the part of the dividend, represents the amount remaining after payment of the said part of the taxes.

The Deputy-Chairman (Major Sir William Anstruther-Gray)

This Amendment can be considered with the following Amendment to page 21, line 12, in the name of the hon. Member for Langstone (Mr. Stevens).

Mr. Powell

This Amendment deals with the case of a United Kingdom company which is not an overseas trade corporation and is a shareholder in an overseas trade corporation. In the normal case a United Kingdom company drawing dividends from a United Kingdom company trading overseas would get the benefit of credit for foreign tax both against Income Tax and against Profits Tax paid by the other company. Where, however, the United Kingdom company trading overseas is an overseas trade corporation, that overseas trade corporation is exempt by reason of the provisions of Part IV from Profits Tax, but the company drawing the dividend will have to pay the profits tax instead.

The effect, therefore, would be that apart from the Amendment the non-O.T.C. shareholding company would be unable to obtain credit against its Profits Tax for any foreign tax still outstanding after it had been applied against the Income Tax payable on the dividend by the overseas trade corporation. In other words, this is to enable a United Kingdom company which receives a dividend to be in the same position when it receives a dividend from an O.T.C. as it would have been had that company not been an overseas trade corporation. It still secures that there will be credit against United Kingdom Profits Tax for any outstanding foreign tax for which credit has not been allowed.

Mr. Mitchison

Not for the first time is Pelion put on Ossa, but in this case that seems to be logical. We do not necessarily accept the position about Profits Tax, but that will not really arise under this Amendment.

Mr. Stevens

I only rise to thank my hon. Friend the Financial Secretary. When I read the Bill there seemed quite clearly to be an anomaly here and I am grateful to his right hon. Friend and mine for recognising an anomaly and taking steps to put it right.

Amendment agreed to.

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

Mr. Jay

This is a rather important Clause which carries out the major reduction in Profits Tax which the Chancellor is making. I should like, briefly, to make clear why we on this side of the Committee still have some doubts about the main purpose of this Clause.

Hon. Members opposite have rather taken the line throughout these debates that the Chancellor is making some reduction in taxation of profits. They think any reduction in taxation of profits is a good thing and, therefore, are all in favour of it without inquiring too carefully into what he is doing. What he is really doing is to give this substantial concession of £35 million—a big part of which is through Profits Tax—to a certain group of companies, and just because he is deciding to give the concession in this way it follows that other companies and other taxpayers will have to pay more. I see the right hon. and learned Member for Kensington, South (Sir P. Spens) shaking his head. It is no good his doing that. As a matter of logic, unless this action in some other way increases the revenue available, and nobody has argued that it does, what I say must be true.

Sir P. Spens

That is the whole difference between us. All the way through our discussions right hon. and hon. Members opposite have assumed that no good whatever will follow from the increase in trade resulting from these Clauses. My hon. Friends and I take the view that a great deal of extra revenue will come. The argument of hon. Gentlemen opposite is a fallacy which has been put forward dozens of times.

Mr. Jay

The Chancellor makes the same assumptions as we do, because he has not allowed in his Budget for any increased revenue resulting from this change. The only logical assumption—

Sir P. Spens

It will not be immediate; it will come in the future.

Mr. Jay

—is that the Chancellor has taken a decision—it is legitimate if he thinks it is right—that this relief shall be concentrated in this way.

The Chancellor's argument, often repeated, is that it is necessary to put the firms trading overseas on a level with their competitors. Incidentally, he and the Financial Secretary have used a slightly different argument when we have asked who are the competitors. The Chancellor told us that they are foreign companies competing with British firms in these territories. The Financial Secretary told us that they are subsidiaries of British companies which are non-resident in the areas concerned. It is not quite the same argument, but no doubt the Chancellor could say that the British companies will be in competition with both.

I do not think that we have sufficiently carefully analysed what is supposed to be the competitive disadvantage from which British companies are at present suffering. It is alleged that they are paying higher taxation. That does not mean that their costs are not the same and that they are not selling at the same competitive price as the firms with which they are competing. So far as we know, and so far as the argument goes, they are on a level in terms of costs and prices. All that is alleged is that out of the profits made a rather larger share is taken by the British Exchequer than by the treasury authorities of other countries.

What this amounts to is an argument that these firms should be enabled to build up capital tax free and to finance their expansion by that method rather than by borrowing, subject to interest payments, from outside. I agree with the Chancellor that to this extent, if they are unable to expand interest free, they are at a disadvantage compared with competitors paying a much lower rate of taxation. What seems to us to he curious about the concession is that that argument could be applied equally well to a British firm manufacturing in this country and exporting all over the world in competition with all sorts of other companies. I think that the right hon. and learned Member for Kensington, South would agree that it could be used by a company manufacturing in the United Kingdom and competing here with goods imported from a firm in Japan, the United States or Germany.

