HC Deb 01 July 1958 vol 590 cc1077-229

3.33 p.m.

Mr. Glenvil Hall (Colne Valley)

I beg to move, in page 14, line 27, after "applies", to insert: other than a business carried on by a building society".

The Chairman

This Amendment may be discussed with the third Amendment on page 3062 of the Notice Paper, in page 14, line 31, at the end to insert: Provided that, in relation to any trade or business carried on by a building society (being a society regulated by any of the Acts regulating building societies including Acts of the Parliament of Northern Ireland), this subsection shall have effect with the substitution of the words three per cent. for the words ten per cent., and with the second Amendment on page 3064, in page 14, line 40, at the end to insert: (4) For the purpose of this section "building society" means a society regulated by any of the Acts regulating building societies including Acts of the Parliament of Northern Ireland.

Mr. Glenvil Hall

This is an all-party Amendment, supported not only by those who have put their names to it but by a substantial number of hon. Members in all parts of the Committee. The object of the Amendment is to relieve building societies entirely from the incidence of Profits Tax. I would like to begin by reminding the Committee of the position as it was before the Budget was introduced.

Ordinary companies then paid 30 per cent. Profits Tax on profits which they distributed and only 3 per cent. on undistributed profits. The building societies paid Profits Tax at the rate of 2 per cent. As they do not distribute profits and, in fact, do not make any, it would appear, on the face of it, that they had the advantage of paying 1 per cent. less than ordinary companies.

The position has not been quite as good as that. In fact, building societies have laboured under the disability that, when they calculated what they had to base their Profits Tax payments upon, they have not been allowed to take into account the interest which they necessarily have to pay to their investors. The result has been catastrophic for building societies, in spite of the fact that they appear to have been paying 1 per cent. less than ordinary companies.

Perhaps I might be permitted to remind the Committee how building societies function. A building society borrows its money from investors, and, in turn, lends it to people who desire to buy their homes or other property. The money that building societies thus borrow is their raw material. Just as an ordinary company obtains materials on which it operates and afterwards sells at a profit, so, out of the loans which building societies receive, they not only lend to those who desire to purchase their houses, but have to lend it at a higher rate to provide a margin for costs of management, Income Tax and Profits Tax. They also have to provide for reserves. I need say very little about the costs of management, because it is common knowledge that the great majority of building societies are well run. They have to find money for staff, buildings, rent, rates and other incidentals and they provide for these things in a most economical and efficient way.

There is a feeling on the part of many people that buildings societies do not pay Income Tax. The idea arises because those who put money into the societies receive interest without deduction of tax. Except for Surtax, they are not accountable to the Revenue for what they receive as interest. This does not mean that Income Tax is not paid. What has been happening for some years is that the building societies compound with the Inland Revenue for a special rate of tax. This is of advantage to the building societies, and most certainly to the Inland Revenue.

It is well recognised that a substantial number of the people who put money into building societies are small savers, people who either are not liable to Income Tax or liable only at a reduced rate. As a result, every year someone on behalf of the Building Societies Association has a discussion with the Inland Revenue and an special rate of tax is arranged, taking all factors into account. I believe that the special rate recently has been 5s. 6d. A year or two earlier it was 5s. 4d. This arrangement is probably of more advantage to the Inland Revenue than to the building societies.

With other hon. Members, I have been going into the figures relating to these societies. I am informed by those capable of judging that the amount paid by them in Income Tax last year was, in round figures, £28 million. In addition to that, the societies had to pay Income Tax, of course, on their undistributed surpluses. During the same period, this has meant about an additional £6 million, making £34 million in all. Also, during the past year—as some of us think, quite unjustly—they have had to pay £2,300,000 in Profits Tax, making, in round figures, about £36 million.

As I have already reminded the Committee, Profits Tax up to now has not been levied on the net surplus—if hon. Members prefer to use the word "profits "I have no objection—but on the gross. In assessing themselves to Profits Tax, they have not been allowed to deduct the interest on what they have had to pay to those who invest moneys in them. I was startled to find, on looking at the figures, that if building societies had been assessed in the ordinary way and allowed to deduct the interest they had to pay to investors and if, in addition, they had been assessed at the 3 per cent. ordinary company rate instead of 2 per cent., they would have been many millions of pounds in pocket during the last few years.

If the Committee will bear with me, I will give the figures. In 1953–54, they paid £1,100,000, but if they had been assessed as ordinary companies they would have paid only £288,000. In 1954–55, they paid £1,290,000 instead of £317,000. In the following year they paid £1½ million instead of £322,000. In 1956–57, the figures were £1,900,000 instead of £350,000 and, in the year which has just been completed, they paid no less than £2,300,000 instead of £413,000. If these figures are added we find that in the last five years building societies have had to pay more than £8 million in Profits Tax, whereas, if they had been assessed as ordinary companies, they would have paid £1,690,000. The excess sum is over £6 million.

Last year, some of us raised this matter and were then informed by the Chancellor of the Exchequer of that time that it would be considered. The Treasury has considered it and, when he opened his Budget, the Chancellor made suggestions for a change. He has indicated, first, that in future building societies are to be permitted to deduct the interest they have paid on moneys borrowed from investors before liability for Profits Tax is computed. That, of course, is a long delayed act of justice and we accept it wholeheartedly.

This afternoon we have no intention whatever of asking the Chancellor to go back on that. But he has also changed the rate from 2 per cent. to 10 per cent., bringing it into line with the change he proposes for ordinary companies. Ordinary companies which have been paying 30 per cent. on distributed profits are now to pay only 10 per cent., whereas building societies, which perform a very real function in the State, have also to pay 10 per cent., an increase of 8 per cent. or, as someone said, a rise of 500 per cent. in all in one year.

3.45 p.m.

I imagine that the Chancellor has made a change so as to comply, as he thinks, with the recommendation of the Royal Commission on Taxation of Profits and Income. Reading what the Commission had to say about those societies, it is possible that he may have had ground for that contention, but I ask him to consider that when the Commission sat it took no evidence from building societies. They were not asked to express their point of view. It is my belief that if they had been so allowed they would have been able to convince the members of the Commission that to charge building societies the same rate as ordinary companies, when the flat rate to be charged is as much as 10 per cent., would be grossly unfair and unjust.

If the Chancellor had been so minded, he could have refused to accept the recommendation of the Commission so far as these societies are concerned when it advocated a flat rate for all, and we hope that before the debate is over we shall be able to convince the Chancellor that it is quite wrong to charge the full 10 per cent. Although we may have no objection to a flat rate for ordinary companies, it ought not to apply to building societies. We rest our case for not applying Profits Tax to them quite simply on the fact—it is a fact—that they do not make profits. Profits Tax should apply to profits, and in our view building societies do not make profits.

Building societies do not pay dividends, have no shareholders, and never give a bonus to those who invest money with them. In every way, they are a class apart, as the late Sir John Simon, as he then was, said more than twenty years ago. What he said then has been quoted many times and I will not weary the Committee now by repeating it. It has, however, been accepted all through this time that they were in a class apart and should not be confused with ordinary trading companies in any way. For more than sixty years building societies paid no Income Tax, much less Profits Tax, which did not then exist. It is only in relatively recent times that they have had to pay Income Tax and, more recently still, Profits Tax.

The most serious aspect of the matter, and one to which I would direct attention, is the effect which having to pay Profits Tax has on their reserves. Those reserves have gone down at a very time when, owing to the increase in total assets, they should have been increasing. In 1954, for example, building societies placed £6.8 million to reserve. In 1956, that amount had dropped to £6 million and in 1957 it had been reduced to £5.8 million. There was a continual drop.

Over the last five years the amount transferred to reserve has gone down from 7s. 2d. per cent. to 4s. 10d. per cent.; and this takes no account of the drop in gilt-edged securities, which has hit building societies very hard. The gilt-edged securities held by them have dropped in value by an amount equal to five-sixths of their net surplus in the last four years. There has been, in other words, a drop of £20 million in value during the last four years, which is only a little short of their whole net surplus for that period. It is a truly startling set of figures, and one which, I hope, will give the Chancellor thought.

The Financial Secretary to the Treasury, during the Second Reading debate on the Bill, said that the Treasury took the view that even at 10 per cent. building societies would in future, under the altered basis of computation, be £1 million better off. I say straight away that the societies do not accept that for one moment. Their computation, which is equally valid and, in some respects, probably a better one because they have complete access to all the necessary figures, is that the amount is nothing like that sum. Even if it were, the injustice still remains and they will still have to find, under the 10 per cent., £1,700,000 a year in addition to Income Tax and Profits Tax payments.

May I, quite shortly, sum up what I have been trying to say? This is not an easy case to put over, because it involves so many figures, but that there is a case, I can assure the Chancellor, and it is one at which, in all seriousness, he should look.

As we see it, building societies, by common consent, are in a category apart. They perform a useful and essential service to the community. They do not make profits. They do not pay dividends. They do pay their proper share of Income Tax—some might say, more than their proper share. Last year, they paid between them £34 million plus the £2,300,000, to which I have referred, by way of Profits Tax. I hope, too, that I have demonstrated quite clearly that the building societies in past years have paid many millions more than ordinary companies.

In Profits Tax alone, they paid over £6 million more than an ordinary company would have done during the last five years. They have, because of that, had great difficulties in building up their reserves. Their reserves are, quite frankly, not adequate to their assets. For every £1 retained by the societies, the Government took £6 in 1957–58. They have suffered as much as anybody from the depreciation of gilt-edged securities.

As I have already said—and I should like to remind the Committee of it again before I sit down—their securities of this kind have depreciated in value by five-sixths over the last four years, by no less a sum than £20 million in actual money. We are the only country in the world which taxes building societies in this way. The only other country which taxes them is the United States, and they do not attempt to tax a society until it has built up its reserves to at least 12 per cent.

I therefore hope that for all these reasons, which I think are sound, the Chancellor will be willing to view what I have said and by what will be said with more facility and force by other hon. Members who follow me, and will, before the debate is over, state his willingness to do something to meet us.

Mr. I. J. Pitman (Bath)

I have no interest at all in any building society; in fact, I have, if anything, a negative interest in this matter, so I feel fully justified in supporting someone who would be in competition with my other interests, because I believe this to be a fundamental and just cause. I think that the right hon. Gentleman the Member for Colne Valley (Mr. Glenvil Hall) has made out a very convincing case. I would like to fill in one or two of the gaps in support of his Amendment.

I think that we should get into perspective the size and importance to the community of building societies. They are lending, and therefore borrowing from other sources, as much as £370 million at any one time, to about 300,000 borrowers—a very worthwhile section of the community and one which, I am sure, this Committee and the nation would wish to support.

Undoubtedly, savings of all kinds are specially treated. We have the gamble which "Ernie" operates. There is no suggestion that savings got through that less reputable form of saving should pay Profits Tax. National Savings Certificates and some other forms of national savings do not pay Profits Tax in the process of discouraging savings. In other words, I think that we may claim that the building societies should be treated at any rate not worse than those other means of obtaining thrift in the country.

In essence, Profits Tax itself is bad because it taxes the enterprising owner. The people who supply the money, the landlords and others get their interest or rent without any Profits Tax being paid. The whole of the Profits Tax is paid by those people who are enterprising, so it is bad. It is bad particularly in the case of a building society where it falls on, as it were, a parent company, which has provided all the enterprise from which the 300,000 borrowers, who are building their own houses, benefit by that central enterprise and activity. I say that it is a thoroughly bad thing to discourage enterprise in that way.

The right hon. Gentleman drew attention to the astonishing way in which the surpluses in reserve have fallen. They have fallen progressively as the Profits Tax has taken bigger and bigger slices of the available surpluses. The other side of the picture, which the right hon. Gentleman painted, is that the ratio of the surpluses to the total assets of building societies was, in 1932, rather more than 100 per cent. better than it is today. In other words, as the result of this high rate of taxation which has come through Profits Tax, the building societies are operating on a more and more slender reserve of their capital which is tucked away.

4.0 p.m.

It is easy for a building society not to pay any tax at all under the provisions of the Bill, because it is easy not to have a surplus. If ever there were a proposal encouraging the profligate management of a building society it is a proposal which taxes only that part of the enterprise which forms the surplus put away into reserve. Is this not a definite encouragement to have no surplus by distributing all the money? What would be the outcry by hon. Members opposite if, in company taxation, the Chancellor said, "You will not pay any Profits Tax on what you have paid in dividend, but every penny which you retain in the business will be taxed at a penal rate?" The effect would be to encourage the maximum distribution and to ensure that not a single penny from the surplus was put to reserve.

Let us face it; if we are not allowed to build up reserves, because they are being taxed in this way, we shall not expand. Does not the Chancellor wish to encourage house purchase? Does he not wish to see more borrowers from the building societies building their own houses? If he does, how can there be more of them unless that borrowing is based on an increase in the reserves from the surpluses? Surely hon. Members on this side of the Committee would urge the Chancellor very strongly to make house purchase through these building societies more and more an expanding operation and not to penalise it and abolish it.

I deny that a surplus is the same thing as a profit. The other day my family bought a large case of Jaffa oranges. There was a surplus by reason of the quantity we bought. I do not regard that surplus as an addition to my income. I regard it as a reduction in my spending power. The hon. Member for Gloucester (Mr. Diamond) is a chartered accountant, and I am sure that he will agree with me that that is the correct way of looking at it and is the basis of our treatment of the dividends of co-operative societies. The same thing happens when the gas man calls to collect the money from the penny-in-the-slot or shilling-in-the-slot meter.

Mr. John Diamond (Gloucester)

Technically, I would regard any Jaffa orange as just as sweet under any other name.

Mr. Pitman

The principle is the same with the collections from a gas meter. If the meter is set so that one is charged more for the gas, then when the collector makes his calculations there is a "divi" of the amount which one has been overcharged. It is not an increase in income but a reduction in that which one would otherwise have spent, and it ought not to be taxed. On all these counts I strongly commend the Amendment to the Committee, because it would exempt building societies from Profits Tax.

Mr. Donald Wade (Huddersfield, West)

I want to support the Amendment moved by the right hon. Member for Colne Valley (Mr. Glenvil Hall). In the debates on this subject last year the Committee was faced with two issues—the proper method of assessing Profits Tax on building societies and the question whether building societies should be subject to this tax at all. No one attempted to justify the peculiar method of calculating the building societies' liability to tax at that time, and a large body of opinion from all parties took the view that building societies should be exempt from Profits Tax altogether.

The first issue no longer arises, because the anomaly has been removed by Clauses 20 and 21, but the more fundamental question, whether building societies should be subject to Profits Tax, remains. It is all the more serious in consequence of the raising of the rate from 2 per cent. for building societies to a flat rate of 10 per cent.

Before discussing the merits of the case I want to spend a few moments pointing out the distinctive character of building societies. We must face the fact that this is the first Amendment to the Clause and it may be—I put it no higher—that the Chancellor has considered the possible effect of granting exemptions to building societies upon his attitude to other claims which may be made on the subject of Profits Tax.

If, by granting exemption, the Government were opening the door to many other concessions, I could understand the Chancellor feeling some reluctance in granting the relief which is being asked, although I should not admit that the reluctance was justified. In fact, however, it is clear that the decision on this Amendment has no bearing on other claims which may or may not be made, because the circumstances are quite distinct.

I am aware that there are times when a powerful plea is made for relief and the Chancellor feels deterred from granting it because he fears that he may be setting a precedent which it will be difficult not to follow in some other cases. I believe that that problem does not arise today. The more one looks at the structure and functions of building societies the clearer it becomes that they stand in a class by themselves. That is important, in view of some of the other Amendments to the Clause.

For example, owing to the distinctive characteristics of building societies I think they must be regarded not only separately from commercial concerns and companies but also separately from the co-operative societies. If that were not the case, the Chancellor might find himself in some difficulty in granting relief to the building societies and perhaps not doing so to the same extent for the co-operative societies. Obviously, it would be inappropriate at this stage to go into the merits and demerits of the co-operative societies' claim for a concessional rate, and I do not wish to say anything which would in any way prejudice their case, but I think it is clear that the building societies and the co-operative societies must be regarded as belonging to different categories.

If one studies former debates it is clearly shown that Parliament recognised this distinction and that once or twice it was stated from the Treasury Bench. I have here several volumes of HANSARD, which I will not quote. It was set out very well by Sir John Simon on 7th July, 1937, and the HANSARD reference is column 466. The right hon. Member for Colne Valley may also remember making this distinction between building societies and other organisations, including the co-operative societies, on 16th July, 1947. The HANSARD reference is column 401. Other speakers in that debate emphasised the point, and I do not wish to elaborate it because I think it unnecessary to do so.

Building societies differ in a number of respects. For example, they are debarred by statute from trading and they are, therefore, not in competition with commercial concerns which are subject to Profits Tax. If I had to find an organisation with which they could be properly compared, I would suggest the Trustee Savings Banks. The fairest way of dealing with the problem is not to attempt to make comparisons, but to deal with the building societies' case on its own merits.

In doing so, there are several relevant factors. First, there are no equity shareholders in building societies. It is curious that when the right hon. Member for Bishop Auckland (Mr. Dalton) introduced the Profits Tax in 1947, he gave as one of his reasons the need for adding to the burden of equity shareholders, as opposed to the rentier class—this is from HANSARD of 15th April, 1947, column 85.

Mr. Hugh Dalton (Bishop Auckland)

Rough justice.

Mr. Wade

If that was the right hon. Gentleman's reason for introducing Profits Tax, it was somewhat illogical to impose the tax on building societies which have no equity shareholders. Perhaps he overlooked that point at that time.

Secondly, building societies do not make any profits and there are no persons to whom such profits could be paid if they were made. Perhaps it would be more appropriate to call this an appropriation of reserves tax.

Mr. Raymond Gower (Barry)

Could it not be argued that many of those points could be extended to mutual insurance offices?

Mr. Wade

I would rather study that before answering, but it may be that that is so.

Thirdly, although building societies pay an important part in encouraging thrift, they enjoy none of the concessions which other organisations in the savings movement enjoy. For example, there is no exemption from Income Tax on the first £15 of interest, as there is in the case of the Post Office Savings Bank, and building societies do not have the advantages enjoyed by life insurance offices.

Building societies are the one form of organisation in the savings movement which does not enjoy special concessions. It may be contended that although their main concern is to encourage thrift, building societies should make their contribution towards taxation; in other words, that they should not be altogether exempt from taxation. It is clear that they are not asking for that. They provide a considerable amount of revenue.

I do not wish to repeat the figures given by the right hon. Gentleman the Member for Colne Valley, but I will emphasise one or two. As hon. Members are aware, building societies account for the tax on the investors' interest and then they pay Income Tax on the undistributed surplus. Before 1932, they did not do that. In addition, they pay Profits Tax and what is left is added to the reserves.

In 1957–58, the amount of Income Tax which they paid on account of investors' interest was £28 million. The Income Tax on the undistributed surplus was £5,855,000 and the amounts of Profits Tax was £2,300,000, a total tax of £36,155,000. The amount added to reserves was £5,622,000. If Profits Tax had been calculated on the new basis and had applied to 1957–58, for the whole year, it would have been £1,400,000 and, added to the Income Tax on the undistributed surplus, that is a total of £7,255,000 as compared with reserves increased by £6,522,000.

Even under the new 10 per cent. arrangements, the amount provided in tax is substantially more than the amount available for reserves. In the current year, 1958–59, assuming that the 10 per cent. tax applied for the whole year, that would amount to £1,700,000 compared with the Profits Tax in 1956–57 of £1,900,000. It is clear that there is not much difference between the two amounts of Profits Tax, whether under the old or the new arrangement.

4.15 p.m.

If that were the only point and if the only complaint were that building societies were not gaining very much, I should be inclined to say that we should be thankful for small mercies and that we should leave it at that. However, that is not the most serious matter. The most serious conclusion to be drawn from the figures is that the ratio of reserves to total assets has been falling and will continue to fall. It has already fallen below 5 per cent., a very serious matter in view of the surplus put to reserves being offset in recent years by the depreciation of investments, a depreciation for which allowance cannot be given in calculating liability to tax.

Even if there had not been a depreciation, it would still be a matter for concern that the ratio should be falling. It is most important that building societies should have adequate reserves and that there should be a proper ratio of reserves to total assets. It is clear that the continued imposition of Profits Tax will make it more difficult to maintain adequate reserves.

It may be argued, if the tax is maintained, that it is up to the building societies to find some way of maintaining adequate reserves; in other words that they should put their own house in order. That is a fair argument at least worth examination, but the answer to it illuminating. What are the societies to do if the tax is maintained at the new flat rate of 10 per cent.? There are three possible courses. One is that the interest paid to depositors—those who invest their money either in shares or on deposit account—could be lowered. That is not practicable, because competition for savings is very keen.

In that respect, I call in aid the Paymaster-General himself. When I was speaking in the Finance Bill debate on 2nd July last year, I was pointing out that the rate offered by building societies was dependent upon factors over which they had no control. I said: On 17th May, when addressing the Building Societies' Association, the Paymaster General, after stating that savings are now derived from a large number of people who save in small quantities said: 'What must be the rôle of the building societies in all this? Clearly, one of your first and most important functions must be to continue to attract the savings of the people, and, to do that, you will have to pay the market rate'."—[OFFICIAL REPORT, 2nd July, 1957; Vol. 572, c. 937.] That is obviously correct, and we must, therefore, dismiss the idea of a reduction of interest to below the ruling rate. There can be no solution that way.

Another possible solution might be for building societies to increase mortgage rates, or to refrain from reducing them when prevailing rates fall. That is feasible, but it would hit all those who are buying or wish to buy their own houses through building societies. The question which arises is whether that is desirable, and I would say that it is certainly not.

There is a third possibility, and that is that the development of the building society movement should be curtailed. In this way it might be possible to prevent the ratio of reserves from falling. But that raises a very important question, namely, what is the Government's policy? Is it the policy of the Government to make it more difficult for people to buy their own houses? Is it Government policy to curtail the development of the building society movement? If it is, the retention of Profits Tax on building society services is logical, but if the policy of the Government is to facilitate home ownership and to allow the building society movement to grow, it seems difficult to justify the retention of this tax. That is the major issue before the Committee, and I hope that the Chancellor will see that it is resolved. It is relevant to observe that the removal of this tax would not be in any way inflationary.

The immediately practical issue facing the building societies is this: how much of the surplus which would otherwise be put to reserve will they be allowed to retain and invest in Government securities, and how much will be taken by the Exchequer? It is a curious anomaly that by imposing this tax the Exchequer is taking away from an important savings movement part of the money which would otherwise be invested in Government securities and is using it as expendable Government income. To refrain from doing that and to allow the building societies to maintain adequate reserves could not by any possible stretch of the imagination be regarded as inflationary. For those reasons, I hope that the Amendment will be accepted.

Mr. Cyril W. Black (Wimbledon)

I have on former occasions declared an interest in building societies, as a director of and a shareholder in one of the societies, but perhaps to put myself in order I should do so again.

When we had a discussion last year on the question of Profits Tax and building societies I was extremely critical of the system that then existed and had existed for some years past for the levying of Profits Tax on the surpluses of building societies. I took the occasion then to say some strong things about the attitude of the then Chancellor of the Exchequer. I think that whether Members of the Committee are wholly satisfied or not with what has been done, there should be a little more recognition than there has been so far of the very substantial degree to which the Government have met the point put forward a year ago.

I understand that there is some difference of opinion as to what the concession made by the Chancellor is worth in terms of money. I understand that the Financial Secretary has estimated that the concession made is worth in a full year £1 million to the building societies, whereas I am told that the Building Societies' Association estimates the figure at not more than £600,000. Be that as it may, whether the figure be £1 million or £600,000, this represents a very big step forward towards the meeting of the points that were put forward in the debate a year ago, and I think it would not be incorrect to say that this is probably the largest tax concession to the building societies ever made by any Chancellor of the Exchequer in any single year. It therefore seems right and fair that some credit should be given to the Government for the very considerable concession that they have already made.

I should also like to point out that the new method of charging Profits Tax is in line with what a great many of us asked for a year ago. I see that in our debate a year ago I said: If the Chancellor is not prepared to go the whole way"— that is to say, if he was not prepared to exempt the building societies completely from Profits Tax— he should at least concede the principle of allowing interest paid to investors to be brought in as a charge before arriving at a sum on which Profits Tax is based. That is precisely what the Chancellor of the Exchequer has done on this occasion.

It should also be said, in fairness to the Government, that what has been done is exactly in line with what the Chancellor of the Exchequer envisaged a year ago, because I find that in replying to the debate a year ago the then Chancellor of the Exchequer said: The Clause"— that is to say, the Clause to exempt building societies from Profits Tax— goes considerably wider than the recommendation of the Royal Commission and I am bound to say that in that wider form it could not in any circumstances be accepted. Nevertheless, there remains the narrower point whether the Profits Tax is charged on distribution as dealt with in the Commission's recommendation."—[OFFICIAL REPORT, 2nd July, 1957; Vol. 572, c. 946, 968.] What the present Chancellor of the Exchequer has done is exactly in line with what the then Chancellor of the Exchequer envisaged last year. What has been done also, as I understand it—

Mr. Donald Chapman (Birmingham, Northfield)

That is not quite the case, is it, in the sense that at that time we were not envisaging that this 2 per cent. rate would suddenly be raised to 10 per cent.? After all, when the Chancellor spoke last year we had no hint of that. The sort of concession that we were talking about was on the 2 per cent basis.

Mr. Black

The hon. Gentleman is not quite correct in saying that we had no hint of that, because I have a very distinct recollection that in the Profits Tax discussions last year a good deal was said about the possibility of amalgamating the two rates in accordance with the recommendation of the Royal Commission. That, I think, was very much in the minds of hon. Members.

It is a fact that the Royal Commission said: Accordingly, we recommend that only the retained profit should be taxed: at the flat rate if our proposals are accepted, or at the undistributed rate if Profits Tax continues in its present form.

Mr. Glenvil Hall

I understand that the hon. Gentleman is in favour of the same flat rate being charged both for trading concerns and building societies. Suppose, as is likely, that the flat rate should go up. How far up would the hon. Gentleman let it go before realising that it would bankrupt building societies?

Mr. Black

That is a hypothetical question. I think that it would be better to deal with the circumstances existing at the time rather than try to anticipate what one's attitude would be in completely unforeseeable circumstances. I am only saying that my own impression is that the Government are entitled to a good deal more credit for what they have done than they have so far received in the course of this discussion. In fact, what they have done is in accordance both with what was envisaged a year ago and with the recommendation of the Royal Commission.

What are the arguments in favour of complete exemption? I think that the main argument is that which is advanced in the Building Societies Association's circular which has been touched upon this afternoon, in which the statement is made … that building societies should not be treated as trading companies, but that account should be taken of the service they perform and of the slender margins on which their economical administration is based. That is rather in line with the argument, that has been developed both today and on other occasions, that building societies are not profit-earning organisations in the ordinary sense of the term.

4.30 p.m.

The difficulty about that argument is this. First, notwithstanding what has been said by previous speakers, if that contention were accepted, it would be very difficult to withhold a similar concession from other bodies, public utilities, and so on, which could, with some measure of justification, I think, make a claim similar to the claim being made on behalf of building societies.

Secondly, it seems to me that the argument either goes too far or does not go far enough. If it should be argued that because, so it is alleged, building societies are not profit-earning bodies and ought not, therefore, to be charged Profits Tax on what is sometimes called their surplus—if hon. Gentlemen prefer not to use the word "profits"—it is illogical that they should be required to pay the full standard rate of Income Tax on their undistributed surplus. If the surplus is of such a character that it ought not to be taxable, then it ought not to carry Income Tax either at the standard rate or at any rate.

Alternatively, if it is the kind of profit or surplus which ought to be liable to Income Tax, it seems to me that there is no case against applying Profits Tax to that surplus in exactly the same way as the standard rate of Income Tax has been applied to it for a great many years. Therefore, that particular argument either goes too far or it does not go far enough, and it cannot really be logically advanced unless, at the same time, one is prepared to deal with the application of the standard rate of Income Tax to the surplus.

I reach the conclusion that, on fiscal grounds, there is very little to be said in favour of the Amendment. What can be said in favour of it can be put on the broader grounds of national policy. If the Chancellor of the Exchequer feels, for instance, that he can spare the not large amount of money which would be involved by acceptance of the Amendment, on the ground that building societies, in the light of national policy, ought to be encouraged so that they can to the fullest possible extent encourage home ownership—it being an object of the Government to encourage home ownership—or, again on broader grounds, if the Chancellor feels that, to enable the building societies to strengthen their reserves, an exceptional concession of this kind can and should be made, those are wider matters which might possibly appeal to him.

On the more narrow fiscal issue, however, it seems to me that the case for the Amendment has not been and cannot be made out. Notwithstanding that I at once assure my right hon. Friend that, if on the broader grounds to which I have referred, he feels able to make a further concession, such a concession will commend itself to the building societies and, no doubt, to many hon. Members of this Committee.

Mr. Diamond

You were good enough to say, Sir Charles, that it would be in order to discuss the Amendment in page 14, line 31, which stands in the name of my hon. Friends and myself, to substitute 3 per cent. for 10 per cent. in relation to building societies. I rise, therefore, to address certain arguments relevant to that proposal. I want to make it perfectly clear that I am here to help the building societies by putting forward a proposal which conceivably the Government would accept as opposed to one which it is inconceivable for the Government to accept, namely, the one which has been discussed hitherto to exempt building societies from Profits Tax completely on what, if I may say so, are somewhat illogical and uncertain grounds.

There is only one limited problem involved here. Building societies differ from other similar organisations in that they do not distribute an amount varying with the profit or surplus which they make. That is the only difficulty which arises, and it arises in this first year because of the Government's decision to make a single rate of Profits Tax. Had it not been for that decision, there would have been no problem. Indeed, it is clear from the fact that, for the last twenty years, Parliament has decided that building societies should be taxed not as if they were ordinary businesses free to distribute sums varying according to their surplus or profits, whatever name is used. I make no distinction whether the term be "surplus", "profit" or any other name.

Whatever one says about the merit of the various proposals now being discussed, I think the whole Committee will agree that the proposal of the Government in the Bill as it now stands is quite untenable. All Governments have in the past made a distinction for building societies, acknowledging from the word "Go" that they did not distribute profits. A further distinction was made, having regard to the fact that the calculation of the profit or surplus of a building society was difficult, since its capital, if I may use that term, was derived in two ways, from deposits and members' shares, in varying proportions in different building societies. Because it would not be fair to all building societies to treat one or other of those factors as a deduction from profits, the decision was made to deduct neither in the calculation of profit but to allow instead a smaller rate of charge. One started off with a rate of, I think, 1½ per cent. as compared with a larger rate for other businesses.

Broadly—it is impossible to put it other than broadly—this arrangement has continued until the present day when, at this point at any rate, there is a 2 per cent. rate as compared with an undistributed profits charge of 3 per cent. for other businesses. This is really all we have to consider. Should the building societies which, for the last twenty years, have been recognised as carrying on a business which does not make a distribution to shareholders in the ordinary sense, varying with profits or surplus, now pay the same as every other business?

To say that building societies shall pay the same as every other business would be a complete denial of all the arguments of all Governments from 1937 up to date. I hope, therefore, the Government will realise that and appreciate that there are building societies and, indeed, other organisations in regard to which it would be appropriate—notwithstanding that we are bound to accept a flat rate of tax, because of the majorities at present ruling—to consider whether there should be a rate of tax similar to an undistributed profits rate had there still continued two rates. The only rate to which one can look at the moment is the last undistributed rate, namely, 3 per cent. It seems very reasonable, therefore, that the building societies should be called upon to pay 3 per cent. on their surplus, taking into account that they never distribute in the ordinary sense, this rate being in place of the 2 per cent., and they having had the corresponding advantage, which is referred to in the next Clause, of having their profits calculated on the more normal basis, the reason for the differentiation between 3 per cent. and 2 per cent. no longer being there.

If that were done, I should have thought that the building societies would have no complaint at all. It so happens that this year, even at 10 per cent., they will at any event be better off than under the previous Finance Act. In a simple case like this, I always prefer to split the difference and say that it is £800,000, and probably that is not very far wrong—that is to say, the building societies will be approximately £800,000 better off if the provisions in the Bill continue.

Mr. Glenvil Hall

The building societies' calculation makes it less than £500,000. Speaking from memory, I think their calculation is about £425,000.

Mr. Diamond

I am not speaking from memory and I hope, therefore, that my right hon. Friend will allow me to correct him. I have the document in front of me and, as the hon. Member for Wimbledon (Mr. Black) has said, it refers to £600,000 as opposed to the Government figure of £1 million. I prefer to split the difference and call it £800,000. However, I do not think this is a very important point. It just so happens that, even as the provisions in the Bill are at present drafted, building societies will have an advantage.