Therefore, if the Chancellor's argument really is that it is unfair that a British firm should not be able to build up new capital interest free when its competitor is able to do so, it does not seem to me that that argument applies any more forcibly to the companies trading overseas in the same area as their competitors than it does to any British firm which is exporting or is competing with foreign firms in this country or anywhere else in the world. Therefore, I would have thought—and this is really our quarrel with the proposal—that if the Chancellor had decided that he had £35 million to give away—as the Lord Privy Seal used to say, but as the Chancellor now says we must not say—it would have been better and fairer to have concentrated the relief, or the assistance, or whatever it is called, over the whole field of industry which, by and large, is competing with foreign firms either in the home market or in exports in one part of the world or another.

I ask the Committee to recognise that what the Chancellor has decided to do is to concentrate the £35 million in this way on this rather narrowly, as it seems to me, and arbitrarily chosen group of firms. He could have taken another decision. He could have decided to use this relief to re-establish the investment allowance over the whole field of British industry. That would have had two advantages. First, it would have encouraged investment at home—which is something that we want—as well as investment abroad. Secondly, the investment allowance has the great merit over this other method that the Exchequer relinquishes revenue only when the firm actually carries out investment in new productive assets. If the Chancellor adopts the present method, a firm gets the relief even though it may use the undistributed profits to invest in securities and not in any expansion of productive capacity at all.

For both those reasons, I should have thought it could have been strongly argued that it would have been better to re-introduce the investment allowance rather than to take this rather special and arbitrary measure. It is for those reasons that we are still unconvinced—given that there was this sum of money to use as a stimulus or a shot in the arm, or whatever the Chancellor likes to call it, to British overseas trade—that this was the best and most economic use to make of it.

Mr. Birch

I do not think that I will follow the right hon. Gentleman the Member for Battersea, North (Mr. Jay) into all the various permutations and combinations of the way in which the money which is available for tax reliefs might have been used. He started his speech by saying that if this tax remission were made, other people would have to pay more, but what we have to look at is the difference between the short run and the long run.

Clearly, as was announced in the Budget, in the short-run this will cost money. We believe that, in the long run, it will bring money in. We are, as it were, casting our bread upon the waters, and we think that it will return to us after not too many days—

Mr. Jay

To complete that argument, could the right hon. Gentleman just tell us in what form this money is to flow back to the Exchequer?

Mr. Birch

It will flow back through the increase in our exports, as we believe, and the profits overseas which will, in the long run, be distributed here.

The right hon. Gentleman sought to show that there was a difference between my right hon. Friend the Chancellor and my hon. Friend the Financial Secretary as to whom the remission was enabling firms to compete with. Clearly, the answer is both, as he suggested. It will enable the British-registered company to compete better both with the foreign companies and with British companies registered overseas. As we have several times stated, one of the objects of the exercise is to retain companies registered here so far as we can, because we believe that in the long run—and in the short run, for that matter—it is better for our exports.

The right hon. Gentleman went on to cast some doubt on the proposition that the competitive power of these overseas trade corporations might be improved by the taxation reliefs they had. I must say that that was not the argument put in an earlier debate on the Free Trade Area. What is certainly true, as he went on to show, is that it does enable companies, as is the object, to build up their reserves more easily. Therefore, not in the short run but in the long run, it does enable them to compete more than they would otherwise do.

The right hon. Gentleman then introduced the argument again really, in effect, to say that it would be just as logical to remit taxation on companies operating here as on O.T.Cs. I do not think that that is altogether logical, because a foreign company working here is subject to British taxation. One is comparing like with like, the companies paying the same taxation. What we are seeking to do is to bring about a situation where a British registered company can compete on equal terms with companies abroad paying the taxation which obtains in those countries.

Mr. Jay

If a British company is exporting, for instance, to Italy, and selling there in competition with an Italian firm, and if the Italian firm is paying a lower level of taxation, could not exactly the same argument be used?

Mr. Birch

If I may say so, it is not quite the same thing. Of course, we have an efficient economy here, and it is perfectly true that we can export to countries with lower taxation; that is partly owing to the fact that we are a very highly organised country with very highly skilled labour, and so forth. What I was saying is that we are trying to compare like with like. If one is operating in a country in competition with other firms operating in that country, one ought to be on level terms with them.

Question put, That the Clause, as amended, stand part of the Bill:—

The Committee divided: Ayes 226, Noes 176.