I think that that is a sufficient answer to the negligible case put forward time and time again about building societies and their reserves. One has often heard in this House arguments about various organisations not being able to afford a certain rate of Profits Tax or Income Tax because their reserves will not stand it. There are other ways of building up reserves than by reducing Profits Tax or Income Tax, and that is a matter which is left to the building societies. I should have thought that no building society director would be unwilling to say that he is prepared to stand on his own two feet and pay his fair share of Profits Tax in the same way as any other organisation.

Mr. Wade

I am very interested in the hon. Gentleman's remarks, but I should like to know by which method he thinks the reserve should be increased. Should it be by allowing less interest to those who lend, by charging more to those who borrow, or by reducing the amount of business carried on by the society?

Mr. Diamond

I hope that the Committee will not think me presumptuous when I say that usually when I am called upon to answer a question like that I precede it by considerable investigation at a considerable fee. In short, one does not talk out of one's hat. One does not make a suggestion in a matter of this kind without going into it fully.

We are talking about increasing the borrowing rate from 6 per cent. to 6.18 per cent. That is the difference between what the hon. Member for Huddersfield, West (Mr. Wade) and I are talking about—a difference of 3 per cent. which, if applied to a borrowing rate of 6 per cent., brings it to 6.18 per cent. It is proportionately so small as not to be arguable. It amounts to 7d. in the £, and no hon. Member who is not in daily control of a building society can hope to say how to save 7d. in the £, whether on overheads or managing director's salary. [Laughter.] I said salary, not travelling expense allowance. I have not doubt that it could be done without invading the principle of a fair rate of Profits Tax having regard to the nature of the organisation.

As will be seen from the Notice Paper, there are other similar organisations which it is hoped will also be dealt with at an appropriate rate of 3 per cent., and there is nothing fundamental to distinguish building societies from other organisations. Therefore, I hope that the Government will give sympathetic consideration to the needs of building societies in terms of paying a fair rate of Profits Tax. It would have been perfectly all right if we had not decided to have it combined.

If the Paymaster-General proposes to rely, as I hope he is not, on the Report of the Royal Commission, I hope he will consider that it dealt very shortly with the evidence on which it arrived at its conclusion. It dealt fairly fully with the history but has not given a single reason for coming to its conclusion that there being one rate a building society should pay that rate. The majority of the Royal Commission had blinkers on and were determined to have one rate of Profits Tax and paid no attention to the individual needs of organisations such as building societies.

I hope my right hon. Friend the Member for Colne Valley (Mr. Glenvil Hall) and others who have spoken on a slightly wider point will not misunderstand my motive in putting forward a proposal which I hope will be acceptable to the Government.

4.45 p.m.

Mr. Nigel Fisher (Surbiton)

Like my hon. Friend the Member for Wimbledon (Mr. Black), as a director of a building society I declare an interest, but, like him, I oppose the Amendment.

There are many arguments which can be, and, indeed, have been, advanced in support of the Amendment. I think that hon. Members on both sides who supported the Amendment have done so with moderation and ample justification. It is perfectly legitimate to say that building societies should not be treated as ordinary trading companies, because they are not trading companies. They are barred by statute from trade and commerce. They do not make profits in the ordinary sense, and we all know that. The whole purpose of their existence is to encourage thrift and to make possible home ownership for those who do not possess capital.

In doing that, building societies perform a public service of great social value, and I think that they perform it with a great sense of responsibility. It is a most remarkable thing that when they have been short of funds over the last few years, and especially during the last few months, the majority of them have refrained from increasing their interest rates to borrowers and have thus made a real contribution to stabilising the cost of living.

All these arguments in support of building societies and in support of the Amendment are fair and valid and make a very strong case for the consideration of my right hon. Friend the Paymaster-General. However, I cannot urge him to accept the Amendment this year. Last year, my hon. Friends and I appealed for one thing. Some of us, including myself, appealed forcefully—I expect my right hon. Friend the Patronage Secretary thought too forcefully—for the implementation of the Royal Commission on the Taxation of Profits and Income's recommendation that the interest paid to investors should be deducted before assessing Profits Tax. That was a perfectly logical principle.

Mr. Chapman

The hon. Member is still retreating from the first position that he established last year on Report, when I had to criticise him. If I may remind him of his own words, he said: In equity there is the strongest possible case for removing this tax from the building societies altogether."—[OFFICIAL REPORT, 2nd July, 1957; Vol. 572, c. 968.] In other words, it was not only for the half-way house that he was pleading.

Mr. Fisher

It was principally for the half-way house; but, in equity, I do not deny what I said last year.

As I have already said, I think that there is a great deal of justification for the Amendments, and I support them in principle, as I did last year. I shall explain why I do not support them in practice on this occasion. Those of us who wanted the Royal Commission's recommendations implemented last year raised a logical point. Due to our pressure on that occasion, the point has been conceded this year and I am grateful for that. If it had not been conceded, I could not have supported my right hon. Friend on this occasion.

If we ask for further concessions this year we must do so on a different basis and a different principle; the principle presumably being that building societies should have special treatment because of the special social value of their work. I am not fully persuaded that we ought to take that line this year. I should like briefly to explain why, and in doing so I shall try to answer the objection of the hon. Member for Birmingham, Northfield (Mr. Chapman).

Within the context of the limited amount of money there is for distribution, this Finance Bill has given some help to many people and to quite a lot of interests. Among others, it has given help to the wine trade, in respect of heavy wines; to the cinema industry, in respect of Entertainments Duty, and to many industries in respect of reductions in Purchase Tax. In no case, however, has the help been 100 per cent.

The interests concerned have not been given all that they asked for or wanted—it has been partial only—but, so far as I know, those interests that have benefited in some measure this year are not screaming for more. They are quite grateful for what they have got. The wine merchants appreciate, I think, the concessions made to them. I know that the refrigeration industry and countless other beneficiaries under the Purchase Tax reductions are grateful for what they have had this year, in the context of the present economic and financial climate.

The building societies have had help, too, and it may be thought a little ungracious to look a gift horse in the mouth. I do not want this great building society movement to lose public sympathy by seeming to be unreasonable or greedy. Of course, I understand why these Amendments have been put down, but I am inclined to accept the help we have had this year, to thank my right hon. Friend for it, and, next year, when, perhaps, there may be more money about, to try for a little more.

I therefore suggest that my right hon. Friend should reject this demand this year, but should look at the arguments more favourably again next year—[Interruption.] Well, he has done exactly that this year, following the representations we made last year. My right hon. Friend did not gainsay what my right hon. Friend the Member for Monmouth (Mr. P. Thorneycroft) promised on that occasion. If we ask him to look at it again next year, then, if there is more money about, if he has a little more room to manoeuvre, I am sure that, with the best will in the world, he will give us more help then, but I do not think that he should be asked to do so on this occasion.

Mr. Chapman

The Paymaster-General must think that he has a very easy job today, with his hon. Friend the Member for Wimbledon (Mr. Black), a pillar of the building society movement, damning all these Amendments with faint praise where he did not criticise them outright, and his hon. Friend the Member for Surbiton (Mr. Fisher) step by step retreating from the courageous position he took on 2nd July last year. He must feel that there is nothing left to buy off on his own side.

But if it is easy for the right hon. Gentleman to deal with those two of his hon. Friends who have taken up that attitude, it is extremely disappointing to us, and in very great contrast to the stand taken by his hon. Friend the Member for Bath (Mr. Pitman). The hon. Member for Surbiton has now reached the stage where, in the House of Commons, he is telling everyone not to ask for jam today, but to keep on asking for it tomorrow. I wonder whether he realises that people outside have that criticism of his own party; that it is never "jam today" but always "jam tomorrow"?

Mr. Fisher

But we have had jam today. We have had £600,000 worth of jam. It may not be so thickly spread as we would like, but I am grateful for the jam I have had today.

Mr. Chapman

The hon. Gentleman knows where he stood last year, and he knows how far he has now retreated.

Whether the argument now is for total abolition, or for the 3 per cent. as opposed to the 10 per cent. rate, there is one thing that has not been said today, and it is worth saying. If the right hon. Gentleman the Paymaster-General intends to use the argument of the Royal Commission, that argument being that these, after all, are profits, and that equity demands that all profits be taxed—which, I think, is a rough paraphrase of what the Royal Commission said—I would seek to show him how dangerous for him the use of that argument will be.

Paragraph 586 of the Royal Commission's Report says: The main principle that we would wish to see adopted is that the tax on the profits of corporations should apply to all profits without distinction between corporations. There was also the evidence of the Inland Revenue Department on this matter. The Inland Revenue Department said—and I should not be surprised if the right hon. Gentleman quotes it: Equity and efficient administration alike require that profits should be taxed simply as profits, without regard to extraneous considerations. Last year, however, the Government made a complete breach in the equity case when they proceeded to exempt from both Profits and Income Tax the overseas' trade corporations. They then said that the arguments about equity can be breached where national considerations make it appropriate. That, in fact, was what happened last year. This principle of equity, which many of us rehearsed in the debates on the overseas trade corporations, was firmly breached, and, time and time again, the Government's justification for it was that this principle could not be held as a matter of sanctity. They said, "Where it should be breached in the national interest, let us breach it," and then proceeded to do so.

Moreover, if the Paymaster-General is to quote the Royal Commission today in favour of this non-exemption of anybody from Profits Tax, equally, I can quote back at him paragraph 691 of the Commission's Report, which strongly criticised the exemption of overseas trade corporations from Profits Tax. When it suits the right hon. Gentleman, he follows the words of the Royal Commission; when it does not suit him then, of course, he proceeds to disagree with it. That is the dangerous position that he will be in today. The case was given away last year, when it was said that where it was appropriate to break this rule of equity the Chancellor should break it.

If that is so, the arguments advanced by my right hon. Friend the Member for Colne Valley (Mr. Glenvil Hall) and by other hon. Members in support of either of these Amendments are very appropriate indeed. Here, surely, is a case where there must be some breach with equity, whether it be total abolition or a reduction to 3 per cent. The reasons have been given. There is the fact that the building societies are not traders; that there are no distributed or undistributed profits in the accepted sense of the term; that they are analogous to trustee savings banks in that they lend roughly half of their surplus to local authorities and half to the Government. In that sense, they are very analogous indeed to trustee savings banks.

There was said to be a case last year for saying that our export needs demanded that we should exempt overseas trade corporations from Profits Tax, and the Government went so far as to include Income Tax as well. Well, there is certainly the need to encourage the solution of this other great problem in our community: savings—and the resultant investment—are needed just as badly as exports. Therefore, however we look at it, there is a case for doing at least something for the building society movement.

The disappointing thing today has been that the position of people like my right hon. Friend the Member for Colne Valley and others of my hon. Friends, and the position of the hon. Member for Bath has been greatly prejudiced today by the hon. Members for Wimbledon and for Surbiton. It is most disappointing. There is a strong case here; and I hope that it will be noted in the building society movement that those two Members at least have come here and have quite simply said that their own building society case does not exist.

As the hon. Member for Wimbledon was not here when I first said it, but is now present, I will repeat that when he was not outrightly criticising he was damning with faint praise the case for the building societies. It is the more disappointing because those two hon. Members have thus given the right hon. Gentleman exactly the assurance he needs that this year there will be no revolt from behind him.

5.0 p.m.

The Paymaster-General (Mr. Reginald Maudling)

In this debate on the Amendment moved by the right hon. Gentleman the Member for Colne Valley (Mr. Glenvil Hall), supported by Members on both sides of the Committee, much has been said quite unanimously about the great benefit which building societies are to our society. Just in passing I would observe that it has not always been thus. I remember at least one distinguished right hon. Gentleman on the Opposition Front Bench who used to talk about them as money lenders. Be that as it may, we accept within the context of this discussion today that every one is agreed that the building societies do perform a great service in our community.

Where I would depart from the argument of the hon. Member for Huddersfield, West (Mr. Wade) is that I do not think one can proceed from that to say, as I think he said, that if we want to see the building society movement grow we cannot possibly retain this Tax. It does not seem to me to be a logical argument that because we approve of something and want to see it grow we should not tax it, because there would be precious few industrial activities in this country which would be taxed if we went upon that principle. I thought there was a slight lacuna in the argument, though I recognise the spirit in which it was advanced.

Mr. Wade

Will the right hon. Gentleman accept this, which I think is a fact, that as the building society movement expands the problem of the ratio of reserves to total assets becomes more serious? It may be set right in one of three ways, by removal of Profits Tax, or by paying less to those who lend, or by charging more to those who borrow. There are no other ways, and I would rather see it done by removal of Profits Tax.

Mr. Maudling

I may be a poor mathematician, but I cannot see how internal expansion can alter the ratio.

The history of this tax and how it has developed was referred to by several hon. Members, by the right hon. Member for Colne Valley and by the hon. Member for Gloucester (Mr. Diamond) and others. I think it is worth pointing out that the Royal Commission on the Taxation of Profits and Income in paragraph 576 said: We have been unable to extract any firm principle from these varying arrangements or from the final result. As a method of imposing tax they seem to us to be somewhat lacking in dignity. I think that is, perhaps, an unusual phrase, but I think we would all agree that there is a lot to be said against the arrangements which have been made in the past. What is being proposed, what was recommended by the Royal Commission and what this Finance Bill would enact, is a complete and radical change in the whole basis of Profits Tax.

I think I might stress this because it is, I am afraid, in one form or another a principle which will underlie the answer one will be giving to other Amendments of a similar character. Up to now Profits Tax has really been a dividends tax, a tax on distributions, with a non-distribution relief provision. The purpose now is to change that and to make it a tax on profits, which is what it is called and which in future it is intended to be.

This is really what was argued in paragraph 562 of the Royal Commission's Report, to which reference has been made and which I will read to the Committee, because it is a paragraph which the Government accept and which seems to us to be the basis upon which all these matters can be accepted. The Royal Commission said: The main principle that we wish to see adopted is that a tax on the profits of corporations should apply to all profits without distinction between corporations the ownership of which is vested in the State and other corporations, or between corporations formed to serve public purposes and those formed to serve private purposes. It seems to us that only by an impartial distribution of the tax whenever and wherever profits are found can there be a fair balancing of costs and prices between the public and private sectors of industry and commerce. We feel that with Profits Tax there is a good close analogy with the Income Tax, a point made by my hon. Friend the Member for Wimbledon (Mr. Black). A lot of the arguments which have been advanced today for exempting these building societies from Profits Tax could equally well be advanced for exempting them from Income Tax.

That is the answer to the ingenious point made by the hon. Member for Birmingham, Northfield (Mr. Chapman) about oversea trading corporations. It is quite clear that there is a distinction between treating differently companies operating outside the country and companies operating inside the country, and it is that which is involved in overseas trading corporations, and treating on a different basis two companies both operating inside the country. Therefore I cannot accept the hon. Member's argument, ingenious as it was.

The other thing that the Royal Commission said is in paragraph 577. The Commission was impressed by the general resemblance of the interest on building societies' shares to the 'dividend' of industrial and provident societies. Not, of course, the rebate on purchase—there was a confusion here in the mind of the building societies in their letter—but the dividend of co-operative societies. The Royal Commission says: In truth, both are more akin to interest on deposit account and as such should be deducted in arriving at the balance to be taxed. Accordingly we recommend that only the retained profit should be taxed: at the flat rate if our proposals are accepted, or at the undistributed rate if profits tax continues in its present form. Echoing what my hon. Friend the Member for Wimbledon said, it was clearly envisaged last year in the course of the discussion on the unification of Profits Tax that that was likely to take place. [HON. MEMBERS: "Oh."] That was what the Royal Commission recommended.

Mr. Harold Wilson (Huyton)

Would the right hon. Gentleman give chapter and verse for that assertion? We debated building societies twice, in Committee and on Report, and I remember that many aspects of industrial taxation were discussed, but I do not recall any Minister making any statement last year to suggest that in this year's Budget there was a likelihood of amalgamating the two rates. Indeed, the whole practice of the Chancellor's predecessors was to widen the gap between the distributed and the undistributed rates, not to suggest moving towards the elimination of the gap.

Mr. Maudling

I think that if the Chancellor last year had suggested what would be in this year's Budget he might have been open to a certain amount of criticism from the other side.

What I was saying was that there was a proposal made by this Royal Commission, of which the Committee was perfectly well aware, that Profits Tax should be unified, and everyone who has read the financial Press, or public comment at the time and since then, has known that this was a possibility which the Government were considering. Of course everyone was. [Interruption.] I think it undeniable. If the right hon. Gentleman will study HANSARD, I think he will have difficulty in discovering any discrepancy.

We have, I think, therefore carried out faithfully the recommendation of the Royal Commission, and we do recognise that building societies are different from trading companies. This, I think, is the point made by the hon. Member for Gloucester, who said they were different from trading companies in that they did not distribute their varying returns to their shareholders. Exactly for that reason payment on share holdings will be deducted before Profits Tax is computed, as the Royal Commission recommended. In this way we are recognising the special nature of building societies, and in the way which the Royal Commission recommended, and in the way which is the only logical way.

Mr. Diamond

The figure of 10 per cent. is suggested, which the Government are putting forward, and it is suggested that that is doing rough justice or is a fair average between 3 per cent. on undistributed and 30 per cent. on distributed. How can that average apply to an organisation like a building society which never distributes?

Mr. Maudling

That is not the point I am making. The point I am making is that we have recognised the special nature of the interest of building societies' share holdings and the difference between that interest and the dividends paid on equity share holdings.

We cannot go further and accept the argument that all their profits are not profits. We may call them profits, or we may prefer to call them a surplus on their business activity, but these societies are in the business of lending money on security and the surplus which accrues to them must surely be regarded as profit. If it is not profit I cannot imagine what it is.

With respect to my hon. Friend the Member for Bath (Mr. Pitman), I think there is a complete difference between a surplus left in one's pocket after a trading operation in which one has engaged and the discount one may get for quantity if one is buying oranges. I cannot accept any substantial argument there, with deep respect to my hon. Friend.

Equally, I cannot accept fully my hon. Friend's argument about the importance of giving special treatment to savings. It is perfectly true that building societies perform an immense service by collecting savings and employing them in building houses, but all equity investment is the result of savings. All investment in British industry is the result of savings. It is very difficult to argue strongly for giving better treatment to savings invested in houses than to those invested in machinery or exports. Therefore, I find it difficult to carry my hon Friend's argument to the conclusion which he desires.

It is also not wise to draw an analogy between the building societies and the National Savings movement of which they are not part. The purpose of the National Savings movement is to accumulate funds and then lend them to the Government. A much better analogy is between building societies and investment trusts which borrow money and lend it again. The purpose of the building societies is to borrow money—an admirable thing—and to lend money, which is equally admirable. If in the process of doing that they retain a surplus, I cannot see how it can be described as other than profits. It should be taxed for Profits Tax just as it is already taxed for Income Tax purposes.

The argument about the effect on the reserves of the building societies is a serious one which we must consider, but I feel that it was largely answered by the arguments of my hon. Friend the Member for Wimbledon and the hon. Member for Gloucester. In last year's debate, my hon. Friend the Member for Wimbledon gave an analysis of what happened to every £6 of mortgage interest received, that figure being convenient at the time because of the then 6 per cent. rate of interest. Of that sum £3 10s. went in interest to depositors, £1 14s. went in tax (of which only 2s. was Profits Tax) and 11s. in management expenses, and 5s. were available for reserves. The Chancellor's proposals this year will reduce the Profits Tax liability to slightly more than 1s. On the basis of these figures it is difficult to argue that the retention of Profits Tax, even at 10 per cent., taking into account the effect on building society finances, is preventing the building societies from building reserves of the type which they want and which they certainly ought to build up.

The hon. Member for Huddersfield, West gave certain reasons why building societies were different from other corporations. I have dealt with the analogy with the National Savings movement. The hon. Member also said that there were no equity shareholders, but that point is completely covered by the fact that we treat interest upon shares in building societies as loan interest and not equity interest. Therefore, the analogy is right because loan interest paid by companies is offset for Profits Tax purposes, and it will be in the future in the case of building societies. The Government, therefore, feel that they have done something this year which helps the building societies.

I am glad that it is recognised as such, although I have seen reports of the societies saying, no doubt with great justice, that they were entitled to this in equity and therefore it is not a concession. Indeed, it is a great mistake for Governments to talk about a tax relief as a concession, as though the money returned to the taxpayer was not the taxpayer's money in the first place. We feel that we have given considerable help to building societies and, in following faithfully the recommendations of the Royal Commission, have placed the taxation of the societies on a logical basis.

The arguments which I have advanced against exempting them entirely seems to me equally strong against taxing them 3 per cent. rather than 10 per cent. I see no strong argument why they should be taxed 3 per cent. rather than 10 per cent. These moneys are or are not profits. If they are profits, they should be taxed. If they are not profits, they should be exempted.

Mr. Diamond

But the right hon. Gentleman is proposing 10 per cent., which is an average between 3 per cent. on undistributed profits and 30 per cent. on distributed profits. He has fixed that sum because it is an average, but in the building societies there is no distribution and no non-distribution and no average. It is all one. Therefore, we say that the tax should be 3 per cent.

Mr. Maudling

The logic of that argument would be to take a different average in each industry, because of the difference in the ratio between distribution and non-distribution of profits. We have fixed a level of Profits Tax, based on what existed before, and a level which I hope will come down in the future and not go up as has been suggested by some hon. Members opposite. Having decided on the level, the question is whether we apply that level generally or give exemption to some people. Without in any way disagreeing with what has been said about the importance of the building societies and the contribution which they make to the national life, the Government feel that to accept the Amendments would be contrary to good taxation policy and to the general interest.

5.15 p.m.

Mr. H. Wilson

The Paymaster-General seemed very confident when he spoke to that part of his brief which dealt with the building societies, but when he came to the wider subjects he seemed to be "all over the shop". The burden of the right hon. Gentleman's argument was that the 10 per cent. flat rate for Profits Tax is a good thing, that everyone must realise that it is a good thing, that it always has been a good thing, and obviously has been good ever since the Royal Commission reported on the matter in June, 1955. It followed from that, according to the right hon. Gentleman, that it was wise and right for the Government to do what they proposed to do in relation to the building societies.

The right hon. Gentleman will find as the evening wears on that a large proportion of hon. Members do not agree at all that the Government have taken the right decision by unifying the two rates of Profits Tax. So far from there having been, as he suggested quite clearly, a movement on the part of recent Chancellors towards this unification, the right hon. Gentleman will find that the movement has been in the opposite direction. I do not want to anticipate future debates today. Much as the Paymaster-General seems to have been allowed to do so, Mr. Blackburn, I do not think it would be convenient for me to follow him, but he will find that when we come to debate these questions he will be reminded of statements made by previous Conservative Chancellors in the past three or four years who have widened the disparity between the rates and have rejected the proposal for unification. That was clearly the view of the Lord Privy Seal in the autumn Budget of 1955, and there are many others on record.

The right hon. Gentleman is therefore quite wrong to base his argument on the unification of the rates. He was also quite wrong, in his quotation from the Royal Commission's Report to suggest that the change in taxing building societies could be done only when we had unification.

Mr. Maudling

The right hon. Gentleman asked where reference was made to this matter last year. On 2nd July, 1957, the then Financial Secretary to the Treasury said of this recommendation: … that recommendation is one of a whole important complex relating to Profits Tax generally on which my right hon. Friend the Chancellor of the Exchequer has not reached his conclusions as a whole and from which he believes it would be wrong to separate a single change in Profits Tax to be made in isolation and separately from any conclusions which may be reached on the whole of those recommendations."—[OFFICIAL REPORT, 2nd July, 1957; Vol. 572, c. 955.] Therefore, it is quite clear that it was said at the time that this matter was under consideration.

Mr. Wilson

It was clearly said that he would not look at the building societies apart from the co-operatives and others subject to Profits Tax, but there was no hint given at all that the Chancellor was likely to move towards unification of the rates.

I said a moment ago that the Paymaster-General was wrong to suggest that it was impossible or difficult or anomalous for the Government to alter the basis of assessment of the building societies until there was this unification of the rates, because it was quite clear from the quotation which the right hon. Gentleman actually made from the Royal Commission's Report that the Commission said that it should be based on what might be called the true surplus, after allowance for the money borrowed, but the Commission went on to say that the rate should be the lower rate if a dual rate was imposed or a flat rate if a single rate was imposed. Therefore, it is no answer to link these two together. If the Government had decided not to unify and yet alter the basis of assessment a year ago, it would have been quite appropriate.

Today's debate has been an interesting one, though I think it has been rather less packed with drama than the two we had a year ago. A year ago there was the debate during the Committee stage, initiated by the hon. Member for Huddersfield, West (Mr. Wade), on which there was no Division. Then there was a further debate, initiated by hon. Members on this side of the Chamber on Report, on which there was a Division. On those two occasions we heard many of the arguments which have been put forward forcefully this afternoon strongly supported by the hon. Member for Wimbledon (Mr. Black) and the hon. Member for Surbiton (Mr. Fisher), who seemed to be singing a rather different tune this afternoon.

Since those two hon. Members are the only ones in any part of the Committee who declared an interest because, apparently, they are connected with building society management, I am bound to say that some of us seem to have been wasting our time reading the memoranda circulated by the Building Societies Association on this point, because when the matter came to debate the only two hon. Members who took a view different from the Building Societies Association were those who earn their bread, and perhaps other things too, by serving the building societies. Whether their societies are members of the Building Societies Association, or whether, perhaps by mischance, the association assumed that these two hon. Members knew the case and did not circulate the document to them, I do not know.

I remember many years ago when a prominent building society director, Sir Eugene Ramsden, stood as a Conservative candidate in Huddersfield or Colne Valley—I am not sure which. I remember hearing a very loyal Tory voter in that area say that he was not going to vote for Sir Eugene because he, the voter, had some money in the building society and he wanted Sir, Eugene to look after it for him and not be in Parliament.

Mr. Black

Is the right hon. Gentleman's contention that hon. Members should act as spokesmen for vested interests rather than do what they believe to be right in the interests of the nation as a whole?

Mr. Wilson

No, Sir. I welcome this independence of vested interest, but I would be a little happier and prepared to tolerate the hon. Gentleman speaking right along the building societies' line if he had shown his independence by voting for us on the Rent Act last year. I agree with the hon. Gentleman that any hon. Member who has an interest to declare should not necessarily support that interest. I entirely welcome independence of that kind, and I hope that the hon. Gentleman will go much further in that direction on much more important subjects

As for declaring an interest myself, I suppose that I should say to the Committee that I am buying a house through a building society which in God's good time and that of my grandchildren will, no doubt, belong to my family. I do not know.

Mr. F. M. Bennett (Torquay)

It will be municipalised by then.

Mr. Wilson

I never expect any intelligence from the hon. Member for Torquay (Mr. Bennett). Indeed, he has got worse since he left Reading. If he wants to refer to that policy document he will see that it does not apply to the owner occupier, a point which he would never begin to understand.

The arguments used by my right hon. Friend the Member for Colne Valley (Mr. Glenvil Hall) were extremely cogent, and, of course, the debate has been narrowed by the fact that there is now no longer any contention about the question of the assessment of the true surplus for tax purposes. We welcome what the Government have done in that respect. We pressed them to do it a year ago, but they did not do so. It is quite clear now that they could have accepted a year ago the Amendment dealing with the matter at that time because by doing so no anomaly would have been created.

As between the two Amendments which have been put forward, I think that my hon. Friend the Member for Gloucester (Mr. Diamond) put forward an extremely good argument for saying that there is a very strong case for a 3 per cent. tax. I very much regret that the Paymaster-General should have brought into the argument the whole question of the unification of rates. As a result of his doing so, I must very strongly support what my hon. Friend the Member for Gloucester said and say that where there are these organisations, be they building societies or not, or others which we shall be debating later this evening, which have not been distributing dividends either because they are statutorily prevented from doing so or are prevented by the nature of their constitution from doing so, there is a very strong case for limiting the Profits Tax rate to the 3 per cent. which they always paid before the Government came along with this proposal for 10 per cent.

In last year's debate on building societies some of us made an additional point. We said that the argument for more favourable treatment rested not only on the argument for thrift, for home ownership, the problem about the surplus and the problem about who would have to build up the surplus, whether it be the borrowers, the lenders or whoever it might be. We also said that there was a great deal to be said for the fact that here we have part of the economy where there can be no trading in shares or in the equity, where there is no buying and selling, but where anyone who wants to participate in a building society can do so by buying shares direct from the society itself, and where there is no speculation, no trading in shares, no gambling and no capital gain.

Since a great part of the argument about the distinction between undistributed and distributed profits tax relates to the question of capital gain, as will be seen by reading the minority Report of the Royal Commission, there is a strong case for giving encouragement to the trading and financial part of the economy where there is no dealing in shares or any possibility of capital gain.

I said last year that I hoped the Government would not merely accept the arguments put forward on building societies, but would extend them and provide for a wider range of the economy where the shares could only be sold back to the company or bought from the company at par to be subject to a differential Profits Tax. I am sorry that the Government, far from accepting that proposal, have come forward with the proposal for the unification of Profits Tax which we shall be debating on the subsequent Amendment.

Question put, That those words be there inserted:—

The Committee proceeded to a Division: but no Member being willing to act as Teller for the Ayes, The CHAIRMAN declared that the Noes had it.

5.30 p.m.

Mr. G. R. Mitchison (Kettering)

I beg to move, in page 14, line 31, at the end to insert: Provided that, in relation to any trade or business carried on by a local or public authority, being a trade or business to which subsection (1) of section twenty-nine of the Finance Act, 1951 (public utility undertakers to be liable to the profits tax) applies, this subsection shall not have effect and accordingly the profits tax shall continue to be charged at the rate of three per cent.

The Temporary Chairman (Mr. F. Blackburn)

It will be for the convenience of the Committee if we discuss with this Amendment the last Amendment on page 3062 of the Notice Paper, also in page 14, line 31.

Mr. Mitchison

If I understand you rightly, Mr. Blackburn, we are also referring to the Amendment in the names of two of my hon. Friends who represent Liverpool Divisions, the hon. Member for Edge Hill (Mr. A. J. Irvine) and Exchange (Mrs. Braddock), which relates to the Mersey Tunnel Joint Committee.

The history of the matter is that in 1937 statutory undertakers were exempt. In 1947 for the first time there was a distinction made between distributed and non-distributed profits, and the statutory undertakers still remained exempt. In 1951, for the first time the statutory undertakers, described this time in the head note to Clause 29 of the Finance Act of that year as "Public Utility Undertakers", were made liable to Profits Tax. Of course, having regard to the nature of what they were doing, there had to be some provision as to whether they should be charged at the distributed or the non-distributed rate, if I may use a slightly inaccurate phrase for the distinction between getting non-distribution relief and not getting it.

Let us see for a minute who the statutory undertakers were; that is to say, the people who had been originally exempted under the 1937 Act and who were brought in in 1951. They were people carrying on any trade or business which consisted wholly or mainly in rendering certain services. I will not read out the whole list, but the first one was the supply of water, gas, electricity or hydraulic power. Then there were other services with reference to canals and docks, rivers and the carriage of goods or passengers by rail, by road or, in certain circumstances, by canal. The expression "statutory undertakers" was to mean any local or public authority authorised to provide these services and also, if I may put the matter quite generally, any other person whose profit making powers were either non-existent by reason of a Statute or at any rate limited by reason of a Statute.

There were, therefore, two classes of statutory undertakers. There were, on the one hand, the local or public authorities and, on the other, there were companies such as, at that time, gas companies, whose profits were limited. Now gas and electricity have gone, but water remains, and I will take water as an instance in what I have to say today.

The present position is that under the 1951 Act, since there can be no relevant distributions to proprietors, as the phrase goes, the Profits Tax payable in respect of this type of business is to be computed as if no net relevant distributions to proprietors have been made, and consequently from that day to this the local authorities carrying on undertakings of this kind, and rendering public services in so doing, have been charged at the lower rate—that is to say, at tax with full non-distribution relief, if it be looked at that way, or, more accurately, at a rate which was put in specially by the 1951 Act as applicable to this type of case.

It goes without saying that a local authority supplying water cannot possibly make any relevant distributions to proprietors because there are not any proprietors, and, of course, it does not distribute any surplus it may have from year to year. It may use that surplus in one way or another but, by and large, it will go sooner of later into its general account or reserve. So far as there is any surplus it will mean that there is a smaller call on the charges on the water rate or, if you like, there will be a smaller charge for the water services than otherwise there would have been.