Division No. 151.] AYES [9.17 p.m.
Agnew, Sir Peter Boyd-Carpenter, Rt. Hon. J. A. Dugdale, Rt. Hn. Sir T. (Richmond)
Aitken, W. T. Braine, B. R. Eden, J. B. (Bournemouth, West)
Allan, R. A. (Paddington, S.) Bullus, Wing Commander E. E. Elliott, R. W. (N'castle-on-Tyne, N.)
Amery, Julian (Preston, N.) Burden, F. F. A. Errington, Sir Eric
Amory, Rt. Hn. Heathcoat (Tiverton) Cary, Sir Robert Farey-Jones, F. W.
Arbuthnot, John Channon, Sir Henry Fell, A.
Armstrong, C. W. Chichester-Clark, R. Finlay, Graeme
Ashton, H. Clarke, Brig. Terence (Fortsmth, W.) Fletcher-Cooke, C.
Atkins, H. E. Cooke, Robert Foster, John
Baldock, Lt.-Cmdr. J. M. Cordeaux, Lt.-Col. J. K. Fraser, Sir Ian(M'cmbe & Lonsdale)
Baldwin, A. E. Corfield, Capt. F. V. Freeth, Denzil
Balniel, Lord Craddock, Beresford (Spelthorne) Gammans, Lady
Barber, Anthony Crowder, Sir John (Finchley) Garner-Evans, E. H.
Barlow, Sir John Crowder, Petre (Ruislip—Northwood) George, J. C. (Pollok)
Barter, John Cunningham, Knox Glover, D.
Baxter, Sir Beverley Currie, G. B. H. Gomme-Duncan, Col. Sir Alan
Bell, Philip (Bolton, E.) Danoe, J. C. G. Goodhart, Philip
Bell, Ronald (Bucks, S.) Davidson, Viscountess Gower, H. R.
Bidgood, J. C. Davies, Rt. Hon. Clement (Montgomery) Graham, Sir Fergus
Birch, Rt. Hon. Nigel D'Avigdor-Goldsmid, sir Henry Grant, W. (Woodside)
Bishop, F. P. Deedes, W. F. Grant-Ferris, Wg Cdr. R.(Nantwich)
Black, C. W. Dodds-Parker, A. D. Green, A.
Body, R. P. Doughty. C. J. A. Grimston, Sir Robert (Westbury)
Bossom, Sir Alfred Drayson G. B. Grosvenor, Lt.-Col. R. G.
Bowen, E. R. (Cardigan) du Cann, E. D. L. Gurden, Harold
Hall, John (Wycombe) Lindsay, Martin (Solihull) Renton, D. L. M.
Harris, Frederic (Croydon, N.W.) Lloyd, Maj. Sir Guy (Renfrew, E.) Ridsdale, J. E.
Harris, Reader (Heston) Lucas, P. B. (Brentford A Chiswick) Rippon, A. G. F.
Harrison, Col. J. H. (Eye) Lucas-Tooth, Sir Hugh Robinson, Sir Roland (Blackpool, S.)
Harvey, Sir Arthur Vere (Macclesfd) McAdden, S. J. Rodgers, John (Sevenoaks)
Harvey, John (Walthamstow, E.) Macdonald, Sir Peter Roper, Sir Harold
Heald, Rt. Hon. Sir Lionel Mackeson, Brig. Sir Harry Ropner, Col. Sir Leonard
Heath, Rt. Hon. E. R. G. Mackie, J. H. (Galloway) Russell, R. S.
Henderson, John (Cathcart) McLaughlin, Mrs. P. Schofield, Lt.-Col. W.
Henderson-Stewart, Sir James Maclean, Fitzroy (Lancaster) Scott-Miller, Cmdr. R.
Hesketh, R. F. McLean, Neil (Inverness) Sharples, R. C.
Hicks-Beach, Maj. W. W. Macleod, Rt. Hn. Iain (Enfield, W.) Shepherd, William
Hill, Rt. Hon. Charles (Luton) Macmillan, Maurice (Halifax) Simon, J. E. S. (Middlesbrough, W.)
Hill, Mrs. E. (Wythenshawe) Macpherson, Niall (Dumfries) Smithers, Peter (Winchester)
Hill, John (S. Norfolk) Maddan, Martin Smyth, Brig. Sir John (Norwood)
Hirst, Geoffrey Maitland, Cdr. J. F. W.(Horncastle) Spearman, Sir Alexander
Holland-Martin, C, J. Maitland, Hon. Patrick (Lanark) Spence, H. R. (Aberdeen, W.)