The question is, why should a body of that kind be made to pay a rate which is, after all, more than three times the rate which it has hitherto been paying? And is there any real reason why an undertaking of this kind should have this considerable imposition put on it just because the Government have, for the moment, decided to unify the two rates of Profits Tax? If we turn to the passage in the Report of the Royal Commission on the Taxation of Profits and Income, which the right hon. Gentleman was quoting in connection with the previous Amendment, we find this statement of the main principle in paragraph 562: The main principle . . is that a tax on the profits of corporations should apply to all profits without distinction between corporations the ownership of which is vested in the State and other corporations, or between corporations formed to serve public purposes and others formed to serve private purposes. In paragraph 564, after another statement of the principle on which profits should be arrived at, there is this statement: We applied these two principles to the main groups of special corporations and we discuss each in turn … Nationalised industries … Public utility undertakings … Industrial and provident societies … Building societies. When we come to the public utility undertakings, which are really the only case, I think, that could possibly include what I am talking about today, we find nothing about the position of the local authorities in this respect. These public utility undertakings are treated as something quite separate. As far as I can see, they are regarded as profit-making corporations, exactly comparable for that purpose with, for instance, nationalised industries. What we seek to do is to keep the existing rate for local or public authorities carrying on any trade or business.

I have been talking specially about local authorities, and specially for the moment of the one instance of water supply. I will take it one stage further. If a local authority or a water board is engaged at the moment in supplying water, it may be said to have a surplus at the end of the year, through its receipts by way of charges for the water, over its expenses. One recognises that. However, having got that far, in what other sense can it possibly be said to be having a surplus which is in any sense a distributable surplus or anything even faintly resembling it?

It was only in relation to undistributed and undistributable profits that in 1951 undertakings of this type were brought into the Profits Tax at all. I am still at a complete loss to see why they should have an increase put upon them. They have always been a very special case indeed. That goes not merely for the particular instance I have taken but for the other public utility bodies. When the Royal Commission was discussing this matter, it seems to have given very little consideration indeed to the other side of the medal, the character of the functions that these bodies were carrying out.

If one applies Profits Tax to a water undertaking, it can have only one of two results. One will be an increase in the water charges. Do the Government want that? The other will be to cramp in some form or another the extension of water supply in this country.

It may be said that the Amendment relates only to local authorities and that there are also water companies, and it may be asked why the water companies should not be treated in the same way. It seems to me that there is a distinction which can be drawn, but if the Government think, to take this specific case, that water companies should be treated similarly, I should not object to their being included. They supply only about one-fifth of the consumers in the country; about four-fifths of this public service is rendered by local authorities as such. That is the present position as regards these bodies.

I do not know what reply we shall receive. It may be said, logically, that we ought either to ask for complete disappearance of the Profits Tax or we ought to accept that these services and any so-called profits arising out of them should be treated in exactly the same way as other profits or surpluses. In aid of that, no doubt the Report of the Royal Commission can be produced. All I can say is that when one is dealing with essential public services, such as water supply, one is really dealing with an entirely different matter. If we are to start taxing that on the basis that there is a surplus, I should like to know where we are to stop.

Let us suppose that the housing revenue account of a local authority shows in one year a surplus and that there is an excess of rents over the actual charges in the year. Are we to treat that as something which should also be subject to Profits Tax? Let us take something even more intimately connected with the work of local authorities, a comparatively simple matter such as the registration of electors. If the functions of the local authority in that year result for some reason or another—perhaps the sale of papers or pamphlets—in some minimal surplus, is that to be subject to Profits Tax?

Surely the real distinction to draw is, on the one hand, between the services which are necessarily rendered by a local authority—while it may have a surplus, it cannot have profits in any real sense, and obviously they could never be distributed to anyone because there is no one to whom to distribute them—and, on the other hand, profits in the ordinary sense of the word.

5.45 p.m.

There is another injustice to which I would draw attention. Income Tax is a tax on income. The income of local authorities is taxed, and they carry on many varied activities. As a result, a local authority may find itself in the position that it is losing money in one year on graveyards and making money on crematoria, if I may take a gloomy but not uncommon instance. Whether it happens to be its activities as a burial body or its activities as a local authority, wherever it is dealing with services which involve charges on the one hand and expenses on the other it will find either a surplus or a deficit. In relation to Income Tax, the local authority is entitled to set off one of those against another. If it makes a loss in one respect and a profit in another, there is, in general, the usual right to set off.

But that is not a right which always attaches to Profits Tax, and in the result a local authority, which cannot in the nature of the case merely carry on one activity—there are all the activities which it is its duty to carry on—is in a peculiar position. It is not a case of a local authority taking, for instance, to farming because that is a very useful way of making some improvements at the expense of other taxable income. No such attractive possibilities are open to local authorities. They are bound to carry out the majority of their services, and they are bound in respect of them to have surpluses and deficits. In respect of Income Tax, they are dealt with in what is in that respect a fair footing since what is looked at at the end of the year, broadly speaking, is the net result, profit or loss, surplus or deficit, on the various trading and similar activities of a local authority.

Profits Tax allows nothing of the sort. One local authority may be carrying on a number of trades or businesses, and may be bound to do so since it has taken powers to that end or is otherwise obliged to do so. Water supply is an instance. In that case, the multiplicity of its activities is from its point of view a grave disadvantage. The result is that a large, enterprising local authority—Sheffield is a clear instance—suffers considerably from the distinction in that one respect between Profits Tax and Income Tax.

It does not seem right that bodies which are carrying out public services, and have to, should be taxed on a footing which was intended to apply to persons corporate or individual who were not carrying on services at all but were making profits to which the tax was originally directed.

I have put forward two grounds. First, it has always been recognised that these statutory undertakers were in a peculiar position, first being left out and then being brought in on a very special footing. My second ground relates to the treatment of gains and losses for the purposes of Income Tax and Profits Tax. It is wrong and unfair that statutory undertakers of this type, local and public authorities carrying on services of the kind to which I have referred, should now find their Profits Tax increased three times or more for a reason which has nothing whatever to do with the character of the services which they are rendering. So far as I can see, it has nothing whatever to do with the purposes of the tax in the proper sense, and is really a hindrance to necessary public activity which will result either in the cramping of the development of that activity or in additional charges to the public for services rendered.

Captain Richard Pilkington (Poole)

I am concerned with the effect which this part of the Bill, as at present drafted, is likely to have on a very important service rendered to the public by the ferry at Sandbanks, Poole. This ferry joins my constituency and that of my noble Friend the Member for Dorset, South (Viscount Hinchingbrooke). I know that my noble Friend wished to be present and would have argued this case powerfully, but, unfortunately, he has been prevented from being here.

The ferry is run very efficiently by the Bournemouth-Swanage Motor Road and Ferry Company. It has benefited as a statutory undertaking ever since 1951 and has only paid 3 per cent. tax. As at present drafted, the Bill will increase this tax from 3 per cent. to 10 per cent. I wish to point out these facts to my right hon. Friend.

First, there are no distributive profits in this company. All the incomes goes either in salaries or is ploughed back into the concern. It fulfils a very useful public service benefiting many thousands of people. And it relieves some of the congestion on the more northerly roads. If the aim of the Chancellor is generally to decrease the level of Profits Tax it seems very unfair that in such a case as this the effect would, in fact, be to raise it from 3 per cent. to 10 per cent. I know that my right hon. Friend has already been informed of all the particulars of the position, and I very much hope that he will reconsider it and have second thoughts about it.

Mr. A. J. Irvine (Liverpool, Edge Hill)

The way in which this Clause would work unfairly is well illustrated by the effect that it has on the undertaking of the Mersey Tunnel Joint Committee. My hon. Friend the Member for Liverpool, Exchange (Mrs. Braddock) and myself have put down an Amendment in that connection. The introduction of a standard rate of tax at 10 per cent. would increase the liabilities of the Joint Committee more than threefold, from £10,200 to, approximately, £34,000. This is in addition to a present Income Tax liability of about £56,000.

This is an undertaking which does not in any ordinary and reasonable sense have a distributable surplus. It is providing a valuable public service and is not run for profit. It is really outside the ambit of the original purposes of Profits Tax altogether. We suggest that it is quite oppressive and arbitrary that an undertaking of this kind, of this great importance to the country and with these characteristics should suddenly find itself faced with a threefold increase in its tax liability, from £10,200 to, approximately, £34,000 a year, as I have just indicated.

There is nothing in the economic condition of the country; there is nothing in the economic context of the undertaking of the Mersey Tunnel Joint Committee; there is nothing to which anyone could point in our economic affairs at the moment which could possibly justify such an arbitrary and oppressive increase being imposed upon an undertaking which is performing a public service and which is not, in the true sense of the term, operating for profit.

I support the proposition, indicated by my hon. and learned Friend, that the reasons which led the Royal Commission to recommend the cessation of the differential between rates of Profits Tax appear to have been reasons concerning administration and inequities which can arise in the administration and treatment of company profits. From its Report it would appear that the Royal Commission, with great respect to it, paid comparatively little regard to the position of statutory undertakings which, of course, are faced with problems of an entirely different character from an ordinary profit-making company.

I suggest to the Committee that it is quite inequitable that a tax which has operated in the past mainly as a tax on the distributed profits of companies should be changed in such a way that it would treble the charge for a statutory undertaking such as that of the Mersey Tunnel Joint Committee, whose capital structure and public obligations are very different from those of companies the tax on whose profits was the concern of the Royal Commission. The main object of these concerns is to make profits. The object of the undertaking of the Mersey Tunnel Joint Committee is not to make profits but to provide a public service.

In this connection it is to be remembered that the toll revenues of the Mersey Tunnel Joint Committee are limited as to time by statute. They expire in 1974. Moreover, its income must be applied to purposes specified by Parliament. In all these respects the activity of an undertaking of this character is, in my submission, different from the activities of companies for which the Profits Tax was designed and developed.

Because for a large part of the country this is a matter of considerable importance and significance, may I mention further that the cost of the operation and maintenance of this undertaking is met from precepts levied on the ratepayers of Liverpool and Birkenhead. The toll income, after meeting costs, must first be applied in making minimum contributions to the statutory reserve, renewals, and Loan equalisation funds of the undertaking. The position is that if sufficient income is then available, payments must be made to the two constituent authorities proportional to and up to the amounts of their precepts. Any balance of toll income thereafter remaining may either be paid to the rate funds of the two authorities in proportion to their respective rate products or paid as additional contributions to the statutory funds.

In other words, by the effect of local and private Acts which govern this matter, the use to which revenue out of the undertaking is to be put is set out and determined mandatorily and in detail, and in that respect there is, in my submission, no surplus distributable in the sense that that term is ordinarily applied in consideration of Profits Tax. Although there is a residual right, after all statutory requirements have been satisfied, to apply surplus toll revenues to the rate funds of the two authorities, the Mersey Tunnel Joint Committee has, in fact, never exercised this right. On the contrary, in past years the cost of operating and maintaining the tunnel has been subsidised by the ratepayers of Liverpool and Birkenhead to the extent of over £1½ million. In view of the need to build the reserves of the undertaking in anticipation of the time when the right to levy tolls will expire, surplus income has been ploughed back into the undertaking.

6.0 p.m.

Here is an undertaking of great importance looking ahead to a time in which there will be a cessation of revenue from tolls, which is, therefore, ploughing back into its reserves what surplus is available from its activities. We have an undertaking of this character in that situation and with that prospect, suddenly and for no reason whatever, burdened with a threefold increase in the rate of tax.

The proposed change appears to operate particularly hardly when it is remembered that from 1927 to 1951, a long period of time, the undertaking of the Mersey Tunnel Joint Committee was completely exempt from the tax and when it is remembered, further, that the real effect of the change is to increase the effective rate of tax borne by the Joint Committee from 9s. 1d. in the £, representing 8s. 6d. Income Tax and 7d. Profits Tax, to 10s. 6d. in the £, representing 8s. 6d. Income Tax and 2s. Profits Tax. It is doubtful whether the change will impose such a startling increase in the burden on any other class of taxpayer since, in the great majority of cases, concerns would previously be paying at least some part of their Profits Tax at the higher rate, unlike the undertaking to which I refer.

For these reasons, we on this side strongly believe that if this proposed change is imposed on the Mersey Tunnel Joint Committee, it will be a case of the imposition of additional taxation in a highly arbitrary and oppressive manner and in disregard of what are widely recognised to be the sound and fair principles which should govern taxation.

Mr. R. Gresham Cooke (Twickenham)

I should like to detain the Committee for a few moments to point out the special position of the bus operators under the Clause in connection with the Amendment. The bus operators have always been regarded as statutory undertakers because their fares were controlled by the Traffic Commissioners. In fact, they are not truly commercial concerns. That is why the Finance Acts have made these statutory undertakers, the bus companies, liable to the lower rates of Profits Tax of 2½ per cent. or 3 per cent. Under the Clause, they are now to be taxed on the same basis as commercial concerns, as if they suffered no statutory control. These undertakers not only do not receive an advantage, but they receive a great disadvantage. I am informed that in one case the Profits Tax which is payable will be increased from £157,000 to £525,000 per annum.

The disadvantages under which the bus companies are labouring are only too well known. I refer, of course, to the time lag from which they suffer before they can raise fares following an application to the Traffic Commissioners. The difficulties of public transport in the rural areas particularly are well known, in addition to the 200 per cent. tax which they have to suffer on fuel oil and the competition from the bicycle, the moped and the motor car. The things apply both in town and in country for all types of bus undertakings.

It seems illogical, therefore, that at this time their Profits Tax should be increased from 3 to 10 per cent. I shall be particularly grateful if my right hon. Friend the Paymaster-General will explain the reasons for this apparent illogicality.

Mrs. E. M. Braddock (Liverpool, Exchange)

My hon. and learned Friend the Member for Liverpool, Edge Hill (Mr. A. J. Irvine) has clearly and fully stated the reasons why the Mersey Tunnel Joint Committee has asked for the question of the increased Profits Tax to be looked at again and, if possible, to be withdrawn from the scope of the Clause. My hon. and learned Friend has given details of the additional amount in which the Joint Committee will be involved under its proposals.

No individual receives any profit from the undertaking. It is a public undertaking under a special committee set up when the tunnel was decided to be built. It has been of considerable expense to the ratepayers on both sides of the Mersey, who are included in the Mersey Tunnel Joint Committee. They were very disturbed indeed at a recent meeting when they discovered that the amount which they must in future pay would be over three times their present payment. Because they are under an obligation for some years ahead to ensure that the Tunnel is kept up to standard and to ensure that the amounts additional to requirements are paid into the funds of both the Birkenhead and Liverpool Corporations to meet the amounts that have been paid out by the ratepayers over a number of years, they were disturbed to find that as a public undertaking it had been included in the requirements for the increased Profits Tax.

My hon. and learned Friend has clearly stated the position. Quite apart from any other case which could be put forward, the Mersey Tunnel Joint Committee is in an entirely different class from other undertakings in relation to the increase in the Profits Tax. I ask the Treasury, to whom the whole of the facts have already been submitted, to look seriously at the position. If, on investigation, it is decided that a mistake has been made concerning the Mersey Tunnel Joint Committee, I assure the Treasury that the ratepayers of both Birkenhead and Liverpool will be very pleased indeed to find that the Tunnel is withdrawn from the increase in the tax of from 3 to 10 per cent.

Mr. Maudling

The Amendment, moved by the hon. and learned Member for Kettering (Mr. Mitchison), deals with public utility concerns carried on by local or public authorities. It would not, therefore, cover similar undertakings carried on by private companies—for example, water companies or bus companies. The case has been argued both on the general principle and on particular examples, and illustrations have been put forward by my hon. and gallant Friend the Member for Poole (Captain Pilkington), by the hon. and learned Member for Liverpool, Edge Hill (Mr. A. J. Irvine), the hon. Lady the Member for Liverpool, Exchange (Mrs. Braddock), the hon. and learned Member for Kettering and by my hon. Friend the Member for Twickenham (Mr. Gresham Cooke), who have given examples and figures and spoken of the effects of this principle on individual undertakings.

In answering the debate on the Amendment, I do not think that it would be right for me to go into the details of the tax position of individual taxpayers. These have been quoted as illustrations of the effect of the Clause in particular cases. Strong as the case no doubt is on the figures given by the hon. Lady the Member for Liverpool, Exchange concerning the Mersey Tunnel, I do not think that it would be possible to sustain the argument that a similar case could not be made out for a number of other public and local authorities which provide services of this kind. Therefore, I must regard the individual examples which have been mentioned simply as examples and I will deal with the general point. If, as I hope, I can persuade the Committee that the general case is not made out, the individual cases must fall with the general principle.

Mr. Mitchison

There is the distinction that a local authority distributing water cannot in the nature of the case make a distribution to the proprietors, but a water company can.

Mr. Maudling

The hon. and learned Member is quite right. I was coming to that. I was trying to point out that some of the points which have been made are not within the ambit of the Amendment. I must, therefore, return to the general principle of the Clause.

It is impossible to conduct the discussion properly unless one relates it to the general principle, because the Amendments are amendments to a general principle. It is accepted that that general principle is disliked by the Opposition, from whom we have had notice of the intention to move its deletion. We cannot discuss the Amendments other than as Amendments to the Clause. Therefore, we must discuss them in the context of the decision to unify the Profits Tax.

The argument that was used was that, if the effect of unifying the Profits Tax was perhaps unfortunate in these cases, that principle should not have been applied. I think that that is the argument put by the hon. and learned Member. My answer to that is that, once again, we must look at the type of tax which this Clause will enact. The object of the Clause would be to enact a tax which was a tax on profits and not a tax on distribution, and, therefore, the Profits Tax will apply in this case.

It is said that that might well become essentially a tax on profits which would be generally applicable, as is Income Tax, to all trading profits and to all people who make trading profits. Profits Tax in this case will, like Income Tax, apply to all bodies corporate which are making trading profits, and it is the trading profits to which the tax relates, and not non-trading profits.

We must make a distinction between the various kinds of trading activities of local authorities, and remember that there is a clear distinction between the trading activities of local authorities which bear tax and their non-trading activities, which do not incur the tax. I think that the hon. and learned Gentleman is wrong. It was not a point on which I expected him to be wrong. Talking about the taxation of local authorities, he said that there is a difference between Income Tax and Profits Tax, and that losses in one activity can be set off against another for Income Tax purposes. That is true, but the same effect holds good in the case of Profits Tax, not because there is a surplus, but because of the trading activities of the local authority as a whole. Technically, there is a difference, but the practical effect is the same. Looking at Section 43 of the 1947 Act, we find that all trades or businesses shall be treated as one trade or business for the purpose of Profits Tax. Therefore, all their profit-making activities are amalgamated, and the effect is the same.

Mr. Mitchison

I owe the right hon. Gentleman and the Committee an apology, because I did not make the point quite clear. If he will look at the Sheffield case, where this comes from, he will find that they are not able to do that. Perhaps they carry on some activities under Private Acts, which, in fact, would not allow them to "roll them into the bundle." I took an unfortunate case about the cemetery and the graveyard, because the odds are that they would be able to do it, I agree. The difficulty is that they often have special powers.

Mr. Maudling

I will certainly look at the point in a particular case.

The argument is that a local or a public authority carrying on an undertaking like a water undertaking or a tunnel undertaking should not be subject to the normal rate of Profits Tax, which would be levied on the general profits of corporations which are carrying on commercial activities, and I think I have seen only two arguments advanced in support of it. I do not know that either is really conclusive.

The first is that they are carrying on something which is essential. That is not a sound and decisive argument. The provision of water is certainly essential, but so is the manufacture and distribution of food, and there is, therefore, no distinction there. In the case of the Mersey Tunnel, the Tunnel authority is not providing any more essential services than the owners of the many goods vehicles using the Tunnel. Both are equally essential and one cannot, therefore, make any distinction on the grounds that one of them is more essential than the other. If the Opposition are using the argument of what is essential, they should apply their argument to the public companies as much as to local authorities or privately-owned companies, but they do not do so. Therefore, the argument of essentiality falls to the ground.

The second argument used by the hon. and learned Gentleman was that these concerns do not make distributions, and, therefore, should not be charged with Profits Tax. I must come back to what I said earlier, that this is no longer designed as a tax on distribution. It is a tax on profits, of which the Opposition disapprove. I do not see that the argument that it should not apply to non-distributable profits is really relevant.

Mr. Mitchison

I am sorry to interrupt the right hon. Gentleman again. I feel that I am behaving rather badly. The right hon. Gentleman keeps on saying that I argued that these bodies should not pay Profits Tax. I did not. I simply said that the tax should not be put up, and I went into the history of the matter for that very purpose.

6.15 p.m.

Mr. Maudling

I am sorry if I misrepresented the hon. and learned Gentleman, but he certainly said it. I do not see that the argument for paying a lower rate of Profits Tax is any different from the argument that they should not pay any Profits Tax at all. If the argument is that they should be treated differently because they do not make a distribution, then that is an argument for saying that they should not pay the tax at all, though I agree that the hon. and learned Gentleman did not go as far as that.

Mr. Mitchison

That is not quite right. They have always paid the non-distributed rate before because they cannot distribute profits, but they are now being made to pay rates which are considerably higher because many other people can distribute profits and are, therefore, charged a higher rate.

Mr. Maudling

They were given the non-distributed relief from the dividends tax in respect of profits not distributed, but that is not relevant to what happens when there is a tax on profits and they make profits. There is a distinct difference of principle here.

We rely for our case on this question—and I do not think that it will surprise the Opposition—on the Royal Commission which was set up and which reported in paragraph 569—[An HON. MEMBER: "It was wrong."] It may be wrong, but it is quite clear: We do not think that the fact that such undertakings operate under what is to some extent a special regime"— which is what hon. Members have been referring to— of statutory control of tariffs and dividends is a good reason for special tax treatment once it is accepted that Profits Tax has become part of the regular tax system of the country and has ceased to be, what national defence contribution was, a temporary measure in special circumstances. In our view, Profits Tax should be regarded as analogous to Income Tax. It is a tax that falls on the trading profits of a firm, and if people make profits they pay Profits Tax. It is difficult to see why they should not, in those circumstances, pay Profits Tax, and I cannot advise the Committee to accept the Amendment.

Mr. Irvine

Will the right hon. Gentleman deal with one point concerning the particular case of the Mersey Tunnel, because that should be considered merely as an illustration of the general principle? Will he give consideration to the point that, in regard to the Mersey Tunnel Joint Committee, there is a distinctive and relevant feature in that there is a statutory limit upon the length of time over which revenue can be taken from the toll?

As the expiry of that period of time is approaching in connection with this very important undertaking, and the surpluses, if we can call them that, have been ploughed back against that contingency, will the right hon. Gentleman consider whether that feature does not afford a specific and distinctive point which might entitle the undertaking to a concession?

Mr. Maudling

I am not dealing with that point, but I cannot accept that that is the basis of exception. I should have thought that many corporations, both public and private, are ploughing back surpluses against contingencies, statutory or not. I do not think, therefore, that there can be a particular exception in the case of the Mersey Tunnel.

Mr. Roy Jenkins (Birmingham, Stechford)

The Paymaster-General sought to present his arguments against this Amendment in austerely logical terms, and while it is certainly better that an argument of this kind should be founded upon logic rather than upon a lack of logic, I do not think that it is necessarily the only approach to problems of this sort. We must concern ourselves not only with the principle but with its practical effect. In looking at that part of the Government's proposals which we seek to alter by the Amendment, we must consider whether the Government's reasons for providing that undertakings should now have their liability increased from 3 per cent. to 10 per cent. are good ones.

It is no answer to say that under the new régime 10 per cent. will be a logical figure and 3 per cent. an illogical one. I hesitate to say this to the right hon. Gentleman, but when imposing substantial burdens upon important undertakings we should consider arguments which are a little more practical and a little less purely theoretical than those which he has put forward.

Mr. Maudling

I did not say that 10 per cent. was logical and 3 per cent. illogical; I said that 10 per cent. was logical and that anything other than 10 per cent. was illogical.

Mr. Jenkins

That is a fairly fine distinction. It perhaps makes the position of the right hon. Gentleman clearer, but it does not make his argument more acceptable. Even on that austerely logical basis, I am not sure that his case holds water. Towards the end of his speech he said, with great vehemence, that the position which the Government took up was that where a concern was liable for and paid Income Tax, to that extent it should he liable for and should pay Profits Tax under the new disposition.

As I understand it, that is not necessarily the case. Several hon. Members will have received a very clear memorandum, drawn up and presented by the City Treasurer to the City of Sheffield, about its position in this matter. One paragraph states the position clearly, as follows: Local authorities are not primarily trading concerns, and it seems illogical that whilst for Income Tax purposes all activities, trading and non-trading, are considered together for the purpose of computing Profits Tax, the trading services must be separated from the remainder. The result in Sheffield, and in many other authorities, is that whilst no charge for Income Tax has to be borne, a charge for Profits Tax does fall on the authority. If that is the position, what remains of the right hon. Gentleman's logic? I know his difficulty about arguing individual cases, and I do not want him to make a pronouncement about Sheffield, but if we are to be asked to accept his position here we should have from him an assurance that, as he understands and the Government wish it, a local authority will be liable for Profits Tax to the extent that and on the same basis it is liable for Income Tax. If he can give us that assurance it may go some little way towards easing our difficulties, but if he cannot I am afraid that a large part even of his austerely logical case collapses.

We are at present being asked to accept a provision by which these authorities which cannot distribute will be put in a more unfavourable position than they were prior to 1951—when they had no liability to Profits Tax at all—and also in a more unfavourable position than they have been in since 1951, when they have had a liability to Profits Tax, but a reduced one, at only 3 per cent. The right hon. Gentleman was also in error in assuming that our objection to the treatment of these activities on the part of local authorities stemmed necessarily and essentially from our dislike of the Clause as a whole. The Opposition dislike the Clause, but, even if that were not the case, and even if most of the arguments of the majority or the minority of the Royal Commission were accepted, there would still be a very strong case for considering this exception. We should still be very worried about the position of local authorities.

There is a chance that many companies in the ordinary course of business would benefit under the changes made here—even the bus companies about which the hon. Member for Twickenham (Mr. Gresham Cooke) was concerned. I think that his Amendment, and the argument that he adduced in favour of it, go altogether too far, and we should not wish to support it. Despite the horrific competition from pedal cycles, to which bus companies have to acclimatise themselves, they may be in a position to make distributions. Some bus companies may be benefited under the terms of the Clause; they stand to gain in the sense that the charge falling upon their distributions will be lower. But authorities of the sort with which we are concerned cannot possibly be in this position. This is one of the arguments for drawing a distinction between an undertaking which can distribute and one which, by its very nature, cannot.

The first at least has a possibility of gain; for the undertakings with which we are concerned there is no possibility of gain—there is no prospect for them other than that of now having to pay 10 per cent. instead of the previous 3 per cent.

Mr. William Shepherd (Cheadle)

Has the hon. Member considered the enormous increases which have occurred in the trading services of local authorities? Is not that a practical consideration?

Mr. Jenkins

If it were to be argued that the Government were moved in their attitude to the Profits Tax by the enormous increase in the services of local authorities it might be another matter, but I do not understand that that is the position. It was certainly not the position put to us by the right hon. Member. The mere fact that such an increase has taken place—which cannot by its nature be a benefit merely to

a limited number of people, but must be of benefit to all the ratepayers concerned—does not seem to me to be an argument for increasing the rate from 3 per cent. to 10 per cent.

Mr. Mitchison

Is it a fact that there has been this increase?

Mr. Jenkins

My hon. and learned Friend, whose knowledge of these matters is much greater than mine, asks whether it is a fact. I will leave him to dispute that with the hon. Member for Cheadle (Mr. Shepherd).

Because we were unconvinced by the right hon. Gentleman's logic, because he has been unable—even with the assistance of his Parliamentary Private Secretary—to provide an assurance on the point which seems to me to be essential to the case he is making, and because we are quite unconvinced that at present, when companies as a whole are having substantial taxation concessions, local authorities should be put in a worse position than at any time in the past, I am sure that my hon. Friends will wish to divide.

Question put, That those words be there inserted:—

The Committee divided: Ayes 186, Noes 220.

Division No. 180.] AYES [6.27 p.m
Ainsley, J. W. Darling, George (Hillsborough) Hobson, C. R. (Keighley)
Albu, A. H. Davies, Stephen (Merthyr) Holman, P.
Allaun, Frank (Salford, E.) Delargy, H. J. Houghton, Douglas
Allen, Arthur (Bosworth) Diamond, John Howell, Charles (Perry Barr)
Allen, Scholefield (Crewe) Dodds, N. N. Hoy, J. H.
Awbery, S. S. Donnelly, D. L. Hughes, Emrys (S. Ayrshire)
Bacon, Miss Alice Dugdale, Rt. Hn. John (W. Brmwch) Hughes, Hector (Aberdeen, N.)
Balfour, A. Ede, Rt. Hon. J. C. Hunter, A. E.
Bence, C. R. (Dunbartonshire, E.) Edelman, M. Hynd, J. B. (Attercliffe)
Benson, Sir George Edwards, Rt. Hon. Ness (Caerphilly) Irvine, A. J. (Edge Hill)
Beswick, Frank Edwards, Robert (Bilston) Jay, Rt. Hon. D. P. T.
Blenkinsop, A. Edwards, W. J. (Stepney) Jeger, George (Goole)
Blyton, W. R. Evans, Albert (Islington, S. W.) Jeger, Mrs. Lena (Holbn & St. Pncs. S.)
Boardman, H. Evans, Edward (Lowestoft) Jenkins, Roy (Stechford)
Bottomley, Rt. Hon. A. G. Fernyhough, E. Johnson, James (Rugby)
Bowden, H. W. (Leicester, S. W.) Fletcher, Eric Johnston, Douglas (Paisley)
Bowles, F. G. Foot, D. M. Jones, Rt. Hon. A. Creech (Wakefield)
Braddock, Mrs. Elizabeth Fraser, Thomas (Hamilton) Jones, David (The Hartlepools)
Brockway, A. F. Gaitskell, Rt. Hon. H. T. N. Jones, Jack (Rotherham)
Broughton, Dr. A. D. D. George, Lady Megan Lloyd (Car'then) Jones, J. Idwal (Wrexham
Brown, Rt. Hon. George (Belper) Gibson, C. W. Jones, T. W. (Merioneth)
Brown, Thomas (Ince) Gordon Walker, Rt. Hon. P. C. Kenyon, C.
Burke, W. A. Greenwood, Anthony Key, Rt. Hon. C. W.
Burton, Miss F. E. Grenfell, Rt. Hon. D. R. King, Dr. H. M.
Butler, Mrs. Joyce (Wood Green) Grey, C. F. Lawson, G. M.
Champion, A. J. Hall, Rt. Hn. Glenvil (Colne Valley) Lee, Frederick (Newton)
Chapman, W. D. Hannan, W. Lee, Miss Jennie (Cannock)
Chetwynd, G. R. Harrison, J. (Nottingham, N.) Lever, Leslie (Ardwick)
Clunie, J. Hastings, S. Lewis, Arthur
Collins, V. J. (Shoreditch & Finsbury) Healey, Denis Lindgren, G. S.
Craddock, George (Bradford, S.) Henderson, Rt. Hn. A. (Rwly Regis) Logan, D. G.
Crossman, R. H. S. Herbison, Miss M. Mabon, Dr. J. Dickson
Dalton, Rt. Hon. H. Hewitson, Capt. M. McAlister, Mrs. Mary
MacColl, J. E. Pearson, A. Stonehouse, John
MacDermot, Niall Peart, T. F. Stross, Dr. Barnett (Stoke-on-Trent, C.)
McGovern, J. Pentland, N. Summerskill, Rt. Hon. E.
McInnes, J. Popplewell, E. Sylvester, G. O.
McLeavy, Frank Price, J. T. (Westhoughton) Taylor, Bernard (Mansfield)
MacPherson, Malcolm (Stirling) Probert, A. R. Thomas, George (Cardiff)
Mahon, Simon Proctor, W. T. Thomas, Iorwerth (Rhondda, W.)
Mainwaring, W. H. Pursey, Cmdr. H. Tomney, F.
Mallalieu, J. P. W. (Huddersfd, E.) Rankin, John Ungoed-Thomas, Sir Lynn
Mann, Mrs. Jean Redhead, E. C. Usborne, H. C.
Marquand, Rt. Hon. H. A. Reeves, J. Viant, S. P.
Mason, Roy Reid, William Warbey, W. N.
Mitchison, G. R. Reynolds, G. W. Watkins, T. E.
Monslow, W. Rhodes, H. Weitzman, D.
Morris, Percy (Swansea, W.) Robens, Rt. Hon. A. Wells, Percy (Faversham)
Morrison, Rt. Hn. Herbert (Lewis'm, S.) Roberts, Albert (Normanton) Wells, William (Walsall, N.)
Mort, D. L. Roberts, Goronwy (Caernarvon) West, D. G.
Moss, R. Rogers, George (Kensington, N.) Wheeldon, W. E.
Moyle, A. Shinwell, Rt. Hon. E. White, Mrs. Eirene (E. Flint)
Neal, Harold (Bolsover) Shurmer, P. L. E. Willey, Frederick
Oliver, G. H. Silverman, Julius (Aston) Williams, David (Neath)
Oram, A. E. Silverman, Sydney (Nelson) Williams, Rev. Llywelyn (Ab'tllery)
Orbach, M. Simmons, C. J. (Brierley Hill) Williams, Rt. Hon. T. (Don Valley)
Oswald, T. Skeffington, A. M. Wilson, Rt. Hon. Harold (Huyton)
Owen, W. J. Slater, Mrs. H. (Stoke, N.) Winterbottom, Richard
Paget, R. T. Smith, Ellis (Stoke, S.) Woodburn, Rt. Hon. A.
Palmer, A. M. F. Sorensen, R. W. Yates, V. (Ladywood)
Parker, J. Soskice, Rt. Hon. Sir Frank
Parkin, B. T. Sparks, J. A. TELLERS FOR THE AYES:
Paton, John Spriggs, Leslie Mr. Short and Mr. J. Taylor.
Aitken, W. T. du Cann, E. D. L. Hutchison, Michael Clark (E'b'gh, S.)
Allan, R. A. (Paddington, S.) Eccles, Rt. Hon. Sir David Hyde, Montgomery
Alport, C. J. M. Eden, J. B. (Bournemouth, West) Hylton-Foster, Rt. Hon. Sir Harry
Amory, Rt. Hn. Heathcoat (Tiverton) Elliott, R. W. (Ne'castle upon Tyne, N.) Jenkins, Robert (Dulwich)
Anstruther-Gray, Major Sir William Emmet, Hon. Mrs. Evelyn Jennings, J. C. (Burton)
Arbuthnot, John Errington, Sir Eric Jennings, Sir Roland (Hallam)
Armstrong, C. W. Fell, A. Johnson, Dr. Donald (Carlisle)
Ashton, H. Finlay, Graeme Johnson, Eric (Blackley)
Astor, Hon. J. J. Fisher, Nigel Joseph, Sir Keith
Atkins, S. S. Fletcher-Cooke, C. Keegan, D.
Balniel, Lord Fraser, Sir Ian (M'cmbe & Lonsdale) Kerr, Sir Hamilton
Barber, Anthony Gammans, Lady Kershaw, J. A.
Barlow, Sir John Garner-Evans, E. H. Lambton, Viscount
Barter, John George, J. C. (Pollok) Langford-Holt, J. A.
Batsford, Brian Gibson-Watt, D. Legge-Bourke, Maj. E. A. H.
Barter, Sir Beverley Glyn, Col. Richard H. Legh, Hon. Peter (Petersfield)
Beamish, Col. Tufton Gough, C. F. H. Linstead, Sir H. N.
Bell, Ronald (Bucks, S.) Gower, H. R. Llewellyn, D. T.
Bennett, F. M. (Torquay) Graham, Sir Fergus Lloyd, Maj. Sir Guy (Renfrew, E.)
Bennett, Dr. Reginald Grant, Rt. Hon. W. (Woodside) Lloyd, Rt. Hon. Selwyn (Wirral)
Bevins, J. R. (Toxteth) Green, A. Longden, Gilbert
Biggs-Davison, J. A. Gresham Cooke, R. Low, Rt. Hon. Sir Toby
Bingham, R. M. Grimond, J. Lucas, P. B. (Brentford & Chiswick)
Bishop, F. P. Grimston, Hon. John (St. Albans) Lucas-Tooth, Sir Hugh
Black, C. W. Grosvenor, Lt.-Col. R. G. Macdonald, Sir Peter
Body, R. F. Gurden, Harold Mackeson, Brig. Sir Harry
McKibbin, Alan
Bonham Carter, Mark Harris, Frederic (Croydon, N. W.) Mackie, J. H. (Galloway)
Braine, B. R. Harris, Reader (Heston) McLaughlin, Mrs. P.
Braithwaite, Sir Albert (Harrow, W.) Harrison, A. B. C. (Maldon) Maclean, Sir Fitzroy (Lancaster)
Bromley-Davenport, Lt.-Col. W. H. Harrison, Col. J. H. (Eye) Macleod, Rt. Hn. Iain (Enfield, W.)
Brooman-White, R. C. Harvey, Sir Arthur Vere (Macclesf'd) MacLeod, John (Ross & Cromarty)
Bullus, Wing Commander E. E. Harvey, John (Walthamstow, E.) Macmillan, Maurice (Halifax)
Campbell, Sir David Head, Rt. Hon. A. H. Macpherson, Niall (Dumfries)
Carr, Robert Heald, Rt. Hon. Sir Lionel Maddan, Martin
Cary, Sir Robert Heath, Rt. Hon. E. R. G. Manningham-Buller, Rt. Hn. Sir R.
Clarke, Brig. Terence (Portsmth, W.) Henderson-Stewart, Sir James Markham, Major Sir Frank
Cole, Norman Hesketh, R. F. Marlowe, A. A. H.
Cooper-Key, E. M. Hicks-Beach, Maj. W. W. Maudling, Rt. Hon. R.
Craddock, Beresford (Spelthorne) Hill, Rt. Hon. Charles (Luton) Mawby, R. L.
Crosthwaite-Eyre, Col. O. E. Hill, Mrs. E. (Wythenshawe) Milligan, Rt. Hon. W. R.
Crowder, Sir John (Finchley) Hirst, Geoffrey Mott-Radclyffe, Sir Charles
Crowder, Petre (Ruislip—Northwood) Hobson, John (Warwick & Leam'gt'n) Nabarro, G. D. N.
Currie, G. B. H. Holland-Martin, C. J. Nairn, D. L. S.
Dance, J. C. G. Holt, A. F. Neave, Airey
Davidson, Viscountess Hope, Lord John Nicholls, Harmar
D'Avlgdor-Goldsmid, Sir Henry Hornby, R. P. Nicholson, Sir Godfrey (Farnham)
Deedes, W. F. Horobin, Sir Ian Noble, Comdr. Rt. Hon. Allan
Digby, Simon Wingfield Howard, Gerald (Cambridgeshire) Noble, Michael (Argyll)
Donaldson, Cmdr. C. E. McA. Hudson, W. R. A. (Hull, N.) Nugent, G. R. H.
Doughty, C. J. A. Hughes-Young, M. H. C. Oakshott, H. D.
O'Neill, Hn. Phelim (Co. Antrim, N.) Roper, Sir Harold Thompson, R. (Croydon, S.)
Ormsby-Gore, Rt. Hon. W. D. Ropner, Col. Sir Leonard Thorneycroft, Rt. Hon. P.
Orr, Capt. L. P. S. Russell, R. S. Thornton-Kemsley, Sir Colin
Orr-Ewing, Charles Ian (Hendon, N.) Scott-Miller, Cmdr. R. Tiley, A. (Bradford, W.)
Osborne, C. Sharples, R. C. Tilney, John (Wavertree)
Page, R. G. Shepherd, William Vaughan-Morgan, J. K.
Pannell, N. A. (Kirkdale) Simon, J. E. S. (Middlesbrough, W.) Vosper, Rt. Hon. D. F.
Partridge, E. Smithers, Peter (Winchester) Wade, D. W.
Peel, W. J. Spearman, Sir Alexander Wakefield, Edward (Derbyshire, W.)
Pickthorn, K. W. M. Speir, R. M. Wakefield, Sir Wavell (St. M'lebone)
Pike, Miss Mervyn Spence, H. R. (Aberdeen, W.) Wall, Patrick
Pilkington, Capt. R. A. Stanley, Capt. Hon. Richard Ward, Dame Irene (Tynemouth)
Pitman, I. J. Stevens, Geoffrey Webbe, Sir H.
Price, David (Eastleigh) Steward, Sir William (Woolwich, W.) Webster, David
Price, Henry (Lewisham, W.) Stoddart-Scott, Col. Sir Malcolm Whitelaw, W. S. I.
Ramsden, J. E. Stuart, Rt. Hon. James (Moray) Williams, Paul (Sunderland, S.)
Rawlinson, Peter Studholme, Sir Henry Williams, R. Dudley (Exeter)
Redmayne, M. Summers, Sir Spencer Wills, Sir Gerald (Bridgwater)
Rees-Davies, W. R. Taylor, Sir Charles (Eastbourne) Wilson, Geoffrey (Truro)
Renton, D. L. M. Taylor, William (Bradford, N.) Woollam, John Victor
Ridsdale, J. E. Teeling, W. Yates, William (The Wrekin)
Roberts, Sir Peter (Heeley) Temple, John M.
Robertson, Sir David Thomas, Leslie (Canterbury) TELLERS FOR THE NOES:
Robinson, Sir Roland (Blackpool, S.) Thompson, Kenneth (Walton) Mr. Bryan and Mr. Chichester-Clark.
Mr. James H. Hoy (Edinburgh, Leith)

I beg to move, in page 14, line 31, at the end to insert: Provided that in relation to any sports association carried on as a non-profit making body this subsection shall not have effect and accordingly the profits tax shall continue to be charged at the rate of three per cent.

The Deputy-Chairman (Sir Gordon Touche)

I think that it would be convenient to discuss the Amendment with the one standing in the name of the right hon. Member for Huyton (Mr. H. Wilson), namely, the last but one Amendment on page 3062, in page 14, line 31, at the end to insert: Provided that in relation to any trade or business carried on by any society registered under the Industrial and Provident Societies Acts, 1893–1954, or under the Industrial and Provident Societies Acts (Northern Ireland) 1893–1955, this subsection shall not have effect and accordingly the profits tax shall be charged at the rate of three per cent. of the profits computed without allowing any deduction for dividends, bonuses, and similar distributions to members on their shares in the society.

Mr. Hoy

The Amendment I am moving deals in the main with sporting associations. I put it on the Notice Paper in company with the hon. Member for Caithness and Sutherland (Sir D. Robertson) and my right hon. Friend the Member for Gower (Mr. Grenfell). It arises out of a Question which I put to the Chancellor of the Exchequer on 20th May, and I put it down as the result of representations which I had from the Scottish Rugby Union, who wanted to know what the increase in taxation would mean to the association.

The Committee will remember that the Question received considerable support in the House not only from my right hon. Friends the Members for Huyton and for Llanelly (Mr. J. Griffiths), but from hon. Gentlemen on the Government side. In a final reply to my right hon. Friend the Member for Huyton, the Chancellor of the Exchequer promised to look into the whole matter and to take into consideration the specific points which had been raised that afternoon.

He attempted, during Question Time, to stress the point that because the Royal Commission had made its recommendation he could not depart from it. He was reminded that although the Royal Commission, as it was entitled to do, had made its recommendation it was for Parliament to make the decision. I would recall to him the speech made by the hon. Member for Huddersfield, West (Mr. Wade) on the Second Reading of the Finance Bill. The hon. Gentleman then told the House that he was speaking for the Liberal Party. He accepted the Chancellor's proposal for a change in the flat rate of tax, and said: … if a flat rate is to be introduced it is most important for consideration to be given to certain special cases to which the application of Profits Tax is inappropriate, and to non-trading concerns which have been caught, perhaps unintentionally, by the Profits Tax net. By increasing the rate to 10 per cent. the anomalies become all the more marked. I believe that the Chancellor would be in a strong position in introducing a flat rate if, when doing so, he dealt sympathetically with the special cases."—[OFFICIAL REPORT, 12th May, 1958; Vol. 588, c. 125.] It is that case which I am presenting this afternoon.

It seems peculiar, when so many other countries give financial assistance to sporting organisations, that the Chancellor should, in this Budget, be taking money from sporting organisations in this country. It is on that point that I base my case. It is a little difficult to present this special case, because I noticed that the Paymaster-General, replying to the debate on the last Amendment, said that these little special considerations consisted only of samples. That is an unusual way to argue in this Committee. It is usually said from the Treasury Front Bench, "Cannot you give us an example of what is meant?" So I propose to give the example of the Scottish Rugby Union.

The Scottish Rugby Union purchased Murrayfield Sports Ground in 1925. That tremendous arena cost £125,000. Debentures were issued and the rate of interest of 4 per cent. was paid, but some years later the interest rate was reduced to 3 per cent. In 1957, only last year, £80,000 of debentures were paid and a new issue of irredeemable debentures was issued on which no interest at all is paid. By so doing considerable sums of money were saved for the purposes of the Scottish Rugby Union. It intended to use that money to encourage Rugby clubs in the outlying districts to build up their clubs' strength—to give them assistance which they had been unable to give during the war years and the immediate post-war years.

By so doing, it was able to save £4,000 to £5,000 per annum, which, up to 1957, was paid in interest. As a result of the change made by the Chancellor the S.R.U. estimates that it will have to pay tax in the region of £2,000, that is, on the new 10 per cent. rate, compared with £600 it would have paid at the old rate. It seems absolutely mean and miserable of the Chancellor to try to take that sum of money from the organisation.

I have used that example to show the Chancellor what is happening, but the argument I have produced could be applied to every Rugby Union, the English, Irish and Welsh Unions, equally. They all have the same purpose. They are bodies which do not distribute profits, but take what is given back for the encouragement of the game.

I hope that the Chancellor will be a little more responsive on this Amendment than he was on the last, and will give the little encouragement for which we are asking to sporting organisations in Great Britain.

6.45 p.m.

Sir David Robertson (Caithness and Sutherland)

I rise to support strongly the case which has been put so well by the hon. Member for Leith (Mr. Hoy). I am glad that he did not particularise exclusively the Scottish Rugby Union, but brought in all the others who, with their great traditions of sport, produce not only good players, but people of the highest character who give service to the United Kingdom in war and on other occasions.

I speak on this subject with a certain amount of feeling. A few years ago I went back to my native City of Glasgow and spent a nostalgic weekend looking round the places I knew as a boy. I could not find one of the pitches I used to play on, pitches in the North, South, East and West on which I had played. I could not find one, not even First Hampden. It is true that part of that ground is preserved as a bowling green but the rest has gone for housing.

The Scottish Rugby Union, and the other unions, are the most non-profit-making bodies imaginable. They do not have shareholders, nor even debenture holders, but people agree to give their money, without interest, simply for the privilege of buying two tickets. Tickets cannot be bought from pirates, but only at the fixed price, when one is able to obtain them. These bodies render a great service by using the money to help small clubs on the fringes of big cities to buy grounds. That is the main purpose for which the money is used.

On the outskirts of big cities, where so many people have to spend their lives, games like Rugby and cricket are most valuable. Those who live in urban areas cannot enjoy the sun and the wind and the rain as those who live in country areas can. But for the help of these organisations, small clubs would never be able to buy their pitches.

I think it wrong at this time of "shamateurism", and when Government support is given to sporting organisations in many parts of Europe, that our organisations should be handicapped. We hear of "golden crown" sportsmen. I do not know what they are called behind the Iron Curtain, but we produce fellows who can play in a team. When I was a young fellow the Scottish Rugby Union would not permit the numbering of players. I am sorry that public opinion ever allowed that to be done, for it is not the fellow who touches the ball into who should count, but the whole team.

It is us, Parliament, who decide these things with the good will and help of the Chancellor and his colleagues on the Front Bench. I see my right hon. Friend is hanging his head. I think he feels very unhappy on this issue. He can regain his good spirits, as every hon. Member in the Committee can, if he will grant this concession. We do not want to penalise these people. We are not bloodsuckers wanting to chase people who support Rugby. No one in this country is paid to play Rugby. There can be no rule that is so general that no exception can be made.

I strongly urge my right hon. Friend to get out of the grips of bureaucracy, or whatever it is that is holding him back, and to do what obviously the whole Committee want him to do.

Mr. Raymond Gower (Barry)

I also wish to support this Amendment. I hope that my right hon. Friend the Chancellor will not be carried away by a passion for uniformity which appears to have motivated him in this matter so far, with the unfortunate result of putting an extra impost on these amateur and voluntary sporting organisations. I would respectfully remind him that a few years ago his predecessors accepted the view that amateur sporting organisations deserved rather different treatment from professional organisations. Therefore, those amateur organisations first received help under previous Finance Bills. It seems a step in a totally different direction to increase the actual taxation which will be levied on these organisations.

The hon. Member for Leith (Mr. Hoy) cited the particular case of Rugby Unions. From my knowledge of Rugby in England and Wales, I can say that he certainly did not exaggerate the position. Rugby in South Wales, I suggest, has one feature which is not characteristic of the whole country. It embraces in a large degree the whole population.

It is, in a sense, the national game in parts of South Wales. Many people who play Rugby make a considerable sacrifice out of their modest earnings to take part in it. It will be appreciated that, in recent years, those sacrifices have been increased by increased travelling expenses and the additional expense of players in fitting themselves out with jerseys and kit. These people are, in the best sense of the word, amateurs. That cannot be said of all sport today.

Rugby clubs in Wales, as in Scotland, in many cases, can not provide the essential changing rooms, showers and baths which they need without assistance from the parent union. It is those unions which will suffer if the Finance Bill in its present form is implemented. I am sure that my hon. Friend the Member for St. Marylebone (Sir W. Wakefield) will confirm that that is also the position around London, where there has been such a great expansion in recent years both in the number of Rugby clubs and the number of teams which the various clubs run.

I am sure that many hon. Members have seen how clubs have provided themselves with these facilities only with the assistance of the Rugby Union. I hope that the Chancellor of the Exchequer will not be hard-hearted about this. I think that it is a proper case for special treatment. There are other games which obviously could be considered in this respect. There are organisations, apart from Rugby, which also deserve his consideration. There is, for instance, the parent body of cricketers which may similarly be affected. I hope that this Amendment will have special consideration.

Sir Wavell Wakefield (St. Marylebone)

We have had appeals from Scotland and Wales. May I add the appeal from England for support from both sides of the Committee to help our great sporting bodies?

In my constituency we have the headquarters of cricket, the M.C.C. I have a letter from the secretary of the M.C.C. setting out figures for recent years which show very small surpluses indeed and on certain occasions none, and saying that if the present proposed increase in tax is made those slender surpluses will be even further reduced.

I also have particulars of the Rugby Football Union, of which I am a member of the Executive Committee. There again, surpluses will be substantially reduced if the present proposal of the Chancellor is carried through. I would point out that if the Chancellor gives the relief asked for, it will be very small indeed, but a substantial amount to these various voluntary organisations. That is the point. It is a few thousands but those few thousands just make all the difference.

When Entertainments Duty was removed it took away a great anxiety from these clubs. It enabled, instead of losses, small surpluses. I appeal to the Chancellor not to take away more of those surpluses, and I appeal to him most strongly for sympathetic consideration and help in this direction.

There has been special pleading this afternoon in connection with great financial institutions, like the building societies and various other commercial undertakings which provide services, buy and sell, and all the rest of it. The special pleading which we are now making is in a very different category. It is for these voluntary sporting bodies which pay no directors' fees, which have no shareholders and which do not pay dividends and interest. Everything that is made by them is ploughed back into the game.

This money is used to help provide playing fields and accommodation to which hon. Members have referred. I have a letter from a school in my constituency which will no longer be able to play Rugby football because a ground is not available for it. I hope that a Rugby club will enable that school to continue playing next season. There is an increasing demand for playing fields, and the money for them can come only from surpluses. The Rugby Football Union lends money from its surpluses at 1 per cent. or 2 per cent. to clubs, to obtain and buy their grounds and to enable school children, as well as grown men, to play games. These fields are used for cricket in the summer as well as football in the winter.

I do not want to take up the time of the Committee any longer in special pleading. I think that I have said enough to make it clear to the Chancellor that this is a special case and in quite a different category from the other cases which have already been discussed so fully this afternoon. I support the Amendment.

Mr. Tom Brown (Ince)

I want, in a few words, to support very strongly the Amendment under discussion. We have heard the voice of Scotland, the voice of Wales and the voice of England. I now add my voice from Lancashire which is perhaps more important than the other three.

It is important that the Chancellor should have regard to the importance of sport in this country. I know that we tend from time to time to play our part in that direction, but, unfortunately, the Chancellor comes along and displays what I would call niggardliness when dealing with amateur sport.

I have in my constituency a very important Rugby Union club. It is a club which can run five teams. Those five teams are carried on by the sacrifices of inhabitants of that town. They have to depend very largely upon the assistance which they can secure from the Rugby Union. Anything that is done which jeopardises or hinders the assistance which the Rugby Union can give to the clubs which are coming up is a step in the wrong direction, and I think that the Chancellor is doing wrong by applying this tax to the Rugby Union.

I support very strongly the advocacy that the Chancellor should again consider this Amendment and see whether he cannot concede it because of its importance to those clubs outside the perimeter of the great cities.

7.0 p.m.

Mr. Gordon Walker (Smethwick)

I think that I am right in saying that we are considering this Amendment with another, the purpose of which is that bodies and corporations, and so forth, which my their nature, form or terms of constitution cannot lawfully make any relevant distribution, shall continue to be taxed at 3 per cent. instead of 10 per cent.

Before turning to sport, I should like to say a word about that Amendment because it comprehends the cases of the sporting associations and which, if carried, would help them as well as a number of other bodies in somewhat similar conditions. Even if one grants that there ought to be an undifferentiated Profits Tax, which we are not prepared to grant, such a tax should be on profits in the normal sense and on bodies with shareholders, for example. The main argument which the Chancellor made when introducing this tax was that the existing differential rate disturbed the structure of companies between one kind of share and another.

If I concede all that for the purpose of argument, it remains true that it is inequitable that a body or corporation or any other society which cannot distribute profits should, for the sake of helping the general structure of capital, have this charge upon it. The great difference is that with ordinary companies the burden which falls on them may go up in some cases or down in some cases, but for bodies which cannot distribute the burden must go up from 3 per cent. to 10 per cent.

This applies to sporting associations, but also to many others which, because of their very nature, perhaps because of the Statutes which command them or their terms of association, cannot distribute. The only way in which the problem can be solved equitably is along the lines of the Amendment to which I have just referred. I hope that the Government will accept it, and, if not, that we shall divide in support of it when we reach it.

I want to turn to the particular case which, as will be seen from their speeches, obviously interests hon. Members very much—that of sporting associations. I do not agree with the hon. Member for Barry (Mr. Gower) that we are concerned specifically with amateur rather than professional sport. The fundamental point is that it should apply to bodies which cannot distribute, and, secondly, to bodies which, through any surpluses they make, help to provide playing fields, pavilions and other equipment. It is not essential that they should be amateur rather than professional. The test is whether they come in those two classes of not being able to distribute, because they have no shareholders, and of helping sport by providing playing fields and other facilities.

Like other hon. Members, I know of many examples of the way in which the Clause will impose an extra tax on playing fields and coaching schemes. By sticking to his doctrinaire position the Chancellor will put a tax on sport, on playing fields, on the equipment of sport and all those things which make it easier for people to play rather than to watch games. The tax applies to Association football as well as to Rugby Union. I remember once playing in a rugby match against the hon. Member for St. Marylebone (Sir W. Wakefield). He was a most terrifying fellow to have in the opposing pack, and I am glad to have him on the same side as myself tonight.

The Rugby Union will be paying £4,500 a year instead of £1,500 as a result of the tax on their savings. They distribute nothing except loans to clubs for playing fields and other facilities. This applies to the Rugby League and also to the M.C.C. It seems to me an indefensible change to be made for doctrinaire reasons which do not apply here at all. If the Chancellor does not reconsider this matter he will rightly earn for himself the name of the spoil-sport Chancellor, because that is what he is doing by rigidly insisting on a doctrinaire way of extending this change into a field where it does not apply.

I urge the Chancellor to think about this again. It seems eminently a case where there ought to be a free vote in the Committee, for it is not a matter of party doctrine. We are certainly prepared to have no Whips for the Division, if that is agreed by hon. Members opposite. This is not an issue in which one is either a Socialist or a Conservative; it is not a party issue. It is just a little, stupid extension of economic doctrine into an inappropriate field. In any case, I hope that we shall have the support of some hon. Members opposite and of the Liberals if we are most reluctantly forced to divide the Committee. I say "reluctantly" because I still very much hope that the Government will make a concession here.

Mr. Maudling

The Committee is discussing two Amendments, one of general and the other of particular character. I will take the general Amendment first and deal with it as best I can without trespassing on the argument of principle which should take place on the Question, "That the Clause stand part of the Bill." The Amendment is based on the principle that people who do not distribute profits should be treated differently from people who do distribute profits, but the principle of the Clause is to abolish that distinction, and it is therefore difficult for me to argue against the Amendment for making a special distinction in this case without also arguing the case for a unified Profits Tax. It would be a great pity if we were to have the case for unified Profits Tax discussed twice.

Mr. Gower

Is there not another distinction? These bodies not only do not distribute profits but cannot distribute profits. Does my right hon. Friend not see that that is a different case?

Mr. Maudling

I do not know whether my hon. Friend is talking about the general or the particular Amendment. In any case, I do not see that it makes any difference whether they do not or cannot distribute, because the purpose of the Clause is to charge Profits Tax on the basis of whether a profit is made. If a profit is made, the Clause will charge Profits Tax and will no longer take account of whether there is, can or cannot be any distribution. It will be argued that this is wrong, as it has already been argued that it is wrong, but I do not think it would benefit the Committee if I argued the principle on each Amendment as well as in the main debate which will take place at the end and which clearly will be important.

My right hon. Friend asks me to say that he has given a great deal of thought to the question of sports associations, as he undertook to do earlier. The position of those associations is that when they make profits they pay Income Tax and Profits Tax. The Amendment is a little misleading when it speaks of "non-profit making," because if a body does not make profits it does not pay Profits Tax. What is meant is that the profits are not distributed in the form of cash, but they are distributed in the form of benefits in kind to people who enjoy those benefits.

Mr. Gordon Walker

But not to shareholders.

Mr. Maudling

The shareholders are the members of the club. There is no difference in principle between making a profit which is taken out in the form of something in kind and making a profit which is taken out in cash. I agree that in this case the profit is not taken out by equity shareholders, but clearly there is a profit, because if there were no profit, then no Income Tax would be paid. If it were argued that there is no profit and that these clubs should pay no tax whatever on their trading income, that would at least be a consistent argument. I do not think it would be a good argument, and it is certainly not the argument before the Committee now.

The position is that these sporting bodies, like other bodies corporate, pay Income Tax and Profits Tax and receive the normal exemption and abatement provisions of Profits Tax. It would be a mistake to give the impression that this change in the Profits Tax would affect a lot of small clubs and associations, because they do not pay any Profits Tax unless their profits are more than £2,000 a year. Between £2,000 and £12,000 there is an abatement of one-fifth of the amount by which they fall short of £12,000. Those exemption and abatement provisions must be borne in mind when considering the effect of the tax upon the associations concerned.

The case has been put with considerable force and eloquence from both sides of the Committee and all sides of the compass, and it is that sporting bodies are so admirable and make such a contribution to our national life that they should be exempted from Profits Tax or should pay a specially low rate of Profits Tax. My right hon. Friend feels that that argument is no more valid than it would be to argue that they should have exemption from or be given a specially low rate of Income Tax. It is often argued that particular activities should pay specially low rates of Income Tax or should be specially exempt from Income Tax, but one of the great strengths of our taxation system is that it is based on certain clear principles and the avoidance wherever possible, of exceptions and anomalies. I think that that is particularly true of Income Tax.

My right hon. Friend feels that once we accepted that the sporting associations should have special exemption or special treatment in respect of Income Tax or Profits Tax, the way would be open to a large number of other claims. Therefore, my right hon. Friend is reluctantly forced to the conclusion that in unifying Profits Tax he is making it a simple tax falling on all the profits made by all bodies corporate, public or private, as recommended by the Royal Commission. He feels that he must stand by that principle and he regrets that he cannot depart from it, even to meet the very strong arguments put forward by hon. Members.

Mr. Hoy

I am extremely disappointed with the right hon. Gentleman's reply. I can well understand why the Chancellor of the Exchequer did not make that reply himself. He would have been ashamed to make it, so he called upon the right hon. Gentleman, who put one of the poorest cases which I have ever heard him make.

The right hon. Gentleman changed his argument, for he first referred to organisations which did not distribute profits and, when corrected and told that the argument was about organisations whose articles of association prevented them from distributing profits, he said that there did not seem to be very much difference. If he believed that, he would not occupy his present office. Of course it makes a difference.

The right hon. Gentleman said that the Amendment would result in different

rates of taxation, but there are already different rates of taxation. There are different rates throughout the Bill and there are different rates of Income Tax, depending upon one's income. The right hon. Gentleman said that this was a tidy arrangement. It is because it is tidy that it is unjust and he has argued that he would rather have it tidy and unjust than a little less tidy, but equitable.

The Minister's case was the poorest I have ever heard him make, and I am certain that not only my right hon. and hon. Friends but hon. Members in all parts of the Committee will want to make their protests in the Division Lobby.

Question put, That these words be there inserted:—

The Committee divided: Ayes 178, Noes 206.