Holt, A. F. Manningham-Buller, Rt. Hn. Sir R. Spens, Rt. Hn. Sir P. (Kens'gt'n, S.)
Hope, Lord John Markham, Major Sir Frank Stanley, Capt. Hon. Richard
Hornby, R. P, Marshall, Douglas Stevens, Geoffrey
Hornsby-Smith, Miss M. P. Mathew, R. Steward, Harold (Stockport, S.)
Horobin, Sir Ian Maudling, Rt. Hon. R. Storey, S.
Howard, Hon. Greville (St. Ives) Mawby, R. L. Studholme, Sir Henry
Howard, John (Test) Maydon, Lt.-Comdr. S. L. C. Summers, Sir Spencer
Hudson, W. R. A. (Hull, N.) Milligan, Rt. Hon. W. R. Sumner, W. D. M. (Orpington)
Hughes Hallett, Vice-Admiral J. Mott-Radclyffe, Sir Charles Taylor, Sir Charles (Eastbourne)
Hughes-Young, M. H. C. Nabarro, G, D. N. Teeling, W.
Hurd, A. R. Neave, Airey Temple, John M.
Hutchison, Michael Clark (E'b'gh, S.) Nicolson, N. (B'n'm'th, E. & Chr'ch) Thomas, Leslie (Canterbury)
Hutchison, Sir Ian Clark (E'b'gh, W.) Nugent, G. R. H. Thompson, Kenneth (Walton)
Hutchison, Sir James (Scotstoun) Oakshott, H. D. Thompson, Lt.-Cdr. R. (Croydon, S.)
Hylton-Foster, Rt. Hon. Sir Harry Orr-Ewing, Charles Ian (Hendon, N.) Thorneycroft, Rt. Hon. P.
Iremonger, T. L. Osborne, C. Thornton-Kemsley, C. N.
Irvine, Bryant Godman (Rye) Page, R. G. Tilney, John (Wavertree)
Jenkins, Robert (Dulwich) Panned, N. A. (Kirkdale) Turton, Rt. Hon. R. H.
Jennings, J. C. (Burton) Partridge, E. Tweedsmuir, Lady
Johnson, Dr. Donald (Carlisle) Peyton, J. W. W. Vane, W. M. F.
Johnson, Eric (Blackley) Pickthorn, K. W. M. Vaughan-Morgan, J. K.
Joynson-Hicks, Hon. Sir Lancelot Pike, Miss Mervyn Vickers, Miss Joan
Keegan, D. Pilkington, Capt. R. A. Wade, D. W.
Kerby, Capt. H. B. Pitt, Miss E. M. Wakefield, Edward (Derbyshire, W.)
Kerr, Sir Hamilton Pott, H. P. Wall, Major Patrick
Kershaw, J. A. Powell, J. Enoch Ward, Rt. Hon. G. R. (Worcester)
Kimball, M. Price, Henry (Lewisham, W.) Ward, Dame Irene (Tynemouth)
Kirk, P. M. Profumo, J. D. Webbe, Sir H.
Lagden, G. W. Raikes, Sir Victor Whitelaw, W. S. I.
Leather, E. H. C. Ramsden, J. E. Williams, Paul (Sunderland)
Leavey, J. A. Rawlinson, Peter Wills, G. (Bridgwater)
Legge-Bourke, Maj. E. A. H. Redmayne, M. Woollam, John Victor
Legh, Hon. Peter (Petersfield) Rees-Davies, W. R. TELLERS FOR THE AYES:
Lindsay, Hon. James (Devon, N.) Remnant, Hon. P. Mr. Bryan and Mr. Brooman-White.
Ainsley, J. W. Corbet, Mrs. Freda Hamilton, W. W.
Allaun, Frank (Salford, E.) Cove, W. G. Hastings, S.
Allen, Arthur (Bosworth) Craddock, George (Bradford, S.) Hayman, F. H.
Allen, Scholefield (Crewe) Cronin, J. D. Healey, Denis
Awbery, S. S. Crossman, R. H. S. Henderson, Rt. Hn. A. (Rwly Regis)
Bacon, Miss Alice Davies, Harold (Leek) Hobson, C. R. (Keighley)
Baird, J. Deer, G. Holmes, Horace
Benn, Hn. Wedgwood (Bristol, S.E.) de Freitas, Geoffrey Houghton, Douglas
Benson, G. Delargy, H. J. Howell, Charles (Perry Barr)
Beswick, Frank Dodds, N. N. Hughes, Cledwyn (Anglesey)
Blackburn, F. Dugdale, Rt. Hn. John (W. Brmwch) Hughes, Emrys (S. Ayrshire)
Blenkinsop, A. Edelman, M. Hughes, Hector (Aberdeen, N.)