Division No. 181.] AYES [7.12 p.m.
Ainsley, J. W. Gaitskell, Rt. Hon. H. T. N. McAlister, Mrs. Mary
Albu, A. H. George, Lady Megan Lloyd (Car'then) MacColl, J. E.
Allen, Arthur (Bosworth) Gibson, C. W. MacDermot, Niall
Awbery, S. S. Gordon Walker, Rt. Hon. P. C. McGovern, J.
Bacon, Miss Alice Greenwood, Anthony McInnes, J.
Balfour, A. Grenfell, Rt. Hon. D. R. McLeavy, Frank
Bence, C. R. (Dunbartonshire, E.) Grey, C. F. MacPherson, Malcolm (Stirling)
Benn, Hn. Wedgwood (Bristol, S. E.) Grimond, J. Mahon, Simon
Benson, Sir George Hall, Rt. Hn. Glenvil (Colne Valley) Mainwaring, W. H.
Beswick, Frank Hannan, W. Mallalieu, J. P. W. (Huddersfd, E.)
Blenkinsop, A. Harrison, J. (Nottingham, N.) Mann, Mrs. Jean
Blyton, W. R. Hastings, S. Mason, Roy
Boardman, H. Healey, Denis Mitchison, G. R.
Bonham Carter, Mark Henderson, Rt. Hn. A. (Rwly Regis) Monslow, W.
Bottomley, Rt. Hon. A. G. Herbison, Miss M. Morris, Percy (Swansea, W.).
Bowden, H. W. (Leicester, S. W.) Hewitson, Capt. M. Morrison, Rt. Hn. Herbert (Lewis'm, S.)
Braddock, Mrs. Elizabeth Hobson, C. R. (Keighley) Mort, D. L.
Brockway, A. F. Holman, P. Moss, R.
Broughton, Dr. A. D. D. Holt, A. F. Moyle, A.
Brown, Rt. Hon. George (Belper) Houghton, Douglas Neal, Harold (Bolsover)
Brown, Thomas (Ince) Howell, Charles (Perry Barr) Oliver, G. H.
Burke, W. A. Howell, Denis (All Saints) Oram, A. E.
Burton, Miss F. E. Hoy, J. H. Oswald, T.
Butler, Mrs. Joyce (Wood Green) Hughes, Emrys (S. Ayrshire) Owen, W. J.
Champion, A. J. Hughes, Hector (Aberdeen, N.) Padley, W. E.
Chapman, W. D. Hunter, A. E. Palmer, A. M. F.
Clunie, J. Hynd, J. B. (Attercliffe) Parkin, B. T.
Collins, V. J. (Shoreditch & Finsbury) Irvine, A. J. (Edge Hill) Paton, John
Craddock, George (Bradford, S.) Jay, Rt. Hon. D. P. T. Pearson, A.
Crossman, R. H. S. Jeger, George (Goole) Peart, T. F.
Dalton, Rt. Hon. H. Jeger, Mrs. Lena (Holbn & St. Pncs. S.) Pentland, N.
Popplewell, E.
Darling, George (Hillsborough) Jenkins, Roy (Stechford) Probert, A. R.
Davies, Rt. Hon. Clement (Montgomery) Johnson, James (Rugby) Proctor, W. T.
Davies, Stephen (Merthyr) Johnston, Douglas (Paisley) Pursey, Cmdr. H.
Delargy, H. J. Jones, David (The Hartlepools) Rankin, John
Diamond, John Jones, Jack (Rotherham) Redhead, E. C.
Dodds, N. N. Jones, J. Idwal (Wrexham) Reeves, J.
Donnelly, D. L. Jones, T. W. (Merioneth) Reid, William
Dugdale, Rt. Hn. John (W. Brmwch) Kenyon, C. Reynolds, G. W.
Ede, Rt. Hon. J. C. Key, Rt. Hon. C. W. Rhodes, H.
Edelman, M. King, Dr. H. M. Roberts, Albert (Normanton)
Edwards, Rt. Hon. Ness (Caerphilly) Lawson, G. M. Roberts, Goronwy (Caernarvon)
Edwards, Robert (Bilston) Lee, Frederick (Newton) Shurmer, P. L. E.
Edwards, W. J. (Stepney) Lever, Harold (Cheetham) Silverman, Julius (Aston)
Evans, Albert (Islington, S. W.) Lever, Leslie (Ardwick) Silverman, Sydney (Nelson)
Evans, Edward (Lowestoft) Lewis, Arthur Simmons, C. J. (Brierley Hill)
Fernyhough, E. Lindgren, G. S. Skeffington, A. M.
Fletcher, Eric Logan, D. G. Slater, Mrs. H. (Stoke, N.)
Fraser, Thomas (Hamilton) Mabon, Dr. J. Dickson Smith, Ellis (Stoke, S.)
Sorensen, R. W. Usborne, H. C. Williams, David (Neath)
Soskice, Rt. Hon. Sir Frank Viant, S. P. Williams, Rev. Llywelyn (Ab'tillery)
Sparks, J. A. Wade, D. W. Williams, Rt. Hon. T. (Don Valley)
Spriggs, L. Warbey, W. N. Wilson, Rt. Hon. Harold (Huyton)
Stross, Dr. Barnett (Stoke-on-Trent, C.) Watkins, T. E. Winterbottom, Richard
Summerskill, Rt. Hon. E. Weitzman, D. Woodburn, Rt. Hon. A.
Sylvester, G. O. Wells, Percy (Faversham) Yates, V. (Ladywood)
Taylor, Bernard (Mansfield) Wells, William (Walsall, N.) Zilliacus, K.
Taylor, John (West Lothian) West, D. G.
Thomas, George (Cardiff) Wheeldon, W. E. TELLERS FOR THE AYES:
Thomas, Iorwerth (Rhondda, W.) White, Mrs. Eirene (E. Flint) Mr. J. T. Price and Mr. Short.
Aitken, W. T. Grosvenor, Lt.-Col. R. G. Noble, Comdr. Rt. Hon. Allan
Allan, R. A. (Paddington, S.) Gurden, Harold Noble, Michael (Argyll)
Alport, C. J. M. Harris, Frederic (Croydon, N. W.) Nugent, G. R. H.
Amory, Rt. Hn. Heathcoat (Tiverton) Harrison, A. B. C. (Maldon) Oakshott, H. D.
Anstruther-Gray, Major Sir William Harrison, Col. J. H. (Eye) O'Neill, Hn. Phelim (Co. Antrim, N.)
Arbuthnot, John Harvey, Sir Arthur Vere (Macclesf'd) Ormsby-Gore, Rt. Hon. W. D.
Armstrong, C. W. Harvey, John (Walthamstow, E.) Orr-Ewing, Charles Ian (Hendon, N.)
Ashton, H. Heald, Rt. Hon. Sir Lionel Page, R. G.
Atkins, H. E. Heath, Rt. Hon. E. R. G. Pannell, N. A. (Kirkdale)
Baldwin, Sir Archer Henderson-Stewart, Sir James Partridge, E.
Balniel, Lord Hesketh, R. F. Peel, W. J.
Barber, Anthony Hicks-Beach, Maj. W. W. Peyton, J. W. W.
Barlow, Sir John Hill, Mrs. E. (Wythenshawe) Pickthorn, K. W. M.
Barter, John Hirst, Geoffrey Pike, Miss Mervyn
Batsford, Brian Hobson, John (Warwick & Leam'gt'n) Pilkington, Capt. R. A.
Baxter, Sir Beverley Holland-Martin, C. J. Pitman, I. J.
Beamish, Col. Tufton Hope, Lord John Price, David (Eastleigh)
Bell, Ronald (Bucks, S.) Hornby, R. P. Price, Henry (Lewisham, W.)
Bennett, Dr. Reginald Horobin, Sir Ian Ramsden, J. E.
Bevins, J. R. (Toxteth) Hudson, W. R. A. (Hull, N.) Rawlinson, Peter
Biggs-Davison, J. A. Hughes-Young, M. H. C. Redmayne, M.
Bingham, R. M. Hutchison, Michael Clark (E'b'gh, S.) Rees-Davies, W. R.
Bishop, F. P. Hyde, Montgomery Renton, D. L. M.
Black, C. W. Hylton-Foster, Rt. Hon. Sir Harry Ridsdale, J. E.
Body, R. F. Jenkins, Robert (Dulwich) Roberts, Sir Peter (Heeley)
Boyle, Sir Edward Jennings, J. C. (Burton) Roper, Sir Harold
Braine, B. R. Jennings, Sir Roland (Hallam) Ropner, Col. Sir Leonard
Braithwaite, Sir Albert (Harrow, W.) Johnson, Dr. Donald (Carlisle) Russell, R. S.
Bromley-Davenport, Lt.-Col. W. H. Johnson, Eric (Blackley) Scott-Miller, Cmdr. R.
Joseph, Sir Keith Sharples, R. C.
Bullus, Wing Commander E. E. Keegan, D. Shepherd, William
Campbell, Sir David Kerr, Sir Hamilton Simon, J. E. S. (Middlesbrough, W.)
Carr, Robert Kershaw, J. A. Smithers, Peter (Winchester)
Cary, Sir Robert Lambton, Viscount Spearman, Sir Alexander
Chichester-Clark, R. Langford-Holt, J. A. Speir, R. M.
Cole, Norman Legge-Bourke, Maj. E. A. H. Spence, H. R. (Aberdeen, W.)
Craddock, Beresford (Spelthorne) Legh, Hon. Peter (Petersfield) Stanley, Capt. Hon. Richard
Crosthwaite-Eyre, Col. O. E. Lindsay, Martin (Sollhull) Stevens, Geoffrey
Crowder, Sir John (Finchley) Linstead, Sir H. N. Steward, Harold (Stockport, S.)
Crowder, Petre (Ruislip—Northwood) Llewellyn, D. T. Steward, Sir William (Woolwich, W.)
Currie, G. B. H. Lloyd, Maj. Sir Guy (Renfrew, E.) Stoddart-Scott, Col. Sir Malcolm
Dance, J. C. G. Lloyd, Rt. Hon. Selwyn (Wirral) Stuart, Rt. Hon. James (Moray)
Davidson, Viscountess Longden, Gilbert Studholme, Sir Henry
D'Avigdor-Goldsmid, Sir Henry Low, Rt. Hon. Sir Toby Summers, Sir Spencer
Deedes, W. F. Lucas, P. B. (Brentford & Chiswick) Taylor, Sir Charles (Eastbourne)
Donaldson, Cmdr. C. E. McA. Lucas-Tooth, Sir Hugh Taylor, William (Bradford, N.)
Doughty, C. J. A. Macdonald, Sir Peter Teeling, W.
du Cann, E. D. L. Mackeson, Brig. Sir Harry Temple, John M.
Eden, J. B. (Bournemouth, West) McKibbin, Alan Thomas, Leslie (Canterbury)
Elliott, R. W. (Ne'castle upon Tyne, N.) Mackie, J. H. (Galloway) Thompson, Kenneth (Walton)
Emmet, Hon, Mrs. Evelyn McLaughlin, Mrs. P. Thompson, R. (Croydon, S.)
Errington, Sir Eric Maclean, Sir Fitzroy (Lancaster) Thorneycroft, Rt. Hon. P.
Fell, A. Macleod, Rt. Hn. Iain (Enfield, W.) Thornton-Kemsley, Sir Colin
Finlay, Graeme Macmillan, Rt. Hn. Harold (Bromley) Tiley, A. (Bradford, W.)
Fisher, Nigel Macmillan, Maurice (Halifax) Tilney, John (Wavertree)
Fletcher-Cooke, C. Macpherson, Niall (Dumfries) Vosper, Rt. Hon. D. F.
Fort, R. Maddan, Martin Wakefield, Edward (Derbyshire, W.)
Fraser, Sir Ian (M'cmbe & Lonsdale) Manningham-Buller, Rt. Hn. Sir R. Wakefield, Sir Wavell (St. M'lebone)
Gammans, Lady Markham, Major Sir Frank Wall, Patrick
Garner-Evans, E. H. Marlowe, A. A. H. Ward, Dame Irene (Tynemouth)
George, J. C. (Pollok) Maudling, Rt. Hon. R. Webbe, Sir H.
Gibson-Watt, D. Mawby, R. L. Webster, David
Glyn, Col. Richard H. Milligan, Rt. Hon. W. R. Whitelaw, W. S. I.
Gough, C. F. H. Mott-Radclyffe, Sir Charles Williams, Paul (Sunderland, S.)
Gower, H. R. Nabarro, G. D. N. Wills, Sir Gerald (Bridgwater)
Graham, Sir Fergus Nairn, D. L. S. Wilson, Geoffrey (Truro)
Grant, Rt. Hon. W. (Woodside) Neave, Airey Woollam, John Victor
Green, A. Nicholls, Harmar Yates, William (The Wrekin)
Gresham Cooke, R. Nicholson, Sir Godfrey (Farnham)
Grimston, Hon. John (St. Albans) Nicolson, N. (B'n'm'th, E. & Chr'ch) TELLERS FOR THE NOES:
Mr. Brooman-White and Mr. Bryan.
Mr. Frank Beswick (Uxbridge)

I beg to move, in page 14, line 31, at the end to insert: Provided that in relation to any trade or business carried on by any society registered under the Industrial and Provident Societies Acts, 1893–954, or under the Industrial and Provident Societies Acts (Northern Ireland) 1893–1955, this subsection shall not have effect and accordingly the profits tax shall be charged at the rate of three per cent. of the profits computed without allowing any deduction for dividends, bonuses, and similar distributions to members on their shares in the society. There has been a formidable attack upon the Paymaster-General's argument for uniformity and logic, and I am hoping that the cumulative effect of this attack has brought him to the point where he feels that he ought now to make a concession and take into account something other than just uniformity, tidiness and this so-called logic.

I want to make it clear at the outset that the effect of this Amendment, which should be considered together with the Amendment in Clause 21, page 15, leave out lines 23 to 26, is not to reduce the liability of the industrial and provident societies at all as compared with the position obtaining prior to this year's Budget. These two Amendments seek to put back those societies registered under the Industrial and Provident Societies Acts to the position in which they were at the beginning of this year. That in itself is a very modest request, and, indeed, several hon. Members have expressed surprise to me at the limited character of this Amendment.

After all, others are getting some reduction this year. The Budget as a whole tended to ease taxation. The Chancellor himself said on 15th April: … I can justifiably give up some small amount of revenue…."—[OFFICIAL REPORT, 15th April, 1958; Vol. 586, c. 59.] That, of course, is what he proceeded to do. He gave up some small amount of revenue to various bodies and sections of taxpayers.

I ask the right hon. Gentleman, when he is applying logic—he has been applying it so far to a very narrow consideration—what is the logic in giving up some small amount of revenue to various bodies and sections of taxpayers and then, when we come to the societies referred to in this Amendment, he is not leaving them as they were but he is, in fact, increasing their liability? I could have understood this if we were in some emergency, if we were having to scrape the bottom of the barrel, but we are in a year in which the Chancellor has felt able to make concessions amounting altogether to £108 million.

This Bill now increases the liability of co-operative societies by no less than £1.3 million a year—and this in a year when even within the Profits Tax there is a reduction in the liabilities of other companies amounting to £16 million a year while the building societies, whose case we were discussing earlier, have got a reduction in their liability of about £1 million a year.

Each co-operative society of which I am speaking has a separate calculation, and I am not proposing to give details of the individual cases, though I have no doubt that some of my hon. Friends could give quotations. But, in general, the effect of the changes in this Bill is to increase the liability of each society by twice as much as it was before. Some will pay a little less; some will have a liability amounting to three times that of last year, but in the main the effect will be to double the liability to Profits Tax. I cannot think that that is the result which the Chancellor either expected or desired.

Let us look again at the reasons which have been given for these changes. There is the first reason given by the Chancellor, supported by the Paymaster-General earlier today, that one rate of tax will be more simple, convenient and economic from the administrative point of view. I agree that the previous calculations were rather complicated. But they did not apply to co-operative societies. They paid at one rate of tax previously. There is no administrative advantage at all in this proposed change.

Then there is the argument that the differential rate led to distortion in the capital structure of companies. It is conceivable that the old lower rate for undistributed profits led some companies to retain some of the surplus which might otherwise have been distributed to shareholders. After all, that was its purpose. But it is also conceivable that some companies might have retained money which they could not immediately use. It is further conceivable—we can accept it for the purpose of argument—that some shareholders, if they were given a higher dividend, might well have reinvested the money in other companies where the money could have been more profitably employed.

Again, none of these considerations apply to the co-operative societies. Take, for example, a society such as that in which I have invested some money since I was a child—the Hucknall Torkard industrial and Provident Society. A member of that society would not go to the Barnsley British or to the Royal Arsenal to invest his money at a higher rate. That is not feasible and it does not apply. Apart from other considerations, a co-operative society is restricted by law in the interest which it pays on share capital.

In the second place—and this is an important consideration—a co-operative society did not have to retain surplus in order to evade tax or to reduce its liability. If it had really wanted to be obstinate and had wanted to avoid all taxation it could have distributed all its surplus as a dividend to customers on purchases. But I cannot really believe that that is what the Chancellor wishes to encourage.

That brings me to the other reasons which the Chancellor has given for this change. He has said that he wishes to strengthen the financial structure of industry and that he wishes to improve the supply of capital. On another occasion he said that he wanted to help in modernising and expanding our industrial system. But he does none of those things by means of this change as it applies to the co-operative societies. If he imposes this extra tax on the societies, he will not be encouraging them or helping them to expand, and he will not be improving their supply of capital. He will be putting pressure on them to pay more and more money in the form of dividends on purchases rather than ploughing it back into the development of their service to consumers. Here again, there is a difference as regards co-operative societies or societies registered under the Industrial and Provident Societies Acts and other companies in that the former cannot attract more capital by increasing their interest on shares. Their share interest is, of course, restricted by law. There can be no argument about it.

Is it really the Chancellor's purpose to prevent capital accretion in and the expansion of the Co-operative movement? I ask him, a former Minister of Agriculture who knows something about the growing movement of agricultural co-operation, particularly in his own part of the world, whether he wants to make it more difficult for the agricultural co-operatives to collect more capital so that they can increase their service to farmers. Does he really wish to hamper their growth? I should have thought that the Chancellor, who has some interest in these principles, I know, and has a particular interest in agriculture, would have wished to go out of his way to help farmers to help themselves in reducing the costs of agriculture.

7.30 p.m.

Not one of the economic and administrative advantages claimed for this unification of Profits Tax applies to co-operative societies. So far, we have not had any justification at all on economic or administrative grounds for increasing the old flat rate as it applies to the industrial and provident societies to a new and higher flat rate. All that the Chancellor has been able to say, and all that the right hon. Gentleman said in reply to other arguments advanced earlier today, is that these changes placed all societies on, as he put it, precisely the same basis as other bodies. His other defence is that, in any case, the Royal Commission suggested that the changes should be made.

As regards the recommendations of the Royal Commision, not all of them has been accepted, and I should not have thought that that was a conclusive argument. In any case, this change does not put the industrial and provident societies on precisely the same basis as other companies, nor did the Royal Commission suggest that they should be so placed. The Royal Commission recommended, and the Chancellor agreed, that societies should be put on a different basis as regards interest on share capital. The Royal Commission accepted the principle that there was something very different between a society formed to give a service to its members and a company formed to make a profit on subscribed capital. The argument about putting them all on the same basis does not really carry very much weight. Moreover, I maintain that there is nothing at all in the Report of the Royal Commission which can be construed as recommending an increase in the burden of taxation upon co-operative societies, especially when the burden is being reduced elsewhere.

The Minister quoted from the Report several times. There are four paragraphs on page 169 dealing with industrial and provident societies. Three of those four paragraphs deal with the taxation history, and the fourth contains a recommendation that the societies should be given a concession, namely, that because the distinction between a society member and a creditor by deposit is such a fine one the interest on shareholdings ought not to attract Profits Tax. Indeed, the Commission goes further and apologises for not recommending immediate relief in this matter which it admits in logic it would be justified in doing. The only reference in the Report which can be held to justify this upward revision is contained in the few words the Minister quoted earlier, in paragraph 562: The main principle … is that a tax on the profits … should apply to all profits without distinction". This is very nice and tidy, but I support what was said earlier today about niceness, tidiness and administrative convenience not being the only considerations that we should apply in taxation matters. In any case, as I said, the Report itself breaches this principle when it goes on to argue firmly that there is a difference between so-called profits in these societies and the profits of companies registered under the Companies Act.

The Commission itself points out very clearly what the differences are. In paragraph 572, it says: A member of one of these societies is not in a position easily comparable with that of an ordinary shareholder. There is a limit on the number of shares he can hold: his voting power is not pro rata to his shareholding; and, unless the rules of his society prescribe otherwise, he can withdraw the money represented by his share on notice. The Commission goes on to emphasise the democratic character of the society—one member one vote.

The Commission could have pointed out that there was no such thing as capital appreciation in these societies. The Report says elsewhere that, to a large extent, the capital collected is reinvested in Government securities and the Co-operative movement is largely a small savings movement. It is, indeed, a movement which has done as much as, if not more than, any other organisation to encourage thrift. The Commission could have said that the movement has done a lot to keep down the cost of living. It could have pointed out that the system of co-operation was enabling farmers to pioneer new methods of marketing and self-supply and feed and fertilisers.

We are told today that the fight is against inflation. I should have thought that the Government would have departed from their narrow application of logic and considered what could be done to help in the fight against inflation. They ought to have considered what they could do to help thrift and self-help. How can we encourage the democratic principle, how to encourage this collective effort to cut down the cost of living? One would have expected the Government to have gone out of their way to encourage an organisation doing those things. But, instead of doing that, they have contrived to penalise the movement in a way which I cannot really believe was intended.

I am not here asking for concessions. We are not asking for the same reductions in the tax liability which the Chancellor has extended to private companies. We are pointing out that these changes as they apply to the societies have the curious effect of increasing their liability, with the result that this admirable sector of our economy is being harmed. If I may say so, the Financial Secretary listened very carefully when some of us went on a deputation to see him recently, and I hope very much that the right hon. Gentleman this evening will, on reflection, accept the Amendment.

Mr. A. E. Oram (East Ham, South)

The theme running through the replies of the Paymaster-General to the series of debates we have had today has been that the intention behind the changes in Profits Tax is to treat everything in the same way, to treat distributed profits in the same way as undistributed profits, to treat all kinds of organisations in precisely the same way.

My hon. Friend the Member for Uxbridge (Mr. Beswick) has pointed to some very significant differences between co-operative societies, on the one hand, and ordinary companies on the other. In my view, it cannot be too often said that the two types of organisation are entirely different in their financial structure and in the purposes they seek to serve. It is, therefore, wrong to suggest that justice can be done by imposing the same type of tax on both.

I wish to point to a significant difference which exists between co-operative societies and private companies in the setting aside of retained profits or reserves and the different considerations that are applied by a co-operative board of directors as compared with the board of an ordinary company.

I should like the Committee to consider the two boardrooms and the decisions that have to be taken in those boardrooms. I think that the Committee will agree that they are completely different decisions. In the boardroom of the private company there are people who have been elected by the shareholders, and the directors are appointed to serve the financial interests of the shareholders. In the boardroom of the co-operative society there are people elected by the consumer members and it is their purpose to serve the interests of the consumers.

When it is considered how much should be distributed and how much should be retained in reserve, there is a significant difference. It is true that in the company it is an important decision, perhaps a difficult decision, but it is not a tremendously burdensome decision. If it is decided to increase the dividend, that is obviously a direct advantage to the shareholders, but if, on the other hand, it is decided to retain the profits in the company it is an indirect, although not a very indirect, advantage to the shareholders as well, because the ploughing back of reserves in that way increases the capital value of the shareholding, and the individual shareholder can sell his shares on the Stock Exchange and reap the benefit which derives from the ploughing back of profits.

But that decision does not apply with regard to the Co-operative movement. The dilemma which the board of directors of the co-operative society has to face is this. Their whole urge, the whole purpose and point of co-operative activity, is to distribute the "divi" to the consumer member. It is the purpose of the board of the co-operative society to give the consumer member a deferred price reduction. In that way, a decrease in the cost of living is effected. However, there is also, obviously, the need to conserve resources. If the directors decide to plough the reserves back—and this is the significant difference between the two organisations—then the shareholder, the consumer member, reaps no direct personal advantage from the ploughing back of the reserves. Unlike the share in a company, his co-operative share is not realisable on any market. He can only put money into the society and withdraw it. He cannot sell his share to another member and he cannot reap any capital value.

In my judgment, that is a most significant difference. It means that the ploughing back of reserves into a co-operative society is an extremely difficult decision for co-operative boards of directors to make. I know, because I have wrestled with the same problem many times. This is revealed by the fact that co-operative societies have found themselves able to plough back in that way only about 4 per cent. of the surplus, whereas with companies the proportion is nearer 50 per cent. This shows that there is a fundamental difference between the two types of organisation.

7.45 p.m.

That is why we say that it is wrong and directly harmful to the co-operative society to impose a 10 per cent. tax upon the reserves which it ploughs back. It will double the dilemma which a thousand co-operative boardrooms are facing twice every year, and it will distincly hamper the development of co-operative enterprise. We hear from time to time that the benches opposite are filled with people who are friendly in their disposition towards the Co-operative movement. In their actions and decisions on occasions such as this we find that the opposite is very often the case. Tonight, we have a test whether they will pursue the policy of taxing co-operative societies in a way which will hamper co-operative development, or whether they will accept the Amendment and do justice to the Co-operative movement.

Mr. John Rankin (Glasgow, Govan)

My hon. Friend the Member for East Ham, South (Mr. Oram) contrasted the difference between the ordinary company and the co-operative society. I think I should pursue the point a little further and contrast those who support the ordinary company and those who support the Co-operative movement. There is a very important difference, because the majority of those who carry on the main activity of the co-operative society are women of the working class. Their purchases, such as food, clothing, furniture and household necessities, are made in the co-operative society.

I think it can be safely said—and I know that this is true all over Scotland—that few of those women have the faintest interest in what goes on in ordinary companies. Stocks and shares are unknown quantities to them. Their primary interest in purchasing in the Co-operative movement is that, by their purchases and as a consequence of them, a little surplus will accumulate in their local store which will be to their credit. It is something that is apart from the income of the husband, something that the woman acquires. It is a little extra of her own which derives from her loyalty to the Co-operative movement.

My hon. Friend has suggested that 4 per cent. of that surplus is left to the societies for investment. At the end of every quarter in my local society five days have to be set aside for the women of the south side of Glasgow to draw out the little money that has been stored up as a result of their purchases in the society to help to supply in many cases their homes with still more of the amenities of life.

The danger is that the Chancellor of the Exchequer is going to limit these desirable activities. The Scottish Co-operative Wholesale Society, which is the wholesale organisation in Scotland, will pay £80,000 extra in tax. St. Cuthbert's Society, which is the largest retail society in Scotland, will be taxed £90,000 more. I should imagine, although I have no firm figures, that my own society, Glasgow South, will probably have to find £60,000 more. These amounts must come off what is paid at the end of the quarter to the women of whom I have been speaking. I am sure that that is something that the Chancellor of the Exchequer does not want to happen.

It is unfair to try to treat in the same way organisations which are fundamentally different, as the right hon. Gentleman is trying to do. That has been said by both of my hon. Friends and I apologise for saying it again, but it is a fundamental objection. We cannot treat the private company and the co-operative society in the same way, because, fundamentally, their methods of trading and their purpose are entirely different.

In this way, the Government are penalising thousands upon thousands, if not millions, of women all over the country who derive some little benefit from these simple transactions. I am sure that the right hon. Gentleman does not want to do that, and I hope that when he replies the Paymaster-General will say that that is not his intention and that he will take appropriate steps to remedy what he has done.

Mr. Maudling

The hon. Member for Uxbridge (Mr. Beswick), who moved the Amendment, and his hon. Friends who have supported it clearly have a great knowledge of the Co-operative movement and its activities. In dealing with the Amendment, I will try to deal as clearly and as cogently as possible with the basis upon which the new tax treatment of co-operative societies is to be based.

In the Bill, we are carrying out exactly the recommendations of the Royal Commission. The hon. Member for Uxbridge questioned this, but, looking at them again, I cannot see how we have in any way departed from the recommendations of the Royal Commission. That, however, is not my main argument. The argument I want to make is that this new system will be a fair and equitable way of taxing the profits of co-operative societies, a subject which has in the past been the cause of much controversy on both sides.

It has been said by one or two hon. Members that I have used the argument that all profits should be treated alike. What I meant to say—perhaps I did not make myself entirely clear—was that all trading profits, properly computed, should bear Profits Tax at the same rate. That is the principle of the Royal Commission. In computing what are to be treated as trading profits, however, one must take into account the circumstances of each type of organisation. That is why the Commission recommended that in computing the profits of co-operative societies they should be treated differently from the profits of private companies. That is absolutely right, for reasons which hon. Members have advanced. The Commission said that once the trading profits had been computed they should be taxed at the same rate as for other companies.

There has always been a certain amount of prejudice in the subject of the tax treatment of co-operatives, arising partly from the confusion between the two different types of dividend. I have often heard it argued that the ordinary "divi" which is paid out to people should be taxed. Of course it should not. That was always a bad argument. It is a rebate or, in effect, a reduction in price. On the other hand, there is the particular position of the dividend which is paid on the shareholdings in the co-operative societies, which has not been allowed as a deduction in computing the liability of the co-operative societies to Profits Tax. A proportion of that has, however, been allowed on the argument that of the money involved, the greater part—say, 80 per cent., if that is the figure—is normally lent to the Co-operative Wholesale Society and represents a form of loan and not money employed in a business. That was recognised by the Royal Commission and is accepted in the Bill. It is a point upon which the co-operative societies have a strong case, which has been acknowledged.

Broadly speaking, as the Commission said in paragraph 572, the distinction between a member and a mere creditor by deposit becomes a very fine one. Therefore, the members of the societies are being treated for this purpose as depositors and the so-called dividend which is paid to shareholders is treated, as it ought to be, as a fixed interest payment on a loan and not as a dividend on an equity participation. That being so, the proper, logical and fair treatment has been arrived at by the Royal Commission and by the Bill in computing what should be the profits upon which the societies should pay Profits Tax. They will be only the profits earned by trading and retained in the business as retained profits. The money paid out as "divi" and the money paid out as dividends upon the shareholdings will be treated as expenses to be taken into account before settling what are the trading profits.

Therefore, as I understand, the only sums which will be subject to Profits Tax will be that part of the trading profits of the societies which they plough back into the business. The hon. Member for East Ham, South (Mr. Oram) said this in his description of what was happening.

The question is whether the amount ploughed back into the business of co-operative societies should be taxed at the general rate or at a special lower rate. The argument for taxing it at the same rate is overwhelmingly strong. There can be no question here, as was raised on previous Amendments, of whether these are trading activities. Of course these societies are engaged in trading activities and they are earning trading profits. What is more—this is the overwhelming reason—they are engaged in direct competition with other people and other enterprises. They are engaged directly in competition with small private businesses and individuals, who, however, do not pay Profits Tax. The money that the societies plough back into the expansion and strengthening of their business is the same as the money ploughed back by the private trading concern into the strengthening and expansion of its business.

Mr. Beswick

Would the right hon. Gentleman not agree that the individual private tradesman does not pay Profits Tax?

Mr. Maudling

That is what I said. Perhaps I was speaking too fast and the hon. Member did not hear me. The Profits Tax applies not to individuals, but to companies. It is true that there have been the abatement provisions, but they apply to co-operatives as much as to anybody else. In so far as people competing with co-operatives pay Profits Tax, my argument is that they should pay it on the same basis as their competitors.

Mr. Oram

Does the right hon. Gentleman not recognise that these changes are having the effect of reducing the Profits Tax levied on the large competitors of the Co-operative movement and will put up the Profits Tax that the Co-operative movement is to pay?

Mr. Maudling

My argument is that they should both be placed on a fair basis. I do not see how it can be said to be fair that when two businesses are competing against one another and ploughing back profits to expand their business and strengthen their competitive power, one should be taxed on its retained profits at a higher rate than the other. That is a strong, if not overwhelming, argument in this case.

Reference has been made to the deputation that was received by my hon. and learned Friend the Financial Secretary. I assure hon. Members that all the arguments which have been put forward have been carefully studied and analysed. Nevertheless, we come back to the basic proposition, which the Government consider is decisive, that when there is direct competition between trading concerns, they should pay tax on their retained profits on the same basis. That is the reason why I cannot accept the Amendment.

Mr. Roy Jenkins

The Paymaster-General has ploughed on, rejecting a whole series of Amendments on roughly similar grounds. It is noticeable that as he has gone on the Government majority has shrunk steadily. I hope that, from the right hon. Gentleman's point of view, it will not go down much further. It was very low on the last occasion, and I am not sure that it can sustain many more appeals to strict logic on the part of the right hon. Gentleman.

As I understood his argument, the view of the Government is that until the Budget was brought in the taxation position relating to co-operative societies placed them at an unfair advantage as compared with other trading concerns. This must be the viewpoint of the Government if they believe, as is apparent, that a redistribution of the burden in favour of the great majority of private retail businesses and against co-operative societies produces a fairer sharing of the burden. The right hon. Gentleman shakes his head, but I cannot see to what other conclusion his argument can lead.

8.0 p.m.

Mr. Maudling

My argument was solely designed to show what would be the fair and proper way to treat co-operative societies in the entirely new context of unified Profits Tax, not a differential Profits Tax.

Mr. Jenkins

The right hon. Gentleman must not rest his case too much on rather metaphysical considerations of what should be the proper tax in a new, logical position.

The fact remains that as the result of the change the co-operative societies will pay more and the private retailers will pay less. If the right hon. Gentleman regards that as a fair position he must have regarded the previous position as not being fair. That is not a position we have heard him take before. If the Government and the right hon. Gentleman have changed their view there is a large element of the ex post facto about the argument in favour of the position being brought about.

The right hon. Gentleman in a sense redefined and advanced to some extent his logical position in saying that the Government were overwhelmingly concerned that the rate of tax should be uniform and that it is a matter of comparative unimportance what should be the basis of the tax.

Mr. Maudling

I was explaining what the Royal Commission said, that the rate of tax on profits should be the same when we have computed the profits, but that when we apply the same principles of computation of profits to different circumstances we do get different results. It is perfectly simple. It is exactly the same principle as has always obtained with Income Tax.

Mr. Jenkins

Let us deal with what the Government believe rather than what the Royal Commission said. It is perfectly true that in this case the Government and the Royal Commission, at any rate the majority of the Royal Commission, march alongside one another, but the right hon. Gentleman knows perfectly well that there have been cases where, rightly, the Government have not been prepared to accept the Royal Commission's recommendations. While we should have at the back of our minds what the Royal Commission said, what we have to deal with are the Government's proposals and not the Royal Commission's arguments.

The Government, I understood the right hon. Gentleman to say, thought there was room for change, and indeed a change has been made, and that there was room for differences in the methods by which the basis of Profits Tax could be calculated, but that there was no room for difference in the weight of the tax. This amounts to a redefinition of the position which the right hon. Gentleman previously took up.

I do not understand that the Government's logic in this respect carries them to such an extent that they would have complete exemption in the case of overseas trading corporations which, I should have thought, to some extent, whatever the rights and wrongs of that, would offend against the exact logic of the Government's position.

I return upon this Amendment to a point I made on a previous Amendment. We must judge the position which we are discussing and have been discussing previously not only by the theory behind it but by its practical effects. The practical effects of the position in which the Government now place the co-operative societies will be extremely difficult and anomalous, because we are not merely moving, as we have done with companies generally, from the state of affairs in which there was a substantial incentive not to distribute but to plough back profits to one in which we say that whether they distribute or not they pay the tax. For the co-operative societies there will be a positive incentive to distribute as much as they possibly can on dividends on purchases. The more conservative is the distribution policy of a co-operative society, the more anxious it is to plough back and to extend its business, the greater will be the amount of Profits Tax which it will be liable to pay. That seems to me to be a very odd position for the Government to create. The right hon. Gentleman shakes his head with great consistency tonight in one direction.

Mr. Maudling

It is exactly the same as the position of the private trader. One might say that it gave him an incentive to reduce prices and so to reduce profits. It is the same thing exactly.

Mr. Jenkins

No. I think the right hon. Gentleman is not quite right in that. The Profits Tax falls on both the distributed profits and the undistributed profits of the private trader. To the co-operative societies we are saying that it shall fall on their undistributed profits, and so

saying to any society in particular that its liability shall be greater the more it ploughs back to extend business. It is surely the case that if we have two co-operative societies which make exactly the same amount of profit and one, being perhaps a more dynamic society, is anxious to plough back a larger proportion of its profit and to pursue a more conservative dividend policy, that society shall have a higher liability to Profits Tax than the other society.

I am glad I have at last got the right hon. Gentleman shaking his head in one direction rather than the other. Thus we have now elucidated, with some difficulty, that this is the right hon. Gentleman's view of the position. I cannot think that he will not think that this is an odd position and certainly a great departure from the previous position of business generally that there should be a positive incentive to plough back. What this Clause as a whole does is to remove the general incentive to plough back, but for co-operative societies it goes fully in the other direction and gives them a positive incentive not to plough back. That seems to me to be a very undesirable and very anomalous position.

I think that my hon. Friends have made out overwhelmingly the case that co-operative societies are in a different position from the general run of private companies. In view if this, and of the fact that the Government have now created for co-operative societies a position in which they are penalised by ploughing back their profits, and that the Budget, on the whole, makes some concessions but singles, out co-operatives in these circumstances, with a limited number of other concerns, and puts them in a position of having to pay substantially more tax, I am sure that my right hon. and hon. Friends will wish to press this matter to a Division.

Question put: That those words be there inserted:—

The Committee divided: Ayes 178, Noes 215.

Division No. 182.] AYES [8.8 p.m.
Ainsley, J. W. Benn, Hn. Wedgwood (Bristol, S. E.) Bottomley, Rt. Hon. A. G.
Albu, A. H. Benson, Sir George Bowden, H. W. (Leicester, S. W.)
Allen, Arthur (Bosworth) Beswick, Frank Braddock, Mrs. Elizabeth
Awbery, S. S. Blenkinsop, A. Brockway, A. F.
Bacon, Miss Alice Blyton, W. R. Broughton, Dr. A. D. D.
Balfour, A. Boardman, H. Brown, Rt. Hon. George (Belper)
Bence, C. R. (Dunbartonshire, E.) Bonham Carter, Mark Brown, Thomas (Ince)
Burke, W. A. Hynd, J. B. (Attercliffe) Popplewell, E.
Burton, Miss F. E. Irvine, A. J. (Edge Hill) Probert, A. R.
Butler, Mrs. Joyce (Wood Green) Isaacs, Rt. Hon. G. A. Proctor, W. T.
Champion, A. J. Jay, Rt. Hon. D. P. T. Pursey, Cmdr. H.
Chapman, W. D. Jeger, Mrs. Lena (Holbn & St. Pncs, S.) Rankin, John
Clunie, J. Jenkins, Roy (Stechford) Redhead, E. C.
Collins, V. J.(Shoreditch & Finsbury) Johnson, James (Rugby) Reeves, J.
Craddock, George (Bradford, S.) Johnston, Douglas (Paisley) Reid, William
Crossman, R. H. S, Jones, David (The Hartlepools) Reynolds, G. W.
Dalton, Rt. Hon. H. Jones, Jack (Rotherham) Rhodes, H.
Darling, George (Hillsborough) Jones, J. Idwal (Wrexham) Roberts, Albert (Normanton)
Davies, Rt. Hon. Clement (Montgomery) Jones, T. W. (Merioneth) Roberts, Goronwy (Caernarvon)
Davies, Stephen (Merthyr) Kenyon, C. Shurmer, P. L. E.
Deer, G. Key, Rt. Hon. C. W. Silverman, Julius (Aston)
Delargy, H. J. King, Dr. H. M. Silverman, Sydney (Nelson)
Diamond, John Lawson, G. M. Simmons, C. J. (Brierley Hill)
Dodds, N. N. Lee, Frederick (Newton) Skeffington, A. M.
Donnelly, D. L. Lever, Harold (Cheetham) Slater, Mrs. H. (Stoke, N.)
Dugdale, Rt. Hn. John (W. Brmwch) Lever, Leslie (Ardwick) Smith, Ellis (Stoke, S.)
Ede, Rt. Hon. J. C. Lewis, Arthur Snow, J, W.
Edelman, M. Lindgren, G. S. Sorensen, R. W.
Edwards, Rt. Hon. Ness (Caerphilly) Logan, D. G. Soskice, Rt. Hon. Sir Frank
Edwards, Robert (Bilston) Mabon, Dr. J. Dickson Sparks, J. A.
Edwards, W. J. (Stepney) McAlister, Mrs. Mary Spriggs, Leslie
Evans, Edward (Lowestoft) MacColl, J, E. Stonehouse, John
Fernyhough, E. MacDermot, Nlall Stross, Dr. Barnett (Stoke-on-Trent, C.)
Foot, D. M. McGovern, J. Summerskill, Rt. Hon. E.
Fraser, Thomas (Hamilton) McInnes, J. Sylvester, G. O.
George, Lady Megan Lloyd (Car'then) McLeavy, Frank Taylor, Bernard (Mansfield)
Gibson, C. W. MacPherson, Malcolm (Stirling) Taylor, John (West Lothian)
Gordon Walker, Rt. Hon. P. C. Mahon, Simon Thomas, George (Cardiff)
Greenwood, Anthony Mainwaring, W. H. Thomas, Iorwerth (Rhondda, W.)
Grenfell, Rt. Hon. D. R. Mallalieu, J. P. W. (Huddersfd, -E). Usborne, H. C.
Grey, C. F. Mann, Mrs. Jean Viant, S. P.
Griffiths, William (Exchange) Wade, D. W.
Grimond, J. Mason, Roy Warbey, W. N.
Hall, Rt. Hn. Glenvil (Colne Valley) Mitchison, G. R. Watkins, T. E.
Hannan, W. Morris, Percy (Swansea, W.) Weitzman, D.
Harrison, J. (Nottingham, N.) Morrison, Rt. Hn. Herbert (Lewis'm, S.) Wells, William (Walsall, N.)
Hastings, S. Mort, D. L. West, D. G.
Hayman, F. H. Moss, R. Wheeldon, W. E.
Henderson, Rt. Hn. A. (Rwly Regis) Moyle, A. Williams, David (Neath)
Herbison, Miss M. Neal, Harold (Bolsover) Williams, Rev. Llywelyn (Ab'tillery)
Hewitson, Capt. M. Oliver, G. H. Williams, Rt. Hon. T. (Don Valley)
Hobson, C. R. (Keighley) Oram, A. E. Wilson, Rt. Hon. Harold (Huyton)
Holman, P. Oswald, T. Winterbottom, Richard
Houghton, Douglas Owen, W. J. Woodburn, Rt. Hon. A.
Howell, Charles (Perry Barr) Padley, W. E. Yates, V. (Ladywood)
Howell, Denis (All Saints) Palmer, A. M. F. Zilliacus, K.
Hoy, J. H. Pargiter, G. A.
Hughes, Emrys (S. Ayrshire) Paton, John TELLERS FOR THE AYES
Hughes, Hector (Aberdeen, N.) Pearson, A. Mr. J. T. Price and
Hunter, A. E. Peart, T. F. Mr. G. H. R. Rogers.
Hynd, H. (Accrington) Pentland, N.
Agnew, Sir Peter Braithwaite, Sir Albert (Harrow, W.) Finlay, Graeme
Aitken, W. T. Bromley-Davenport, Lt.-Col. W. H. Fisher, Nigel
Alport, C. J. M. Brooman-White, R. C. Fletcher-Cooke, C.
Amory, Rt. Hn. Heathcoat (Tiverton) Bryan, P. Fort, R.
Anstruther-Gray, Major Sir William Bullus, Wing Commander E. E. Fraser, Hon. Hugh (Stone)
Arbuthnot, John Campbell, Sir David Fraser, Sir Ian (M'cmbe & Lonsdale)
Armstrong, C. W. Carr, Robert Gammans, Lady
Ashton, H. Cary, Sir Robert Garner-Evans, E. H.
Baldwin, Sir Archer Chichester-Clark, R. George, J. C. (Pollok)
Balniel, Lord Cole, Norman Glyn, Col. Richard H.
Barber, Anthony Cooper, A. E. Godber, J. B.
Barlow, Sir John Craddock, Beresford (Spelthorne) Gough, C. F. H.
Barter, John Crosthwaite-Eyre, Col. O. E. Gower, H. R.
Batsford, Brian Crowder, Sir John (Finchley) Graham, Sir Fergus
Baxter, Sir Beverley Crowder, Petre (Ruislip—Northwood) Grant, Rt. Hon. W. (Woodside)
Beamish, Col. Tufton Currie, G. B. H. Green, A.
Bell, Ronald (Bucks, S.) Dance, J. C. G. Gresham Cooke, R.
Bennett, Dr. Reginald Davidson, Viscountess Grimston, Hon. John (St. Albans)
Bevins, J. R. (Toxteth) D'Avigdor-Goldsmid, Sir Henry Grosvenor, Lt.-Col. R. G.
Biggs-Davison, J. A. Deedes, W. F. Gurden, Harold
Bingham, R. M. Donaldson, Cmdr. C. E. McA. Harris, Frederic (Croydon, N. W.)
Bishop, F. P. Doughty, C. J. A. Harrison, A. B. C. (Maldon)
Black, C. W. du Cann, E. D. L. Harrison, Col. J. H. (Eye)
Body, R. F. Eden, J. B. (Bournemouth, West) Harvey, Sir Arthur Vere (Macclesf'd)
Bossom, Sir Alfred Elliott, R. W. (Ne'castle upon Tyne, N.) Harvey, John (Walthamstow, E.)
Boyle, Sir Edward Errington, Sir Eric Heald, Rt. Hon. Sir Lionel
Braine, B. R. Fell, A. Heath, Rt. Hon. E. R. G.
Henderson-Stewart, Sir James Maddan, Martin Sharples, R. C.
Hesketh, R. F. Maitland, Cdr. J. F. W. (Horncastle) Shepherd, William
Hicks-Beach, Maj. W. W. Manningham-Buller, Rt. Hon. Sir R. Simon, J. E. S. (Middlesbrough, W.)
Hill, Mrs. E. (Wythenshawe) Markham, Major Sir Frank Smithers, Peter (Winchester)
Hirst, Geoffrey Marlowe, A. A. H. Spearman, Sir Alexander
Hobson, John (Warwick & Leam'gt'n) Marshall, Douglas Speir, R. M.
Holland-Martin, C. J. Maudling, Rt. Hon. R. Spence, H. R. (Aberdeen, W.)
Hope, Lord John Mawby, R. L. Stanley, Capt. Hon. Richard
Hornby, R. P. Medlicott, Sir Frank Stevens, Geoffrey
Horobin, Sir Ian Milligan, Rt. Hon. W. R. Steward, Harold (Stockport, S.)
Hudson, W. R. A. (Hull, N.) Mott-Radclyffe, Sir Charles Steward, Sir William (Woolwich, W.)
Hughes-Young, M. H. C. Nabarro, G. D. N. Stoddart-Scott, Col. Sir Malcolm
Hutchison, Michael Clark (E'b'gh, S.) Nairn, D. L. S. Stuart, Rt. Hon. James (Moray)
Hyde, Montgomery Neave, Airey Studholme, Sir Henry
Hylton-Foster, Rt. Hon. Sir Harry Nicholson, Sir Godfrey (Farnham) Summers, Sir Spencer
Jenkins, Robert (Dulwich) Nicolson, N. (B'n'm'th, E. & Chr'ch) Taylor, Sir Charles (Eastbourne)
Jennings, J. C. (Burton) Noble, Comdr. Rt. Hon. Allan Taylor, William (Bradford, N.)
Jennings, Sir Roland (Hallam) Noble, Michael (Argyll) Teeling, W.
Johnson, Dr. Donald (Carlisle) Nugent, G. R. H. Temple, John M.
Johnson, Eric (Blackley) Oakshott, H. D. Thomas, Leslie (Canterbury)
Joseph, Sir Keith O'Neill, Hn. Phelim (Co. Antrim, N.) Thompson, Kenneth (Walton)
Keegan, D. Orr-Ewing, Charles Ian (Hendon, N.) Thompson, R. (Croydon, S.)
Kerr, Sir Hamilton Osborne, C. Thorneycroft, Rt. Hon. P.
Kershaw, J. A. Page, R. G. Thornton-Kemsley, Sir Colin
Lambton, Viscount Pannell, N. A. (Kirkdale) Tiley, A. (Bradford, W.)
Langford-Holt, J. A. Partridge, E. Tilney, John (Wavertree)
Legge-Bourke, Maj. E. A. H. Peel, W. J. Vickers, Miss Joan
Legh, Hon. Peter (Petersfield) Peyton, J. W. W. Vosper, Rt. Hon. D. F.
Lennox-Boyd, Rt. Hon. A. T. Pickthorn, K. W. M. Wakefield, Sir Wavell (St. M'lebone)
Linstead, Sir H. N. Pike, Miss Mervyn Walker-Smith, Rt. Hon. Derek
Llewellyn, D. T. Pilkington, Capt. R. A. Wall, Patrick
Lloyd, Maj. Sir Guy (Renfrew, E.)
Lloyd, Rt. Hon. Selwyn (Wirral) Pitman, I. J. Webbe, Sir H.
Longden, Gilbert Pitt, Miss E. M. Webster, David
Low, Rt. Hon. Sir Toby Price, David (Eastleigh) Whitelaw, W. S. I.
Lucas, P. B. (Brentford & Chiswick) Price, Henry (Lewisham, W.) Williams, Paul (Sunderland, S.)
Lucas-Tooth, Sir Hugh Ramsden, J. E. Williams, R. Dudley (Exeter)
Macdonald, Sir Peter Rawlinson, Peter Wills, Sir Gerald (Bridgwater)
Mackeson, Brig. Sir Harry Redmayne, M. Wilson, Geoffrey (Truro)
McKibbin, Alan Rees-Davies, W. R. Wood, Hon. R.
Mackie, J. H. (Galloway) Renton, D. L. M. Woollam, John Victor
McLaughlin, Mrs. P. Ridsdale, J. E. Yates, William (The Wrekin)
Maclean, Sir Fitzroy (Lancaster) Roberts, Sir Peter (Heeley)
Macleod, Rt. Hn. Iain (Enfield, W.) Roper, Sir Harold TELLERS FOR THE NOES
MacLeod, John (Ross & Cromarty) Ropner, Col. Sir Leonard Mr. E. Wakefield and
Macmillan, Maurice (Halifax) Russell, R. S. Mr. Gibson-Watt.
Macpherson, Niall (Dumfries) Scott-Miller, Cmdr. R.
Mr. Roy Jenkins

I beg to—

Mr. Glenvil Hall

Do I understand, Mr. Blackburn, that you do not intend to call the Amendment in the name of my hon. Friend the Member for East Ham, South (Mr. Oram) in page 14, line 31, to substitute 3 per cent. for 10 per cent. in the case of building societies?

The Temporary Chairman (Mr. F. Blackburn)

No, that is not being called for a Division.

Mr. Glenvil Hall

When we discussed building societies at the beginning of our sitting, I understood that the Chairman of Ways and Means indicated that this Amendment could be discussed with the other. It seems to me strange, if I may say so without offence, that we should be able to discuss the Amendment and not take the Committee's decision upon it.

The Temporary Chairman

It is quite correct that the Chairman of Ways and Means said that the Amendment could be discussed with the Amendment in page 14, line 27, in the name of the right hon. Gentleman the Member for Colne Valley (Mr. Glenvil Hall), but I think that the right hon. Gentleman knows that during the past few years the custom has been very often to discuss an Amendment without necessarily dividing on it. In any case, the decision is in the hands of the Chairman of Ways and Means and not in mine. He selects the Amendments and he has decided that there shall be no Division on this one. Until I receive different advice, I shall follow the decision of the Chairman of Ways and Means.

Mr. H. Wilson

Further to that point of order.

Hon. Members


Mr. Wilson

Raising this matter as a point of order then—and I am not sure what my right hon. Friend the Member for Colne Valley (Mr. Glenvil Hall) was raising it on if it was not on a point of order—it was, of course, disappointing that this Amendment was not called for a Division, particularly after there had been some misunderstanding about a vote on the earlier Amendment, which it had been understood was an all-party Amendment on which therefore there would be no Division.

I should like, through you, Mr. Blackburn, to put the point to my right hon. Friend the Member for Colne Valley that it is a matter of convenience in Committee on the Finance Bill that the Chairman of Ways and Means allows us on a number of occasions to move one Amendment and debate with it another Amendment, closely or even remotely connected with it. That practice widens the debate and allows hon. Members to make their points, but it does not follow necessarily that there should be a Division in every case.

I hope that the raising of this point will in no way cause the Chairman of Ways and Means to take a more restrictive

view of what Amendments he will allow us to debate together. I hope that my right hon. Friend will not press the point, if there is any danger of that situation resulting.

The Temporary Chairman

There is nothing for me to answer in the right hon. Gentleman's point of order.

Amendment proposed: In page 14, line 31, at end insert: Provided that, in relation to any trade or business carried on by a body corporate, unincorporated society or other body, which by the nature, form or terms of its constitution cannot lawfully make any relevant distribution, this subsection shall not have effect and accordingly the profits tax shall continue to be charged at the rate of three per cent.—[Mr. Roy Jenkins.]

Question put, That those words be there inserted:—

The Committee divided: Ayes 184, Noes 221.

Division No. 183.] AYES [8.20 p.m.
Ainsley, J. W. Fernyhough, E. Lee, Frederick (Newton)
Albu, A. H. Foot, D. M. Lever, Harold (Cheetham)
Allen, Arthur (Bosworth) Fraser, Thomas (Hamilton) Lever, Leslie (Ardwick)
Awbery, S. S. George, Lady Megan Lloyd (Car'then) Lewis, Arthur
Bacon, Miss Alice Gibson, C. W. Lindgren, G. S.
Balfour, A. Gordon Walker, Rt. Hon. P. C. Logan, D. G.
Bence, C. R. (Dunbartonshire, E.) Greenwood, Anthony Mabon, Dr. J. Dickson
Benn, Hn. Wedgwood (Bristol, S. E.) Grenfell, Rt. Hon. D. R. McAlister, Mrs. Mary
Benson, Sir George Grey, C. F. McCann, J.
Beswick, Frank Griffiths, William (Exchange) MacColl, J. E.
Blenkinsop, A. Grimond, J. MacDermot, Niall
Blyton, W. R. Hall, Rt. Hn. Glenvil (Colne Valley) McGovern, J.
Boardman, H. Hannan, W. McInnes, J.
Bonham Carter, Mark Harrison, J. (Nottingham, N.) McLeavy, Frank
Bottomley, Rt. Hon. A. G. Hastings, S. MacPherson, Malcolm (Stirling)
Bowden, H. W. (Leicester, S. W.) Hayman, F. H. Mahon, Simon
Braddock, Mrs. Elizabeth Henderson, Rt. Hn, A. (Rwly Regis) Mainwaring, W. H.
Brockway, A. F. Herbison, Miss M. Mallalieu, J. P. W. (Huddersfd, E.)
Broughton, Dr. A. D. D. Hewitson, Capt. M. Mann, Mrs. Jean
Brown, Rt. Hon. George (Belper) Hobson, C. R. (Keighley) Mason, Roy
Brown, Thomas (Ince) Holman, P. Mitchison, G. R.
Burke, W. A. Holt, A. F. Morris, Percy (Swansea, W.)
Burton, Miss F. E. Houghton, Douglas Morrison, Rt. Hn. Herbert (Lewis'm, S.)
Butler, Mrs. Joyce (Wood Green) Howell, Charles (Perry Barr) Mort, D. L.
Champion, A. J. Howell, Denis (All Saints) Moss, R.
Chapman, W. D. Hoy, J. H. Moyle, A.
Clunie, J. Hughes, Emrys (S. Ayrshire) Neal, Harold (Bolsover)
Collins, V. J. (Shoreditch & Finsbury) Hughes, Hector (Aberdeen, N.) Oliver, G. H.
Craddock, George (Bradford, S.) Hunter, A. E. Oram, A. E.
Cronin, J. D. Hynd, H. (Accrington) Oswald, T.
Crossman, R. H. S.
Dalton, Rt. Hon. H. Hynd, J. B. (Attercliffe) Owen, W. J.
Darling, George (Hillsborough) Irvine, A. J. (Edge Hill) Padley, W. E.
Davies, Rt. Hon. Clement (Montgomery) Isaacs, Rt. Hon. G. A. Paget, R. T.
Davies, Stephen (Merthyr) Janner, B. Palmer, A. M. F.
Deer, G. Jay, Rt. Hon. D. P. T. Pargiter, G. A.
de Freitas, Geoffrey Jeger, Mrs. Lena (Holbn & St. Pncs, S.) Paton, John
Delargy, H. J. Jenkins, Roy (Stechford) Pearson, A.
Diamond, John Johnson, James (Rugby) Peart, T. F.
Dodds, N. N. Johnston, Douglas (Paisley) Pentland, N.
Donnelly, D. L. Jones, David (The Hartlepools) Popplewell, E.
Dugdale, Rt. Hn. John (W. Brmwch) Jones, Jack (Rotherham) Probert, A. R.
Ede, Rt. Hon. J. C. Jones, J. Idwal (Wrexham) Proctor, W. T.
Edelman, M. Jones, T. W. (Merioneth) Pursey, Cmdr. H.
Edwards, Rt. Hon. Ness (Caerphilly) Kenyon, C. Rankin, John
Edwards, Robert (Bilston) Key, Rt. Hon. C. W. Redhead, E. C.
Edwards, W. J. (Stepney) King, Dr. H. M. Reeves, J.
Evans, Edward (Lowestoft) Lawson, G. M. Reid, William
Reynolds, G. W. Spriggs, Leslie Weitzman, D.
Rhodes, H. Stonehouse, John Wells, William (Walsall, N.)
Roberts, Albert (Normanton) Stones, W. (Consett) West, D. G.
Roberts, Goronwy (Caernarvon) Stross, Dr. Barnett (Stoke-on-Trent, C.) Wheeldon, W. E.
Rogers, George (Kensington, N.) Summerskill, Rt. Hon. E. Williams, David (Neath)
Shurmer, P. L. E. Sylvester, G. O. Williams, Rev. Llywelyn (Ab'tillery)
Silverman, Julius (Aston) Taylor, Bernard (Mansfield) Williams, Rt. Hon. T. (Don Valley)
Silverman, Sydney (Nelson) Taylor, John (West Lothian) Wilson, Rt. Hon. Harold (Huyton)
Skeffington, A. M. Thomas, George (Cardiff) Winterbottom, Richard
Slater, Mrs. H. (Stoke, N.) Thomas, Iorwerth (Rhondda, W.) Woodburn, Rt. Hon. A.
Smith, Ellis (Stoke, S.) Usborne, H. C. Yates, V. (Ladywood)
Snow, J. W. Viant, S. P. Zilliacus, K.
Sorensen, R. W. Wade, D. W.
Soskice, Rt. Hon. Sir Frank Warbey, W. N. TELLERS FOR THE AYES:
Sparks, J. A. Watkins, T. E. Mr. J. T. Price and Mr. Simmons.
Agnew, Sir Peter Godber, J. B. Macmillan, Maurice (Halifax)
Aitken, W. T. Gough, C. F. H. Macpherson, Niall (Dumfries)
Alport, C. J. M. Gower, H. R. Maddan, Martin
Amory, Rt. Hn. Heathcoat (Tiverton) Graham, Sir Fergus Maitland, Cdr. J. F. W. (Horneastle)
Anstruther-Gray, Major Sir William Grant, Rt. Hon. W. (Woodside) Manningham-Buller, Rt. Hn. Sir R.
Arbuthnot, John Green, A. Markham, Major Sir Frank
Armstrong, C. W. Gresham Cooke, R. Marlowe, A. A. H.
Ashton, H. Grimston, Hon. John (St. Albans) Marshall, Douglas
Baldwin, Sir Archer Grimston, Sir Robert (Westbury) Mathew, R.
Balniel, Lord Grosvenor, Lt.-Col. R. G. Maudling, Rt. Hon. R.
Barber, Anthony Gurden, Harold Mawby, R. L.
Barlow, Sir John Harris, Frederic (Croydon, N. W.) Medlicott, Sir Frank
Barter, John Harrison, A. B. C. (Maldon) Milligan, Rt. Hon. W. R.
Batsford, Brian Harrison, Col. J. H. (Eye) Mott-Radclyffe, Sir Charles
Baxter, Sir Beverley Harvey, Sir Arthur Vere (Macclesf'd) Nabarro, G. D. N.
Beamish, Col. Tufton Harvey, John (Waithamstow, E.) Nairn, D. L. S.
Bell, Ronald (Bucks, S.) Heald, Rt. Hon. Sir Lionel Neave, Airey
Bennett, Dr. Reginald Heath, Rt. Hon. E. R. G. Nicholson, Sir Godfrey (Farnham)
Bevins, J. R. (Toxteth) Henderson-Stewart, Sir James Nicolson, N. (B'n'm'th, E. & Chr'ch)
Biggs-Davison, J. A. Hesketh, R. F. Noble, Comdr. Rt. Hon. Allan
Bingham, R. M. Hicks-Beach, Maj. W. W. Noble, Michael (Argyll)
Bishop, F. P. Hill, Mrs. E. (Wythenshawe) Nugent, G. R. H.
Black, C. W. Hirst, Geoffrey Oakshott, H. D.
Body, R. F. Hobson, John (Warwick & Leam'gt'n) O'Neill, Hn. Phelim (Co. Antrim, N.)
Bossom, Sir Alfred Holland-Martin, C. J. Orr, Capt. L. P. S.
Boyle, Sir Edward Hope, Lord John Orr-Ewing, Charles Ian (Hendon, N.)
Braine, B. R. Hornby, R. P. Osborne, C.
Braithwaite, Sir Albert (Harrow, W.) Horobin, Sir Ian Page, R. G.
Bromley-Davenport, Lt.-Col. W. H. Hudson, W. R. A. (Hull, N.) Pannell, N. A. (Kirkdale)
Brooman-White, R. C. Hughes-Young, M. H. C. Partridge, E.
Bryan, P. Hutchison, Michael Clark (E'b'gh, S.) Peel, W. J.
Bullus, Wing Commander E. E. Hyde, Montgomery Peyton, J. W. W.
Campbell, Sir David Hylton-Foster, Rt. Hon. Sir Harry Pickthorn, K. W. M.
Carr, Robert Jenkins, Robert (Dulwich) Pike, Miss Mervyn
Cary, Sir Robert Jennings, J. C. (Burton) Pilkington, Capt. R. A.
Chichester-Clark, R. Jennings, Sir Roland (Hallam) Pitman, I. J.
Cole, Norman Johnson, Dr. Donald (Carlisle) Pitt, Miss E. M.
Conant, Maj. Sir Roger Johnson, Eric (Blackley) Price, David (Eastleigh)
Cooper, A. E. Joseph, Sir Keith Price, Henry (Lewisham, W.)
Craddock, Beresford (Spelthorne) Keegan, D. Ramsden, J. E.
Crosthwaite-Eyre, Col. O. E.
Crowder, Sir John (Finchley) Kerr, Sir Hamilton Redmayne, M.
Crowder, Petre (Ruislip—Northwood) Kershaw, J. A. Rees-Davies, W. R.
Currie, G. B. H. Lambton, Viscount Renton, D. L. M.
Dance, J. C. G. Langford-Holt, J. A. Ridsdale, J. E.
Davidson, Viscountess Legge-Bourke, Maj. E. A. H. Roberts, Sir Peter (Heeley)
D'Avigdor-Goldsmid, Sir Henry Legh, Hon. Peter (Petersfield) Roper, Sir Harold
Deedes, W. F. Lennox-Boyd, Rt. Hon. A. T. Ropner, Col. Sir Leonard
Donaldson, Cmdr. C. E. McA. Linstead, Sir H. N. Russell, R. S.
Doughty, C. J. A. Llewellyn, D. T. Scott-Miller, Cmdr. R.
du Cann, E. D. L. Lloyd, Maj. Sir Guy (Renfrew, E.) Sharples, R. C.
Duncan, Sir James Lloyd, Rt. Hon. Selwyn (Wirral) Shepherd, William
Eden, J. B. (Bournemouth, West) Longden, Gilbert Simon, J. E. S. (Middlebrough, W.)
Elliott, R. W. (Ne'castle upon Tyne, N.) Low, Rt. Hon. Sir Toby Smithers, Peter (Winchester)
Errington, Sir Eric Lucas, Sir Jocelyn (Portsmouth, S.) Spearman, Sir Alexander
Fell, A. Lucas, P. B.(Brentford & Chiswick) Speir, R. M.
Finlay, Graeme Lucas-Tooth, Sir Hugh Spence, H. R. (Aberdeen, W.)
Fisher, Nigel Macdonald, Sir Peter Stanley, Capt. Hon. Richard
Fletcher-Cooke, C. Mackeson, Brig. Sir Harry Stevens, Geoffrey
Fort, R. McKibbin, Alan Steward, Harold (Stockport, S.)
Fraser, Hon. Hugh (Stone) Mackie, J. H. (Galloway) Steward, Sir William (Woolwich, W.)
Fraser, Sir Ian (M'cmbe & Lonsdale) McLaughlin, Mrs. P. Stoddart-Scott, Col. Sir Malcolm
Gammans, Lady Maclean, Sir Fitzroy (Lancaster) Stuart, Rt. Hon. James (Moray)
Garner-Evans, E. H. Macleod, Rt. Hn. Iain (Enfield, W.) Studholme, Sir Henry
George, J. C. (Pollok) MacLeod, John (Ross & Cromarty) Summers, Sir Spencer
Glyn, Col. Richard H. Macmillan, Rt. Hn. Harold (Bromley) Taylor, Sir Charles (Eastbourne)
Taylor, William (Bradford, N.) Vickers, Miss Joan Wills, Sir Gerald (Bridgwater)
Teeling, W. Vosper, Rt. Hon. D. F. Wilson, Geoffrey (Truro)
Temple, John M. Wakefield, Sir Waved (St. M'lebone) Wood, Hon. R.
Thomas, Leslie (Canterbury) Walker-Smith, Rt. Hon. Derek Woollam, John Victor
Thompson, Kenneth (Walton) Wall, Patrick Yates, William (The Wrekin)
Thompson, R. (Croydon, S.) Webbe, Sir H.
Thorneycroft, Rt. Hon. P. Webster, David TELLERS FOR THE NOES:
Thornton-Kemsley, Sir Colin Whitelaw, W. S. I. Mr. E. Wakefield and
Tiley, A. (Bradford, W.) Williams, Paul (Sunderland, S.) Mr. Gibson-Watt.
Tilney, John (Wavertree) Williams. R. Dudley (Exeter)

Amendment proposed: In page 14, line 31, at end insert: Provided that, in relation to the business carried on by the Mersey Tunnel Joint Committee, this subsection shall not have effect and accordingly the profits tax shall continue to be

charged at the rate of three per cent.—[Mr. A. J. Irvine.]

Question put, That those words be there inserted:—

The Committee divided: Ayes 183, Noes 223.