Blyton, W. R. Edwards, Rt. Hon. John (Brighouse) Hunter, A. E.
Boardman, H. Evans, Albert (Islington, S.W.) Hynd, H. (Accrington)
Bottomley, Rt. Hon. A. G. Fernyhough, E. Hynd, J. B. (Attercliffe)
Bowden, H. W. (Leicester, S. W.) Fienburgh, W. Irving, Sydney (Dartford)
Bowles, F. G. Fletcher, Eric Janner, B.
Boyd, T. C. Fraser, Thomas (Hamilton) Jay, Rt. Hon. D. P. T.
Brookway, A. F. Caitskell, Rt. Hon. H. T. N. Jeger, Mrs. Lena (Holbn & St. Pncs, S.)
Brown, Thomas (Ince) Gibson, C. W. Jenkins, Roy (Stechford)
Burton, Miss F. E. Gooch, E. G. Johnson, James (Rugby)
Champion, A. J. Gordon Walker, Rt. Hon. P. C. Jones, Rt. Hon. A. Creech (Wakefield)
Chapman, W. D. Greenwood, Anthony Jones, David (The Hartlepools)
Chetwynd, G. R. Grey, C. F. Jones, J. Idwal (Wrexham)
Clunie, J. Griffiths, David (Rother Valley) Jones, T. W. (Merioneth)
Coldrick, W. Griffiths, Rt. Hon. James (Llanelly) Kenyon, C.
Collick, P. H. (Birkenhead) Hale, Leslie Key, Rt. Hon. C. W.
Collins, V. J.(Shoreditch & Finsbury) Hall, Rt. Hon. Glenvil (Colne Valley) King, Dr. H. M.
Lawson, G. M. Padley, W. E. Stonehouse, John
Ledger, R. J. Palmer, A. M. F. Stones, W. (Consett)
Lee, Frederick (Newton) Pannell, Charles (Leeds, W.) Strachey, Rt. Hon. J.
Lee, Miss Jennie (Cannock) Parker, J. Swingler, S. T.
Lewis, Arthur Parkin, B. T. Sylvester, G. O.
Lindgren, G. S. Peart, T. F. Taylor, John (West Lothian)
Logan, D. G. Pentland, N. Thomson, George (Dundee, E.)
MacColl, J. E. Popplewell, E. Thornton, E.
McInnes, J. Prentice, R. E. Tomney, F.
McKay, John (Wallsend) Price, J. T. (Westhoughton) Ungoed-Thomas, Sir Lynn
MacMillan, M. K. (Western Isles) Price, Philips (Gloucestershire, W.) Viant, S. P.
MacPherson, Malcolm (Stirling) Probert, A. R. Warbey, W. N.
Mahon, Simon Proctor, W. T. Wells, Percy (Faversham)
Mallalieu, E. L. (Brigg) Pryde, D. J. West, D. G.
Mann, Mrs. Jean Randall, H. E. Wheeldon, W. E.
Marquand, Rt. Hon. H. A. Rankin, John White, Mrs. Eirene (E. Flint)
Mellish, R. J. Redhead, E. C, White, Henry (Derbyshire, N.E.)
Messer, Sir F. Rhodes, H. Wilcock, Group Capt. C. A. B.
Mikardo, Ian Roberts, Goronwy (Caernarvon) Wilkins, W. A.
Mitchison, G. R. Rogers, George (Kensington, N.) Willey, Frederick
Monslow, W. Ross, William Williams, Rev. Llywelyn (Ab'tillery)
Moody, A. S. Royle, C. Williams, Ronald (Wigan)
Morris, Percy (Swansea, W.) Short, E W. Williams, Rt. Hon. T. (Don Valley)
Moyle, A. Skeffington, A. M. Williams, W. R. (Openshaw)
Mulley, F. W. Slater, Mrs. H (Stoke, N.) Willis, Eustace (Edinburgh, E.)
Noel-Baker, Rt. Hon. P. (Derby, S.) Slater, J. (Sedgefield) Wilson, Rt. Hon. Harold (Huyton)
O'Brien, Sir Thomas Sorensen, R. W. Winterbottom, Richard
Oliver, G. H. Soskice, Rt. Hon. Sir Frank Woof, R. E.
Oram, A. E. Sparks, J. A. Yates, V. (Ladywood)
Orbach, M. Steele, T.
Oswald, T. Stewart, Michael (Fulham) TELLERS FOR THE NOES:
Mr. Pearson and Mr. Simmons.

Clause, as amended, ordered to stand part of the Bill.