Division No. 184.] AYES [8.30 p.m.
Ainsley, J. W. Harrison, J. (Nottingham, N.) Oram, A. E.
Albu, A. H. Hastings, S. Oswald, T.
Allen, Arthur (Bosworth) Hayman, F. H. Owen, W. J.
Awbery, S. S. Henderson, Rt. Hn. A. (Rwly Regis) Padley, W. E.
Bacon, Miss Alice Herbison, Miss M. Paget, R. T.
Balfour, A. Hewitson, Capt. M. Palmer, A. M. F.
Bellenger, Rt. Hon. F. J. Hobson, C. R. (Keighley) Pargiter, G. A.
Bence, C. R. (Dunbartonshire, E.) Holman, P. Paton, John
Benn, Hn. Wedgwood (Bristol, S. E.) Holt, A. F. Pearson, A.
Benson, Sir George Houghton, Douglas Peart, T. F.
Beswick, Frank Howell, Charles (Perry Barr) Pentland, N.
Blenkinsop, A. Howell, Denis (All Saints) Popplewell, E.
Blyton, W. R. Hoy, J. H. Probert, A. R.
Boardman, H. Hughes, Emrys (S. Ayrshire) Proctor, W. T.
Bonham Carter, Mark Hughes, Hector (Aberdeen, N.) Pursey, Cmdr. H.
Bottomley, Rt. Hon. A. G. Hunter, A. E. Rankin, John
Bowden, H. W. (Leicester, S. W.) Hynd, H. (Accrington) Redhead, E. C.
Braddock, Mrs. Elizabeth Irvine, A. J. (Edge Hill) Reeves, J.
Brockway, A. F. Isaacs, Rt. Hon. G. A. Reid, William
Broughton, Dr. A. D. D. Janner, B. Reynolds, G. W.
Brown, Rt. Hon. George (Belper) Jay, Rt. Hon. D. P. T. Rhodes, H.
Brown, Thomas (Ince) Jeger, Mrs. Lena (Holbn & St. Pncs, S.) Roberts, Albert (Normanton)
Burke, W. A. Jenkins, Roy (Stechford) Roberts, Goronwy (Caernarvon)
Burton, Miss F. E. Johnson, James (Rugby) Rogers, George (Kensington, N.)
Butler, Mrs. Joyce (Wood Green) Johnston, Douglas (Paisley) Shurmer, P. L. E.
Champion, A. J. Jones, David (The Hartlepools) Silverman, Julius (Aston)
Chapman, W. D. Jones, Jack (Rotherham) Silverman, Sydney (Nelson)
Clunie, J. Jones, J. Idwal (Wrexham) Skeffington, A. M.
Collins, V. J. (Shoreditch & Finsbury) Jones, T. W. (Merioneth) Slater, Mrs. H. (Stoke, N.)
Craddock, George (Bradford, S.) Kenyon, C. Smith, Ellis (Stoke, S.)
Cronin, J. D. Key, Rt. Hon. C. W. Snow, J. W.
Crossman, R. H. S. King, Dr. H. M. Sorensen, R. W.
Dalton, Rt. Hon. H. Lawson, G. M. Soskice, Rt. Hon. Sir Frank
Darling, George (Hillsborough) Lee, Frederick (Newton) Sparks, J. A.
Davies, Rt. Hon. Clement (Montgomery) Lever, Harold (Cheetham) Spriggs, Leslie
Davies, Stephen (Merthyr) Lever, Leslie (Ardwick) Stonehouse, John
Deer, G. Lewis, Arthur Stones, W. (Consett)
de Freitas, Geoffrey Lindgren, G. S. Stross, Dr. Barnett (Stoke-on-Trent, C.)
Delargy, H. J. Logan, D. G. Summerskill, Rt. Hon. E.
Diamond, John Mabon, Dr. J. Dickson Sylvester, G. O.
Dodds, N. N. McAlister, Mrs. Mary Taylor, Bernard (Mansfield)
Donnelly, D. L. McCann, J. Taylor, John (West Lothian)
Dugdale, Rt. Hn. John (W. Brmwch) MacColl, J. E. Thomas, George (Cardiff)
Ede, Rt. Hon. J. C. MacDermot, Niall Thomas, Iorwerth (Rhondda, W.)
Edelman, M. McGovern, J. Usborne, H. C.
Edwards, Rt. Hon. Ness (Caerphilly) McInnes, J. Viant, S. P.
Edwards, Robert (Bilston) McLeavy, Frank Wade, D. W.
Edwards, W. J. (Stepney) MacPherson, Malcolm (Stirling) Warbey, W. N.
Evans, Edward (Lowestoft) Mahon, Simon Watkins, T. E.
Fernyhough, E. Weitzman, D.
Foot, D. M. Mainwaring, W. H. Wells, William (Walsall, N.)
Fraser, Thomas (Hamilton) Mallalieu, J. P. W. (Huddersfd, E.) West, D. G.
George, Lady Megan Lloyd (Car'then) Mann, Mrs. Jean Wheeldon, W. E.
Gibson, C. W. Mason, Roy Williams, David (Neath)
Gordon Walker, Rt. Hon. P. C. Mitchison, G. R. Williams, Rev. Llywelyn (Ab'tillery)
Greenwood, Anthony Morris, Percy (Swansea, W.) Williams, Rt. Hon. T. (Don Valley)
Grenfell, Rt. Hon. D. R. Morrison, Rt. Hn. Herbert (Lewis'm, S.) Wilson, Rt. Hon. Harold (Huyton)
Grey, C. F. Mort, D. L. Woodburn, Rt. Hon. A.
Griffiths, William (Exchange) Moss, R. Yates, V. (Ladywood)
Grimond, J. Moyle, A. Zilliacus, K.
Hall, Rt. Hn. Glenvil (Colne Valley) Neal, Harold (Bolsover)
Hannan, W. Oliver, G. H. TELLERS FOR THE AYES:
Mr. J. T. Price and Mr. Simmons.
Agnew, Sir Peter Harris, Frederic (Croydon, N. W.) Noble, Comdr. Rt. Hon. Allan
Aitken, W. T. Harrison, A. B. C. (Maldon) Noble, Michael (Argyll)
Alport, C. J. M. Harrison, Col. J. H. (Eye) Nugent, G. R. H.
Amory, Rt. Hn. Heathcoat (Tiverton) Harvey, Sir Arthur Vere (Macclesf'd) Oakshott, H. D.
Anstruther-Gray, Major Sir William Harvey, John (Walthamstow, E.) O'Neill, Hn. Phelim (Co. Antrim, N.)
Arbuthnot, John Heald, Rt. Hon. Sir Lionel Orr, Capt. L. P. S.
Armstrong, C. W. Heath, Rt. Hon. E. R. G. Orr-Ewing, Charles Ian (Hendon, N.)
Ashton, H. Henderson-Stewart, Sir James Osborne, C.
Baldwin, Sir Archer Hesketh, R. F. Page, R. G.
Balniel, Lord Hicks-Beach, Maj. W. W. Pannell, N. A. (Kirkdale)
Barber, Anthony Hill, Mrs. E. (Wythenshawe) Partridge, E.
Barlow, Sir John Hirst, Geoffrey Peel, W. J.
Barter, John Hobson, John (Warwick & Leam'gt'n) Peyton, J. W. W.
Batsford, Brian Holland-Martin, C. J. Pickthorn, K. W. M.
Baxter, Sir Beverley Hope, Lord John Pike, Miss Mervyn
Beamish, Col. Tufton Hornby, R. P. Pilkington, Capt. R. A.
Bell, Ronald (Bucks, S.) Horobin, Sir Ian Pitman, I. J.
Bennett, Dr. Reginald Hudson, W. R. A. (Hull, N.) Pitt, Miss E. M.
Bevins, J. R. (Toxteth) Hughes-Young, M. H. C. Price, David (Eastleigh)
Biggs-Davison, J. A. Hutchison, Michael Clark (E'b'gh, S.) Price, Henry (Lewisham, W.)
Bingham, R. M. Hyde, Montgomery Ramsden, J. E.
Bishop, F. P. Hylton-Foster, Rt. Hon. Sir Harry Redmayne, M.
Black, C. W. Jenkins, Robert (Dulwich) Rees-Davies, W. R.
Body, R. F. Jennings, J. C. (Burton) Renton, D. L. M.
Bossom, Sir Alfred Jennings, Sir Roland (Hallam) Ridsdale, J. E.
Boyle, Sir Edward Johnson, Dr. Donald (Carlisle) Roberts, Sir Peter (Heeley)
Braine, B. R. Johnson, Eric (Blackley) Roper, Sir Harold
Braithwaite, Sir Albert (Harrow, W.) Joseph, Sir Keith Ropner, Col, Sir Leonard
Bromley-Davenport, Lt.-Col. W. H. Keegan, D. Russell, R. S.
Bryan, P. Kerr, Sir Hamilton Scott-Miller, Cmdr. R.
Bullus, Wing Commander E. E. Kershaw, J. A. Sharples, R. C.
Campbell, Sir David Kimball, M. Shepherd, William
Carr, Robert Lambton, Viscount Simon, J. E. S. (Middlesbrough, W.)
Cary, Sir Robert Langford-Holt, J. A. Smithers, Peter (Winchester)
Cole, Norman Legge-Bourke, Maj. E. A. H. Spearman, Sir Alexander
Conant, Maj. Sir Roger Legh, Hon. Peter (Petersfield) Speir, R. M.
Cooper, A. E. Lennox-Boyd, Rt. Hon. A. T. Spence, H. R. (Aberdeen, W.)
Craddock, Beresford (Spelthorne) Linstead, Sir H. N. Stanley, Capt. Hon. Richard
Crosthwaite-Eyre, Col. O. E. Llewellyn, D. T. Stevens, Geoffrey
Crowder, Sir John (Finchley) Lloyd, Maj. Sir Guy (Renfrew, E.) Steward, Harold (Stockport, S.)
Crowder, Petre (Ruislip—Northwood) Lloyd, Rt. Hon. Selwyn (Wirral) Steward, Sir William (Woolwich, W.)
Currie, G. B. H. Longden, Gilbert Stoddart-Scott, Col. Sir Malcolm
Dance, J. C. C. Low, Rt. Hon. Sir Toby Stuart, Rt. Hon. James (Moray)
Davidson, Viscountess Lucas, Sir Jocelyn (Portsmouth, S.) Studholme, Sir Henry
D'Avigdor-Goldsmid, Sir Henry Lucas, P. B.(Brentford & Chiswick) Summers, Sir Spencer
Deedes, W. F. Lucas-Tooth, Sir Hugh Taylor, Sir Charles (Eastbourne)
Donaldson, Cmdr. C. E. McA. Macdonald, Sir Peter Taylor, William (Bradford, N.)
Doughty, C. J. A. Mackeson, Brig. Sir Harry Teeling, W.
du Cann, E. D. L. McKibbin, Alan Temple, John M.
Duncan, Sir James Mackie, J. H. (Galloway) Thomas, Leslie (Canterbury)
Eden, J. B. (Bournemouth, West) McLaughlin, Mrs. P. Thompson, Kenneth (Walton)
Elliott, R. W. (Ne'castle upon Tyne, N.) Maclean, Sir Fitzroy (Lancaster) Thompson, R. (Croydon, S.)
Errington, Sir Eric Macleod, Rt. Hn. Iain (Enfield, W.) Thorneycroft, Rt. Hon. P.
Fell, A. MacLeod, John (Ross & Cromarty) Thornton-Kemsley, Sir Colin
Finlay, Graeme Macmillan, Rt. Hn. Harold (Bromley) Tiley, A. (Bradford, W.)
Fisher, Nigel Macmillan, Maurice (Halifax) Tilney, John (Wavertree)
Fletcher-Cooke, C. Macpherson, Niall (Dumfries) Vickers, Miss Joan
Fort, R. Maddan, Martin Vosper, Rt. Hon. D. F.
Fraser, Hon. Hugh (Stone) Maitland, Cdr. J. F. W. (Horncastle) Wakefield, Edward (Derbyshire, W.)
Fraser, Sir Ian (M'cmbe & Lonsdale) Maitland, Hon. Patrick (Lanark) Wakefield, Sir Wavell (St. M'lebone)
Gammans, Lady Manningham-Buller, Rt. Hn. Sir R. Walker-Smith, Rt. Hon. Derek
Garner-Evans, E. H. Markham, Major Sir Frank Wall, Patrick
George, J. C. (Pollok) Marlowe, A. A. H. Webbe, Sir H.
Gibson-Watt, D. Marshall, Douglas Webster, David
Glyn, Col. Richard H. Mathew, R. Whitelaw, W. S. I.
Godber, J. B. Maudling, Rt. Hon. R. Williams, Paul (Sunderland, S.)
Gough, C. F. H. Mawby, R. L. Williams, R. Dudley (Exeter)
Gower, H. R. Medlicott, Sir Frank Wills, Sir Gerald (Bridgwater)
Graham, Sir Fergus Milligan, Rt. Hon. W. R. Wilson, Geoffrey (Truro)
Grant, Rt. Hon. W. (Woodside) Mott-Radclyffe, Sir Charles Wood, Hon. R.
Green, A.
Gresham Cooke, R. Nabarro, G. D. N. Woollam, John Victor
Grimston, Hon. John (St. Albans) Nairn, D. L. S. Yates, William (The Wrekin)
Grimston, Sir Robert (Westbury) Neave, Airey
Grosvenor, Lt.-Col. R. G. Nicholson, Sir Godfrey (Farnham) TELLERS FOR THE NOES:
Gurden, Harold Nicolson, N. (B'n'm'th, E. & Chr'ch) Mr. Brooman-White and
Mr. Chichester-Clark.

Motion made, and Question proposed,

That the Clause stand part of the Bill.

Mr. Dalton

The Bill contains on the whole few features of interest, but this Clause is an exception. I regard this Clause as being highly objectionable and exceedingly reactionary, but as presenting one of the few serious parts of the Bill.

Mr. Ellis Smith (Stoke-on-Trent, South)

So we shall divide against it.

Mr. Dalton

The reasons why I describe the Clause in that way are that, in my judgment, it encourages inflation, it discourages investment, it creates injustice on a great scale as between different firms and it sharply interrupts a gradual and growing bipartisan accord between the two sides of the Committee on the proper mode of taxation of profits.

To substantiate those statements I must seek to do so by way of a brief historical résumé. In my second Budget speech, in April, 1946, I finally repealed the Excess Profits Tax—which was welcomed by all sides of the Committee at that time—and said that I would wait until the next year before deciding whether some new Profits Tax was desirable. On that occasion I halted, I watched, I listened.

The National Defence Contribution, of course, continued in force from the time when Mr. Neville Chamberlain had first introduced it. This was a simple, small tax of 5 per cent., only 1s. in the £ on profits, whether distributed or not. At that stage there was no differential element. I will quote a few sentences from my remarks in April, 1946. I said that in deciding what to do next year I should be guided to some extent, by the conduct of private enterprise in the meantime…. Last autumn…I invited industry to plough back increased profits rather than distribute them to shareholders. The response to this invitation has been patchy. Many of the most efficient and up to date concerns have responded very well; but others have shown a tendency to chuck money about among the shareholders, rather than to strengthen their reserves and improve their equipment. I said I thought it was: premature . . to decide now whether or not, next year,… to introduce a new tax designed to cheek these, as I think, unfortunate practices"—[OFFICIAL REPORT, 9th April, 1946; Vol. 421, c. 1834.] In my third Budget, in April, 1947, I recalled the words I have just quoted and said: I cannot pretend to be satisfied with the large increases in distributed profits and the higher dividends which have been paid out in so very many cases in the last 12 months. Too much, in my judgment has been distributed, and too little ploughed back into the business. These increased dividends are the clearest case, anywhere in our national economy, of an inflationary element. I pointed out that, whereas discussion was proceeding about wage increases and often it was suggested that wage increases were justified only if there was increased productivity and the workers in question did more work, here was an increased dividend paid out to people who did no work at all. I said that this in my view clearly calls for some fiscal corrective. Therefore, I propose to leave the Profits Tax at its present level of 5 per cent., or one shilling in the pound, on undistributed profits which are added to companies reserves or otherwise reinvested in the business. But I propose to increase the tax to 12½ per cent., or from 1s. to 2s. 6d. in the £, on distributed profits."—[OFFICIAL REPORT, 15th April, 1947; Vol. 436, c. 84.] This was the first time in our fiscal history when, whether right or wrong, this differential principle had been introduced into any form of tax on business profits, the differential being based on the use to which the profits had been put, whether ploughed back or distributed as the case may be. At this point I created a gap between 5 per cent. and 12½ per cent., a gap of 7½ per cent. between the two rates.

The extraordinary thing is that in the years that followed that gap was increased both by Labour and Conservative Chancellors. I introduced this plan, which was never discarded until in this year by the present Chancellor in this Clause, but which on the contrary was followed and extended. I lit a candle which only this Chancellor is trying to blow out eleven years later.

That was in 1947. I am coming to the end of my quotations from speeches made by myself and shall soon pass to quotations from Conservative Chancellors. In my fourth Budget speech, in November of that year, I said: I have noticed, with regret, a continuing and persistent inclination on the part of many concerns to declare increased dividends. This is contrary to advice which I have ventured to offer from time to time. It is inflationary, because it puts more purchasing power into circulation, and, it is very disturbing to industrial relations. At that time this was a very important point, Talks were proceeding about wage restraint, the wage freeze and national wage policies, and all sorts of other verbalisms of that kind, but the short point was that, if workers saw in their own industry or others the declaration of high dividends, it was very natural that they should demand higher wages. That was extremely natural, and therefore I deplored the bad lead, as I thought, given by many industrialists. I went on to say: … profits as a whole are still running at a very high level. I, therefore, propose to double the Profits Tax on all profits made from 1st January, 1947, thus raising the rate from 12½ per cent. to 25 per cent. on distributed profit…".—[OFFICIAL REPORT, 12th November, 1947; Vol. 444, c. 401.] This widened the gap between the two rates from 7½ per cent. to 15 per cent.

8.45 p.m.

Sir Stafford Cripps spoke on these questions when he was Chancellor of the Exchequer and frequently urged restraint, particularly on industrialists, although also to some extent, and not fruitlessly, upon wage earners.

As regards actual changes in the tax, he increased the Profits Tax in 1949 on distributed profits from 25 per cent. to 30 per cent. and left the tax on undistributed profits unchanged and thus widened the gap between the two rates from 15 per cent. to 20 per cent.

Finally, in the story of Labour Chancellors' Budgets, my right hon. Friend the present Leader of the Opposition in his Budget speech in April, 1951, drew attention to the very sharp increases which had been taking place in distributed profits and declarations of dividends. He gave a number of striking figures which can be found in reading his speech again, as I have done, but I shall not quote those. I merely pass to the final point in his Budget. He increased the Profits Tax from 30 per cent. to 50 per cent. on distributed profits, leaving the rate on undistributed profits unchanged, and thus further widened the range and increased the gap from 20 per cent. to 40 per cent. as between the two rates. He said: In this way, we shall provide a powerful incentive to companies to put profits to reserve rather than increase dividends."—[OFFICIAL REPORT, 10th April, 1951; Vol. 486, c. 855.] In this period of Labour Budgets, Conservative spokesmen in this House had also proposed to do just what we had been doing in slightly different detailed terms. They pressed to widen still further the gap. There was no talk then about having one single rate. On the contrary, they said that we should have two rates and that they ought to be wider apart.

Sir Anthony Eden, in June, 1950, moved an Amendment to exempt undistributed profits altogether from tax. There was a prima facie case for doing that, as the object was to hinder inflation, promote the ploughing back of profits into further investment, and carry further the principle, which I believe to be a sound one, of the dual rate.

Sir Anthony Eden in June, 1950, moved a new Clause when discussing Sir Stafford Cripps' Budget of that year. He said: Nobody will dispute the need for industrial concerns to conserve their profit by putting sums to reserve … He went on to explain the Clause that he had put down and said that if a company at a later date distributed this money in the form of dividends or anything else, then the tax would have to fall on them at the same rate as if they had not had an exemption; the tax would have to be a retrospective levy. That has a good ring about it; a robust initiative. It would have to be a retrospective levy and he said: That is what we have tried to make clear in the terms of our new Clause."—[OFFICIAL REPORT, 22nd June, 1950; Vol. 476, c. 1482–7.] Sir Stafford Cripps did not feel able to accept that Amendment. He had done a lot of good things in the Budget. It was defeated by 296 votes to 283. The Conservatives worked very hard in the Lobbies in that Parliament. Therefore, the tax remained for the moment unchanged. I have quoted those words because they show that Sir Anthony Eden, after consulting all other leading figures in what, I think, they called the Shadow Cabinet, leading figures on the Conservative side, had come to the conclusion that it was possible and not, indeed, undesirable to continue with the dual Profits Tax, with all the complications upon which so much stress has been laid by the advocates of change who have got behind the present Chancellor in this matter.

The chief objection was that it was very difficult to know in advance what a company's future tax position would be; this was uncertain, as the Royal Commission said. Sir Anthony Eden clearly understood that the necessary result of this method of dual taxation on profits was that there must be a retrospective eye kept from year to year on the profits of all concerns which in one year had put profits to reserve at the lower tax rate, in order to make sure that in a later year, if they distributed them, they should not escape, but should pay, the higher tax on those profits as well as on the distributed profits in the current year.

I therefore quote Sir Anthony Eden to support the wisdom of retaining the gap between the two rates and also to show that he quite understood the position and did not regard as a disabling condition the objections, which have been stressed by the advocates of the single rate, to keeping an eye on the concern's profits from year to year and, if necessary, demanding a retrospective payment.

Finally, among Conservative spokesmen on this subject we have the present Foreign Secretary. When the Budget of my right hon. Friend the Leader of the Opposition was being considered, the present Foreign Secretary moved to widen the gap still further. By that time, under my right hon. Friend's Budget, it was 40 per cent., and he wanted to widen it to 45 per cent. He proposed to leave the tax on distributed profits at 50 per cent. but to reduce the tax on undistributed profits from 10 per cent. to 5 per cent. He did not propose to go as far as Sir Anthony Eden, who wanted to relieve undistributed profits altogether, but he thought that the tax on undistributed profits should be halved and that the tax on distributed profits should be maintained. He said: I wish to put the case for this Amendment at some length, And he did. He continued: … it is … one of the most important Amendments we shall have to consider."—[OFFICIAL REPORT, 11th June, 1951; Vol. 488, c. 1677.] It is interesting to recall that the activities of the present Foreign Secretary seemed then to be heading for the Treasury rather than the Foreign Office. One of his speeches on finance which I have been reading was decorated with a Tennysonian peroration. He quoted from the famous poem "Ulysses", which is no doubt familiar to all hon. Members. He quoted lines and lines of it. I could not have got away with a long quotation like that, nor could many people. It is open to question whether, in his own interests and the interests of the country, he should have changed course in the Whitehall race. In any event, under Labour Governments we steadily widened this gap between the rate of tax on distributed profits and the rate on undistributed profits, and we were pressed to do even more by Conservative spokesmen when Labour was in power.

I come now to the sad and latest age, the series of Conservative Budgets, but I am not able to present them in this setting in their blackest aspect, because, I shall draw attention to some praiseworthy deeds of Conservative Chancellors, excluding the present occupant of that high office. In his first Budget of March, 1952, the present Lord Privy Seal introduced a new Excess Profits Levy. I will not speak much about that now; it was pretty well understood at the time to be a bright idea of the Prime Minister of that day, the right hon. Member for Woodford (Sir W. Churchill), who imposed it on the Chancellor of the Exchequer against the latter's better judgment and the advice available from official quarters. He made him take it.

I have no reason to doubt that that was so. It was a nonsensical tax and the next year the present Lord Privy Seal managed to escape from the grip of the then Prime Minister and the whole thing was repealed. However, for one year we had the Excess Profits Levy, on which there was much debate.

More important for my present theme is a small statistical point which should be made clear in order that people looking at figures will not be led into making false comparisons. The Lord Privy Seal introduced a change, to which I have no objection, in the basis of assessment to Profits Tax, which was no longer to be an allowance against Income Tax. The rates in future were to be net and not gross. The existing gross rates were then 10 per cent. on undistributed and 50 per cent. on distributed profits, and those rates corresponded roughly, when the change was made, to net rates of half the amount, 5 per cent. and 25 per cent.

If that fact is not borne in mind and a column of figures is studied, a false impression may arise, and it may be thought that the Lord Privy Seal made substantial reductions of almost 50 per cent. That is not true. The figures are not strictly comparable. At first sight it appears that the tax, whether on distributed or undistributed profits, after this change in the Budget of 1952 was much lower compared with the earlier rates than, in fact, it was. I hope that I have explained how that comes about.

In addition, the Lord Privy Seal slightly readjusted the rates and the net rates under the new dispensation became 2½ per cent. on undistributed and 17½ per cent. on distributed profits. The Lord Privy Seal then said: I have loaded the reduction, as the Committee may observe, in favour of those who increase their reserves. Thus we fulfil the promise we gave in our Election statement to reduce the tax on profits ploughed back into the business."—[OFFICIAL REPORT, 11th March, 1952; Vol. 497, c. 1291.] In their Election manifesto of 1951, this was one of the things which the Conservatives said that they intended to do. Although some of their promises were not fulfilled, for example the promise about "mending the hole in the purse", this was one which was fulfilled and for that they deserve great credit for political courage and rectitude. They said that they would widen that gap, and the Lord Privy Seal did so.

In his second Budget, of April, 1953, the Lord Privy Seal managed to wriggle out of the Excess Profits Levy, no doubt a wise thing to do since it was a hideous piece of nonsense. He increased Profits Tax on distributed profits from 17½ per cent. to 22½ per cent., pursuing the path of virtue and the promise to the electors that he would widen the gap still further.

At this stage, the net gap stood at some 20 per cent. There is nothing more to record in this context of the Lord Privy Seal's Budgets until his fifth and last, about which there has been much discussion on other points. All I am concerned with here is that, persistently advancing along the path of virtue and justice, he made a further increase in the tax on distributed profits, from 22½ per cent. to 27½ per cent., while leaving the other rate the same. The gap was thus further widened. That was the Budget in which he rejected the proposal of the Royal Commission on which the present Chancellor relies.

Referring to the proposal to have a single rate instead of a double rate, he said that that proposal would be very variable in its incidence and have the most anomalous, and in some cases, most surprising results. These are the comments of a Cabinet colleague on what the present Chancellor is now proposing to do. For example, companies which distribute a high proportion of their profits would gain, while those which put a large proportion to reserve would lose—and the latter include a number of new and important industries. Therefore, I have decided, at any rate for the present, that such a change would not be directed to our present needs. It has yet to be proved that what has happened since then makes the change better directed to our present needs in 1958 in the spring than in 1955 in the autumn. I know of no serious reason to support this suggestion.

9.0 p.m.

He continued: I have considered whether I should increase the rates of Profits Tax both on distributed and undistributed profits. I am reluctant to increase the rates specifically charged on amounts put to reserve, since to do so would tend to impede the necessary replacement of capital assets and to discourage future investment rather than current consumption…. I have, therefore, decided to increase the rate of Profits Tax on distributed profits from 22½ per cent. to 27½ per cent."—[OFFICIAL REPORT, 26th October, 1955; Vol. 545, c. 225–6.] I think that case was admirably put, although I admit there was some clever hedging in the phrase "at least for the present."

I now come to the present Prime Minister. He has had only one Budget in April, 1956. He did not even go through the form of a genuflection to this Royal Commission as some people do, as though it were a god on a high altar instead of a number of hard-working people who, after all, are not all that more intelligent than Ministers and their own advisers. I am always doubtful about the desirability of appointing these para-departmental bodies to tell Ministers and their advisers what they ought to do.

Anyhow, able and admirable though the Royal Commission Report is in many respects—and they evidently worked very hard at it—I note that the Prime Minister did not give them even a reference or a genuflection. He went straight to the point. He said that he had decided to increase Profits Tax on distributed profits by a further 2½ per cent. and on undistributed profits by ½ per cent., making 30 per cent. and 3 per cent. respectively, further widening the gap, in accordance with all the best practice up to then, to 27 per cent. He said that he would get no increase in revenue from these changes till a year later. He then said: … the deflationary effect will not be deferred. The tax to be paid next year will have to be taken into account by boards of directors in formulating dividend policy…."—[OFFICIAL REPORT, 17th April, 1956; Vol. 551, c. 887.] This admirable statement could have been used by any of the previous Chancellors whom I have cited, including myself, in justification for what we were doing to restrain inflationary pressure.

Mr. Ellis Smith

And to restrain wages in particular.

Mr. Dalton

Let us stick to one point at a time. The simple point with which I was dealing is that the present Prime Minister recognised that the increase in the distributed rate as against the undistributed rate—in fact, he increased them both—and the further widening of the range between the two rates would have certain deflationary effects in the sense of checking further increases in dividends and distributed profits. There I think he was on the right lines. That is where we stand up to date.

The right hon. Member for Monmouth (Mr. P. Thorneycroft) told us in his Budget speech in April, 1957, that he was going to get another £60 million from Profits Tax mainly as a result of the increase made in the rates the year before, but he himself made no change in the tax.

Now we come to the present Budget speech by the Chancellor on 15th April, 1958. This is what he said: … I come to a considerable reform. The Royal Commission on Taxation recommended, and I now propose …, that the two rates of Profits Tax at present charged … shall be replaced by a single rate to be levied on the whole of a company's profits."—[OFFICIAL REPORT, 15th April, 1958; Vol. 586, c. 64–5.] He went on to say that the single rate would be 10 per cent. as against rates of 30 per cent. on distributed profits and 3 per cent. on undistributed profits.

Thus, the tax on distributed profits was reduced by two-thirds at one blow. At once, people would get off two-thirds of the taxation on money distributed as dividends. But those who had been putting money by had to pay 10 per cent. instead of 3 per cent.; their tax burden was more than tripled. It was 10 per cent. instead of 3 per cent. on what they were ploughing back, to buy new machines, or even to invest—this is no bad thing considering the state of the national credit—in the gilt-edged market. That is a patriotic act, and it is really quite a good thing, if it comes as a by-product of putting money to reserves, that some of it should, for a time, go to support the ever sagging values of British Government securities.

Mr. William Shepherd

What about Daltons?

Mr. Dalton

They have fallen by one-third. I heard what the hon. Member for Cheadle (Mr. Shepherd) said, and I expected him to say it. The Goschens, the old Consols and the Daltons always move very closely together. They have fallen by nearly a third since the Conservative Party scrambled back to power. But I do not want to go into that tonight, although it would be fascinating to give some more particulars.

All I am saying is that one of the advantages in ploughing back, in my judgment, is not only that an industrialist buys better and more machines but he may have some money to invest, for a short time or for a long time, in Government securities.

The maintenance of this gap between the two rates, through a series of Budgets of a series of Chancellors, of very diverse political outlook, was consistently pursued, with great advantage to the country, from 1947 until 1958. There has now been a most blatant reversal of that policy. I am very disturbed that this should be so because, as I said earlier, there was here a growing accord, it seemed, between Chancellors of the Exchequer of successive Governments from different sides of the House that, whatever they disagreed about, here was a sensible thing to do about Profits Tax. This is all thrown overboard now, and, instead of the gap being further widened, it has been closed with a snap as though caught in the jaws of a dogfish. I intend no suggestion of personal similarity; I am just thinking of the way that particular creature behaves.

What reasons are given for the change? First of all, it is said that it was recommended by the Royal Commission. The Royal Commission recommended a tremendous number of things, some of them very good, some of them nonsense, and some of them debatable. Many of them have been done already. However, I am quite sure that, whether we be Ministers, or Members of Parliament on this side of the House or on that, we should do very wrong to get into a state of mind in which we think that a Royal Commission is almost certain to be right.

We should look at all these things with a keen dispassionate eye. The members of this Royal Commission were a very mixed body of people. One should always look at what both the minority and the majority say and then make up one's mind. It is a very poor argument, in my view, to say, "I will do this because it was recommended by the Royal Commission". Of course, on this issue the Royal Commission split wide open. The majority argued for it, but the minority took a very different view.

I have read the whole Report and I have not read a more unconvincing series of paragraphs than paragraphs 518 to 520 of the majority Report. It is a most unconvincing set of arguments for unifying the two rates. The minority took a different view and said that it was strongly opposed to the recommendation of the Majority that the differential profits tax should be abolished forthwith, quite independent of whether capital gains are taxed or not. The minority said that, if capital gains were taxed, then it thought there was a case for unifying the rates.

If the Chancellor is following the Royal Commission on this point, he is only following the majority of them, because the minority said that they were entirely opposed to the unification of the rate unless there was also a tax on capital gains. The minority go on to say: … the purpose of a differential profits tax is to keep down dividend distribution in relation to earnings"— that will interest my hon. Friend the Member for Stoke-on-Trent, South (Mr. Ellis Smith)— and it can be a most efficacious instrument for the purpose … There can be little doubt that, but for the discouragement provided by the differential tax, the rise in dividends would have been more in line with the increase in earnings, Such an increase in dividends would have had the most undesirable effects.

Mr. Harold Lever (Manchester, Cheetham)

Will my right hon. Friend allow me—

Mr. Dalton

No, I will not. My hon. Friend will have plenty of time to develop his argument later. I am in the midst of an argument which I want to complete. [Interruption.] It is not a fact. I have quoted the exact words in two successive sentences. I am not prepared to give way. I am near the end of my speech. Then my hon. Friend will have a chance to put his argument.

The final argument used in favour of the change is that the process would be made simpler. Two rates are less simple than one. Of course they are. But where does that argument carry us? The Income Tax system would be simplified tremendously if we abolished all personal allowances, all progression and Surtax. Then we would have a very simple Income Tax system—5s. or 6s. in the £ on every £ of income. But it would not be just. Too much simplicity must not be sought at the expense of justice.

I certainly expect the Chancellor to produce a better argument tonight in favour of this most debatable and, as I think, unfortunate Clause. It is a volte face from all that has gone before. I do not know how easily he overcame the initial resistance, as it must have been, in the Cabinet of all the leading people in his own party whom I have quoted and what they had said in Budget speeches and debates. Perhaps he had a very hard fight, or perhaps their attention was elsewhere. Perhaps the Foreign Secretary was no longer thinking about finance.

I hope that I have substantiated my belief that the new Clause encourages inflation, discourages investment and multiplies injustice. For these reasons, we shall vote against it. Perhaps we shall seem to be accompanied in the Division Lobby by the penitent ghosts of those who furnished us with arguments against it—the penitent ghosts of the Prime Minister, the Lord Privy Seal and the Foreign Secretary, shadowy, embarrassed witnesses against the Chancellor.

Mr. C. W. Armstrong (Armagh)

There is one result of this Clause to which I think attention ought to be drawn. I refer to the effect that it will have on immigrant companies. The effect that it will have, for instance, on an American subsidiary will be to increase by 3½ per cent. the tax that it will pay on profits distributed to its parent company. There can be no doubt, I think, that this must be a discouragement to foreign companies to set up plants in this country, especially if we bear in mind that countries on the Continent are doing their best to attract such foreign enterprise into their own countries.

For instance, I am assured that the German budget proposals will result in its being 7 per cent. more attractive for a foreign company to go to Western Germany than to come to this country. Another result of the Clause will be that the rate of tax in this country—Income Tax and Profits Tax together—will be higher than the corresponding tax in the United States.

9.15 p.m.

I do not think there can be much doubt that the psychological effect of the tax in this country being higher than the tax in the United States will have the effect of deterring American companies from coming here, probably quite out of all proportion to the actual difference that is involved.

What I am more particularly concerned with, however, is the effect on unemployment, especially in the north of Ireland. We in the north of Ireland are particularly concerned over this, for two reasons. First, our unemployment is tragically high. As the Committee knows, it is enormously higher than in Great Britain. Secondly, we know by experience that it is easier to get, for instance, American companies to come to Northern Ireland than to get companies already established in Great Britain, for a fairly obvious reason.

An American company comes here because it wants to exploit the European market. It is free to choose where it will go. Therefore, it finds attractive the inducements that the Northern Ireland Government are able to offer. A company already established in Great Britain, however, is in a better position to deal with the European market where it is already established than by putting a branch further away across another sea passage in a remoter part of the United Kingdom in Northern Ireland.

The Clause, therefore, interferes with our rescue operations in dealing with our own unemployment. It is the more mortifying for us in that this effect is, as it were, accidental. This change has been brought in as a matter of convenience for the United Kingdom tax code, and it was in no way intended as a hit at foreign companies. It is, I think, true to say that the effect was not even realised by the Treasury, because to begin with we were assured that the difference would be only one-half of 1 per cent., whereas it is now admitted, I understand, that the difference is 3½ per cent.

I would not suggest that any new inducement should be given to foreign companies to come to this country. All I am suggesting is that the inducements which were previously held out to them should not be removed all in one fell swoop. What I ask my right hon. Friend the Chancellor to consider is that the American company should have no advantage over the British company on profits ploughed back, but I suggest that it would be reasonable, considering that when a British company was paying 30 per cent. the American company paid 3 per cent., now that the British company is paying only 10 per cent. the American company should be left at 3 per cent.

Admittedly I am considering this from a parochial, a Northern Ireland, point of view, but one of our lifelines, so to speak, in dealing with our employment is being taken from us, and from our point of view it is not so much a matter of abstract justice between an American or a foreign firm and a British firm. After all, we have our own long-established, indigenous firms to whom we have responsibility. It is a question whether we can afford in our difficulties to do without the American firms, and our feeling is that we cannot. I would ask my right hon. Friend if he can see his way to look at this aspect of this Clause again.

Mr. Glenvil Hall

I want briefly to support what my right hon. Friend the Bishop—[Laughter.] I mean my right hon. Friend the Member for Bishop Auckland (Mr. Dalton) has said. It is rather refreshing to see him at that Box, and hear him taking part in our Finance Bill debates once more. I am sorry that we do not hear him often. What he said is absolutely right, that the Profits Tax was instituted for one purpose, and one purpose alone: it was an additional tax which was so designed as to differentiate between profits which were retained in the business and those which were distributed to shareholders. Because that was its underlying basis there has been throughout a considerable gap between the two rates.

If it were not a tax of that kind there would be little to be said for it because most taxation could be levied through Income Tax, but it was a tax on profits with that end in view. The Committee should get this firmly in its mind, that it was and should still be a tax to invite and to help companies to build up their reserves.

This afternoon we have been dealing with a proposal that building societies should not have to pay the new flat rate of 10 per cent. The main reason in the minds of those of us who supported that proposal was that the 10 per cent., and, indeed, Profits Tax as a tax, on the surpluses of building societies must inevitably eat into their reserves. I, and other hon. Members, gave the Committee a number of figures to show that the incidence of Profits Tax up to now, and its continued incidence under the new rate, means that reserves are eaten into. The time may come when those reserves would reach an even more dangerously low level than that at which they are now.

We have this astonishing spectacle, that a company which can be largely antisocial in its activities is, by this Clause, to benefit to the extent of two-thirds of the rate of tax it has previously had to pay whereas building societies, which perform a great service to the State, are essential to the well-being of the community, and have assisted countless small people to buy their homes—a thing I should have imagined everyone on the other side of the Committee would have applauded—are to be taxed in the same way as any company however anti-social it may be. Ordinary companies will gain to the extent of two-thirds, whereas the tax on the surplus of the building societies will be a rate equal to an increase of 500 per cent.

I do not know whether the Chancellor has closed his mind to all argument on this issue. It seems to me that he accepted 10 per cent. because he had a tidy mind and as my right hon. Friend the Member for Bishop Auckland has just said, he accepted the findings of the majority of the Royal Commission. If that is the reason, it is a very unfair and unjust reason arising from a failure to examine the facts as they ought to be examined. If the rate is now 10 per cent., and the right hon. Gentleman or a future Chancellor decides next year to increase the Profits Tax to something more than 10 per cent., will a such higher rate be inflicted on the building societies just to keep the thing tidy? If so, many building societies will be in much greater difficulty than they are in at present over their reserves.

There has been some difference of view as to just how much those societies may gain by the change in the basis which the Chancellor announced in his Budget speech and which we certainly welcome. My hon. Friend the Member for Gloucester (Mr. Diamond) questioned the figure which I gave earlier, but I have here the figures actually prepared on the point. They show quite definitely that the amount involved is not the £1 million, which the Financial Secretary to the Treasury stated, or £600,000 to £800,000 which the hon. Member for Wimbledon (Mr. Black) gave today in what I thought a most deplorable speech. The hon. Member seemed to be in favour of abolishing the tax and to be wanting to keep it at the same time. He was in favour of a flat rate, yet he seemed to think that it might do the building societies harm. By the end of his speech it was very difficult to discover where the hon. Member stood on this matter.

This is what the building societies say on the subject, and they have gone in to it with great care: The figure to which regard should properly be had is a figure of £625,000. The fiscal year, however, is not the Profits Tax year and societies will, therefore, as regards the Profits Tax year 1958 have to pay for three months on the old basis and for nine months on the new. The estimated liability of societies on this for the Profits Tax year, 1958, will be £1,900,000 as compared with £2,325,000 for the Profits Tax year, 1957, or a reduction of only £425,000 which was the figure I gave.

There is a very great difference between £425,000 and £1 million which the Financial Secretary stated they will save. The conclusion is that the building societies will not save a great deal by the change in the basis which the Chancellor has been good enough to announce.

I hope, therefore, that as he was unable, for very good reasons, to be here during the main part of the debate which we had on this matter at the beginning of today's Sitting, the Chancellor will be good enough to read through what was said by those who took part, keep an open mind, and, on Report, see if he can do something to help these societies. I can assure him that if it is possible so to do we shall return to this matter on Report. We hope that then he will have reconsidered the matter, looked at the figures, and become willing to meet us partially, if not wholly, in our claim.

9.30 p.m.

Mr. Geoffrey Stevens (Portsmouth, Langstone)

I extend a very warm welcome to the Clause. On behalf of my right hon. and hon. Friends, once again I say, "Thank you very much" to the Chancellor for doing something which his hon. Friends have been urging him to do for the last three years.

I listened with the greatest possible attention to the speech of the right hon. Member for Bishop Auckland (Mr. Dalton). I was much interested in three aspects of the quotations with which he regaled the Committee. First, the vast majority of the quotations were from speeches made before the Report of the Royal Commission in June, 1955—and I shall say something about the composition of that Commission shortly.

The second thing that interested me—and he perhaps overlooked this fact himself—was that all the quotations, without exception, were taken from speeches made in the context of an inflationary situation, whereas I do not think any hon. Member would suggest that an inflationary situation exists in this country at present. [HON. MEMBERS: "Oh."] It really is deplorable that I should be the only reader of the Daily Herald in the Committee. I read it every day, and every day I read stories of growing unemployment, a lowering of the Bank Rate—[HON. MEMBERS: "Hear, hear."] Hon. Members say "Hear, hear". Are those inflationary sounds? If hon. Members opposite do not recognise the opposite of inflationary signs when they see them, no wonder we got into such a mess when the right hon. Member for Bishop Auckland was Chancellor of the Exchequer.

He went on to refer to the admonishment that he had had to administer in 1946. He said that some companies were "chucking away their money" in dividends; too much was paid away in dividends and too little was ploughed back, and that all this kind of thing was inflationary and disturbing to labour relations. That was the third thing I noticed about his quotations; he had left behind the figures which might have substantiated his case. I am able to make good that deficiency, because I have the figures with me. They show just what did happen between 1938 and 1948; 1938 and 1956, and in various other periods, in regard to wages, salaries and dividends.

These figures are taken from a book published by the Central Statistical Office, called the National Income and Expenditure Blue Book, which I feel sure the right hon. Gentleman will accept. Looking at these figures we can see factually just how much increases in dividends did, or should have, inflamed the labour situation. Between 1938 and 1956 wages and salaries rose by 292 per cent.—by nearly four times. During that same period dividends on ordinary shares rose by 94 per cent.—just about one-third of the percentage rise in wages and salaries.

How those figures can be used to justify the very extravagant claims which the right hon. Gentleman used I do not know. In fact, the figures show the exact opposite. They show that throughout the history of the joint stock companies boards of directors have, from natural inclination and prudence, exercised dividend restraint—an example which one would have liked to see extended to other sectors of the economy. The right hon. Gentleman criticised the composition of the Royal Commission. It is not without interest to note that the personnel was selected and appointed by a Government which the right hon. Gentleman supported and of which he had been, until a short time earlier, himself a member.

Mr. Dalton

I was not criticising the Royal Commission, except in the sense that I said that it was a mistake to think that what the Royal Commission had written should be treated like Holy Writ. I do not think that the advice that it gave was very much superior to what any Minister, appropriately staffed, would get from his own reflections and his own Department.

Mr. Stevens

The right hon. Gentleman is confirming exactly what I said. He denigrated the Royal Commission. He talked of it as a "worthy, hard-working lot of people," and wrote them down as far as he possibly could, entirely unjustifiably. Despite the fact that a Labour Government appointed the Commission, it was a first-class lot of people and did a first-class job.

Mr. E. Fernyhough (Jarrow)

Did the 98 per cent., which the hon. Member says was the increase in dividends on shares, include bonus shares?

Mr. Stevens

If a company issues bonus shares the effect is a decreased dividend per share in the following year and not an increase. It is a dividend on two pieces of paper instead of on one. If I went on to develop that factual argument you would call me to order, Mr. Storey. I shall be very pleased to meet the hon. Gentleman afterwards and to explain how these things happen.

Mr. Austen Albu (Edmonton)

Has the hon. Gentleman ever known a case of the issue of bonus shares where the actual dividend has not been raised after a bonus distribution?

Mr. Stevens

Certainly. Once again I should be out of order if I replied fully, but I can give the hon. Gentleman a list of a hundred if he will meet me outside.

It is not without interest to quote the final conclusions of the Royal Commission on this matter. The majority Report says: The use of differential rates may have been of some value in the immediate post-war years but the arguments against such a tax structure increase with the years and in the end must prove decisive.

Mr. Chapman

What paragraph is the hon. Gentleman reading?

Mr. Stevens

Paragraph 540, on page 159. The right hon. Member for Bishop Auckland said, "We must not listen to the majority Report only. We must look at the minority Report as well." He is absolutely right. Any objective person would do so. It is instructive to read the minority Report on this matter. I am not forgetting that the minority Report did very strongly advocate, in this context, a capital gains tax. None the less, in paragraph 103, on page 387, the minority Report sets out in the most potent fashion the arguments in favour of unification of the two rates. It says: We do not disagree with the majority's view that the artificial encouragement of the retention of profits by companies is not necessarily an economic advantage. Later on it says: It can be argued also that the system of financing capital expenditure so largely out of the undistributed profits of companies, does not ensure the best use of the community's savings. It makes it more difficult for fast-expanding firms to raise funds in the capital market; it strengthens the monopolistic tendencies in the economy, and it encourages wasteful expenditure on behalf of those firms who have more money than they can use. Those are the arguments deployed by the minority in supporting the majority. Whether or not it linked these arguments in due course—or rather the conclusions which it reached as the result of these arguments—with the capital gains tax, the arguments retain their validity. So both the majority and the minority support what my right hon. Friend has said. There is no question about that at all. All the figures are in the record, the figures which the right hon. Member for Bishop Auckland forgot to quote in support of his case. It was not a wise thing to do but I have noticed that it is rather a common tendency on the Opposition side of the Committee. [HON. MEMBERS: "Oh."] Yes, indeed, because the figures do not give support to the particular theory which hon. Members are putting forward.

There is no doubt that the decision and the recommendation of the majority, supported by the minority, of the Royal Commission, was a wise one. I once again congratulate my right hon. Friend on amalgamating those two things, and I commend the Clause.

Mr. Harold Lever (Manchester, Cheetham)

We have heard various arguments in favour of retaining a differential rate of Profits Tax. I should say at the outset that I am very impressed with one only, which was not unduly emphasised in the Committee. It is widely believed by some that a differential rate on dividends tends to encourage a high rate of savings in the economy. If I believed that, I would be more sympathetic to the proposal that the differential rate should become a permanent feature of our fiscal system.

Although I am going to vote against this Clause tonight, I want to emphasise that it is not because I am anxious to perpetuate the system, as my right hon. Friend the Member for Bishop Auckland (Mr. Dalton) seems to wish, of a differential, and I shall venture to give my reasons. First, it might help if I clear briefly some of the negative side of the matter from consideration. It is certainly very arguable whether a differential Profits Tax which encourages companies to plough back profits helps in dealing with inflation or not.

When a company is encouraged to plough back profits in an inflationary period by this differential means, money is available to the big companies and for the most important things which ought to be kept free of buying pressure—the capital goods section. If the result of larger dividends according to popular belief is that people will rush to the Ritz or Fortnum and Mason and fill themselves up with potted shrimps and pâté de foie gras, it might cause inflation in the prices of those delicacies, but it would not fundamentally damage the economy; but if the fiscal method tends to encourage ploughing back, that encourages people to buy goods which are in short supply on a market which is already overloaded, the capital goods market.

No one on this side of the Committee believes we are in an inflationary period at the moment. On the contrary, we want to know why the Chancellor thinks we should strangle the capital investments of the railways and the roads and deprive working people of increases in wages.

Mr. Stevens

Would not the hon. Member agree that the Bank Rate has been recently reduced and initial allowance has been increased by 50 per cent.?

Mr. Lever

The Chancellor faces two ways at the same time. One of my right hon. Friends described him the other day as a weather-cock. It is idle to charge this side of the Committee with having a misconception about the kind of situation in which we are. We do not think there is an inflationary situation, but we did not propose that we should have a 5 per cent. Bank Rate, nor did we welcome with enthusiasm the idea of a 7 per cent. Bank Rate a few months ago.

If the hon. Member is really convinced that the danger at the moment is deflation and not inflation, it is time he woke up to the financial facts of life and pressed them on his own Chancellor of the Exchequer who maintains a high Bank Rate. A differential rate of Profits Tax cannot be defended on the ground that it is needed because of inflation. In the first place, it is doubtful whether it is a help in that respect and, in the second place, most people, apart from the Chancellor and his expert advisers, are well aware that there is no inflationary danger in this country, nor indeed in the world at present—rather the reverse.

Two years ago I ventured to divide the House on this issue and proposed that the differential should be abolished. The then Chancellor of the Exchequer, who since—presumably for his efforts on that occasion—has been promoted to Prime Minister, resisted what I thought was an unanswerable case for the abolition. Aided only by the Leader of the Liberal Party, whom I regret not to see in his place, who acted with me as a Teller in that Division, my proposal received exactly no votes. In view of the ironical applause when we eloquently performed a pirouette to the Table to announce that lamentable decision to the Chairman of the Committee, and the cheers with which it was greeted from the other side, it is rather a pity that their unanimous enthusiasm for the abolition of the differential has been left so late. I wish that they had supported me two years ago when I advocated it.

9.45 p.m.

I am sorry to find myself in disagreement in some particulars with the reasoning of my right hon. Friend the Member for Bishop Auckland. In spite of his discourtesy to me when I wanted to correct a misleading statement which he was putting before the Committee and which I shall now seek to do, we are all delighted to have him back again in his old form at the Dispatch Box. He claims a far better record in supporting Government credit than those who succeeded him. At least, in his day Britain's credit stood high. I did not altogether agree with his policies then, and I do not altogether agree with them now. But he is not like the present Chancellor who has so conducted our affairs that the Lottery Bond is the least speculative of all Government securities.

I want to refer to a further point which he was making. He said that the whole idea of the Profits Tax was to keep the ratio between earnings and dividends. He was trying to deal with what my hon. Friend the Member for Stoke-on-Trent, South (Mr. Ellis Smith) had said, and he said that the idea of the Profits Tax was to keep the ratio between dividends and earnings in proper proportion. My hon. Friend is a staunch champion of the rights of the wage-earning folk of this country. I think that my right hon. Friend undoubtedly meant, and meant my hon. Friend to understand, that the Profits Tax differential was to keep down the ratio between company dividends and workers earnings. That is not what the Commission said at all. It was to keep down the ratio between company dividends and company earnings. The only purpose of this argument, so far as the worker is concerned, is that this differential made an excellent reason for declining to give an increase in wages, notwithstanding that profits were soaring, because the extremely profitable company was saying, "We have been told by the Chancellor to keep down our dividends and also to keep down our wages." I am not in sympathy with either of those views.

Some of us are wondering why there is so much excitement about building societies. I am in trouble because I hate to disagree with my right hon. Friend the Member for Colne Valley (Mr. Glenvil Hall). He is obviously under the impression that building societies are building societies and feels considerable sympathy for them. Of course they are nothing of the sort. They borrow and lend money right, left and centre and they are the beneficiaries of a quite illogical and unjustified tax concession.

Mr. Glenvil Hall

I am sorry to interrupt my hon. Friend in an interesting speech, but most Members of the Committee would like to hear what is this tax concession which the building societies enjoy.

Mr. Lever

I will put it briefly. The tax concession which the building societies enjoy is not enjoyed by ordinary companies. They are only companies engaged in the business of borrowing money and lending it. That is the purpose of building societies today. They enjoy this concession over all other companies, because whereas other companies have to pay the standard rate of Income Tax on their profits, the building societies pay only a composite rate.

Mr. Glenvil Hall

This was done originally, in consultation with the Inland Revenue, because so many people who invest money in building societies were not liable to pay Income Tax anyway and many others, who might have to pay tax, paid at a lower rate. Therefore, they had a compounded rate which is, I think, either 7s. 7d. in the £ or 5s. 6d. in the £, but something less than 8s. 6d. I can assure my hon. Friends that the Inland Revenue gets its pound of flesh.

Mr. Lever

I do not want to stray too far. It is a concession made only to building societies.

Mr. Chapman

It is not a concession.

Mr. Lever

I do not want to pursue what is very much beside the point. If it is not a concession, I should like to hear what my hon. Friend would say if the Chancellor took it away next year. The roof would be lifted with howls of pain from the building societies. [HON. MEMBERS: "No."] I invite the Chancellor to bear in mind that those who speak on behalf of the building societies do not think that it is a concession. I recognise that it is also an administrative convenience for the Inland Revenue, but it has many advantages to building societies.

I wish to put briefly my reasons for opposing the retention of a differential rate of Profits Tax as a permanent feature of our fiscal life and freely concede that we have the authority of a former Tory Chancellor of the Exchequer, and no less authority than that of the former Prime Minister and the Foreign Secretary, in support of the contrary view.

Mr. Dalton

And the Lord Privy Seal.

Mr. Lever

But I wish to speak from the Labour Party point of view.

The Labour Party believes, and I feel that many enlightened hon. Members opposite believe, in a progressive system of taxation. Until profits take the form of dividends in a company they are not subject to a progressive tax. It does not matter whether those profits belong to a small shareholder or to a multi-millionaire; when undistributed they bear exactly the same rate of tax. When paid as dividends, however, if they are paid to a small shareholder, then the standard rate of Income Tax is paid and that is an end to it; but if they are paid to a multi-millionaire, he pays the greater part of the balance away in Surtax on unearned income.

In other words, this enthusiasm for the retention of profits rather than the distribution of dividends is widely shared among the richest members of the community. Indeed, so marked is the preference for the retention of profits among the rich that long before my right hon. Friend the Member for Bishop Auckland graced the Chancellory, his predecessors had to enact a section of the Finance Act to force them to pay dividends. It is only in soap box mythology that millionaires are dying to pay dividends which bring them within a progressive system of taxation.

If he refers to the facts, the Chancellor will find that it is the urgent duty of the Revenue to force the richer shareholders, who control most of these companies, to pay out dividends, or at any rate notional dividends, in order that they may attract Surtax. A sophisticated man once said that in love possession is nothing, only enjoyment matters. The Labour Party seem to have adapted the same principle about profits; in profits possession is nothing, and only their enjoyment matters. They say that their possession in the form of retained profits does not matter; only when they are enjoyed as dividends do they take on some consequence.

When they are earned by a company and retained, they belong to the shareholders, and we may be quite certain that sooner or later the shareholders get the benefit of these accumulated profits in the form of untaxed capital values. I do not wish to name companies, but I could name dozens under the control of extremely rich men who, according to this soap box mythology, are eager to pay their profits out as dividends but are restrained by my right hon. Friend's legislation. I can show examples where 90 per cent. of the profits are ploughed back, precisely because the rich men who control these companies do not want to pay Surtax but would rather accumulate profits as a capital accretion. From many points of view this is an advantage, because profits come within a progressive system of taxation only when they are declared as dividends. There is no reason why we should give a further incentive for their automatic retention. When a company makes profits and does not pay them out in dividends, after paying the standard rate of Income Tax it has them in the business as an addition to its capital.

Why should we give to companies which add to their capital an automatic tax concession for being good enough to do so, because that is what this means? There is no reason for giving a concession to company A, which has added to its capital by retaining £50,000 profit, any more than there is for giving such a concession to company B, which gets new capital by a subscription of £50,000. The position is identical in each case. If anybody suggested that we should give a tax concession to a company raising new capital, we should think that he was the victim of some form of delusion. Yet that is precisely the effect of the differential rates, which automatically give the concession when capital is added to companies which retain their profits whether they need to or not.

A company which retains its profits should do so on some rational ground, that it has something useful to do with them. Merely to say to a company, "You made a lot of money this year and it will look bad to the workers if you pay out large dividends and it is better that the workers should be denied what may be a reasonable increase in wages" is not a policy to which I can subscribe.

The Labour Party does not subscribe to the notion that there is something virtuous in preventing wage rises. I do not mean that there will not be occasions when a Socialist Chancellor, or a Conservative Chancellor for that matter, should be able to call on the workers for wage restraint. However, where in the world does the Labour Party get the idea that there is something evil, obnoxious and something which should be discouraged in workers making demands for wage increases? I am very suspicious of these sophistries of a financial character which are calculated to mislead workers into thinking that they are not entitled to make these demands.

To encourage companies to plough back profits, whether that is needed or not, amounts to saying, "You have money which you do not need and which you would not keep if you were to pay it in dividends, and by this discriminatory tax we will make it penal for you to part with it." The company is left with those funds and I have never thought it a good thing to press companies to swell their bank accounts with money which they do not need for business. That is not a policy calculated to make for a modest expansion or for frugal economy in business, nor for the sane management of the company's affairs.

While we have companies, we want them to be managed as sanely and as prudently as possible. Some of my hon. Friends with more drastic views may advocate the abolition of all companies and all finance, but while we have companies we do not want to encourage profligacy and wasteful expenditure; and yet nothing could be more calculated to do that than the possession of funds which those companies do not need and which they retain only because they are pressed by the tax incentive to do so.

I conclude my case from the Socialist point of view, this most important argument against the differential which encourages the ploughing back of profits. Encouraging companies to plough back profits weakens the social control of the financial directives which the Chancellor issues. If I had a small company and no money and I wanted to engage in a venture, I should have to go to the Capital Issues Committee or to the banks, both of which are subject to the Chancellor's directive, and if I wanted to make tin whistles or open a night club the Chancellor would be apt to say, "Not a farthing" and the banks would be apt to say, "Not a farthing"—and are very likely to do so and certainly would do so under a Labour Government. If I had been ploughing back profits and had vast funds, I should be autonomous and I could put my fingers to my nose at the Chancellor's directives. I should not give a hoot for the Chancellor, for the Capital Issues Committee, or for the directives.

Worse than that, companies which have ploughed back profits because of the differential rate, have funds which they do not need and which hence accumulate as regular funds. It is very nice to have Government securities or Daltons or whatever stock we want to see go up. I have an interest to declare here, because I hold War Loan, and I am glad to know that I qualify for the right hon. Gentleman's approval as a patriotic citizen. Incidentally, I have never been able to understand why Daltons, which are an identical stock to Goschens, have always been a fraction of a point lower.

10.0 p.m.

Mr. Dalton

Because they are repayable at a certain future date—I think 1975 or after.

Mr. Lever

As that stock is standing at somewhat under half its nominal value, this hardly seems to be a satisfactory explanation. I can understand the incurable romanticism of the financier who would rather have a shade less yield than have a stock bearing my right hon. Friend's name. I confess that it has never deterred me from preferring his stock to the slightly marginal decrease in yield of Goschens.

I have, however, strayed from my final point. By encouraging the accumulation of funds in companies one creates a number of autonomous chancellors who make their own capital directives, who have their own capital issues committee in the form of directors. They are sitting on millions which they have ploughed back and which by definition they do not need for their own business. But on the obverse side is a sort of grey market in capital, because when the Chancellor stops borrowing for essential purposes it makes money extraordinarily scarce for inessential purposes.

It is tempting to all these companies which have ploughed back so piously, with the approval of my right hon. Friend and to the avoidance of all Surtax, their vast profits in an inflationary period. They are now able to undermine the work of the Chancellor in planning our economy by having independent control of finance. For the centre of all democratic planning is the ability of the Government to control the flow of funds.

Some hon. Members were not present when I reminded the Committee that I divided the House two years ago on this very issue and I did not get a single vote from hon. Members opposite who are now clamouring for the abolition of the differential. They must examine their consciences and decide why they did not cover themselves with Parliamentary glory and take advantage of the opportunity that I offered them to support my Motion two years ago. The Labour Party, on the other hand, have been consistent in the matter. They believe in the differential. I do not believe in the differential. But I cannot approve this act of the Chancellor's in isolation from the other requirements of fiscal reform which ought to have gone with it.

If the Chancellor had reformed the fiscal system, into which I cannot go into detail now because I would be out of order, in a manner which would be approved by my party, I would not have voted against this reform of the Profits Tax, and I have a feeling that many of my hon. Friends would have been of the same mind too, had we had a thoroughgoing fiscal reform to our satisfaction.

I do not commit myself specifically to a capital gains tax; I personally do not believe in such a tax. I believe that some capital profits should be treated as income, and the others are not relevant to the discussion. I want merely to say in a sentence or two that, had the Chancellor redefined the meaning of income to include all capital profits which related to business or commercial activity and treated them as the income which they are—I enjoy them myself, but they are not taxed for they are called capital profits, and no doubt many hon. Members do—I should take a different view. They are capital profits under the present law and, with a redefined and realistic definition of income, they would be treated as taxable income.

The other capital gains accruing when, for instance, a man buys a house or a piece of porcelain which goes up in value should not be taxed at all, whether by a capital gains tax or any other kind of tax. But all other capital gains which are really income and can be spent as such should be taxed as income, with, let me say, a corresponding reduction of the present penal rates of tax. I do not at all envisage that, if capital gains were taxed, the present rates of taxation on earned income would be retained, but that is another matter coming under another part of the Bill.

I have no hesitation in voting against the Chancellor this evening, therefore, but I should like to go on record as saying that I would not like to see the differential rate of Profits Tax as a permanent feature of our fiscal system.

Mr. Hugh Fraser (Stafford and Stone)

I agree with every word spoken by the hon. Member for Manchester, Cheetham (Mr. H. Lever) except the last two or three sentences, in which he looked desperately for a reason to justify his action tonight. While we may have avoided political glory two years ago in not following him into the Lobby which he, with the Leader of the Liberal Party, uniquely filled, he is covering himself this evening with political spite in not joining us in the Question we propose to vote upon.

The hon. Gentleman has covered himself with even greater glory in the scorn and contumely he has poured on the "Bishop of Auckland" and on the "Curate of Colne Valley" who, I think, served together at one time in the Treasury. The right hon. Gentleman the Member for Bishop Auckland (Mr. Dalton), whom we are all delighted to see back on the Front Bench opposite, thundered greatly and threw absolutes about the Chamber, but, after the great speech we have just heard from the hon. Member for Cheetham, we feel that all his arguments fall completely to the ground. We believe that, generally speaking, the Clause represents a definite step forward, for the reasons adduced by my right hon. Friend and other hon. Members, including the hon. Member for Cheetham.

I have one serious point to put to my right hon. Friend about the effect of his proposal on small businesses, of which there are very many in the West Midlands and Birmingham area, businesses employing 20 or 30 persons, frequently engaged in light engineering. Their position is difficult, and the difficulty was heightened a few months ago by the withdrawal of the "umbrella" from smaller companies. That umbrella was quite rightly withdrawn. Cases came to one's notice of companies starting with £5,000—doubtless, some of my hon. Friends would have wished to have shares in them, and so would I—paying no dividends, and finishing up with £2 million in the "kitty". However, the effect of the change had considerable effect on the smaller companies of the sort I have in mind, important small companies which are essential to the flexibility of the British economy—small, specialist fabricator employing 30 or so people, more or less a family business.

The withdrawal of the umbrella imposed by Sir Stafford Cripps meant that these people, who had frequently been forced to plough large amounts of money back into their businesses to keep them afloat at all, were faced with the problem of whether the Special Commissioners would impose upon them a Surtax direction. Many of the worst fears of these people did not materialise, but it is quite clear that the sudden change from 3 per cent. on retained profits in this kind of business to 10 per cent. puts them in a tricky situation.

I should like to ask my right hon. Friend to consider this problem, because it is a serious one for a large number of small companies. As my right hon. Friend and other hon. Members interested in taxation know, the complexities of Profits Tax are very considerable. As far as I can understand, it is based on three general conceptions, each of which is in itself variable and which could be adjusted by the Chancellor to ensure that smaller companies are benefited by expenses for directors and by help in other ways which could alleviate their position.

Beyond that, there is a further point which should be considered. I think that it is possible for my right hon. Friend to raise the lowest level at which Profits Tax is paid from £2,000 to, say, £5,000. That would obviously cost a fair amount to the Exchequer, but the damage which can be done to some small companies without help is very considerable indeed. Therefore, I hope that when my right hon. Friend replies, or between now and Report, he will consider what assistance can be given to small companies, which are of great benefit to the economy as a whole.

Mr. Diamond

There were two main reasons before we reached this stage of the debate why I opposed the end of a differential rate of Profits Tax. The first was the familiar one that it was ill-timed in relation to demands which were being made by the Chancellor at the same time for restraint in wages. It was most discouraging to those who were being asked to exercise restraint in wages to see a fiscal policy being implemented which tended to increase dividends.

It has been suggested that that is not the case. I shall make one or two quotations to the Committee which will put an end to that. Another point which one has to to consider is the timing, and, finally, we have to decide on what basis a flexible arrangement can be made having regard to what the Chancellor and the Paymaster-General have said.

First, I will deal with timing. What the Chancellor must do in his reply is to explain why it is that on the last three occasions on which these rates of tax have been altered they have been altered in one direction, namely, to increase the rate and the amount of variation between the distributed and non-distributed rate. It is no use the Chancellor relying on the conclusion of the majority Report, because it said, as has been already quoted: The use of differential rates may have been of some value in the immediate post-war years but the arguments against such a tax structure increase with the years and in the end must prove decisive". This is how previous Chancellors have relied on the Report. As the years have gone by Chancellors have refused to accept those conclusions and have done quite precisely the opposite. As my right hon. Friend the Member for Bishop Auckland (Mr. Dalton) wisely said, it is the responsibility of every hon. Member, particularly Ministers, to use their own heads with regard to the evidence put forward in Royal Commissions and to read the conclusions, but not necessarily to accept every conclusion merely because it is the logic of somebody else's mind.

No doubt the facts are valuable, but we can all draw our conclusions from them. Quite clearly, previous Chancellors have drawn the conclusion since June, 1955, when the Report was published, that this recommendation was precisely the opposite of what was beneficial and useful to the country at the time, namely, that the differential should be increased with the passing years and not decreased, as the Royal Commission suggested.

10.15 p.m.

I do not know what the Chancellor will say in explaining why, in previous years, it has been right to increase this differential and this year it is not only wrong to increase it, but right to demolish it completely. I do not know whether the Chancellor will say, as his hon. Friend the Member for Langstone (Mr. Stevens) said, that there is no question of any inflationary danger. I do not know whether he will say that there is no longer any need to discourage wage increases.

I have the clearest recollection of our discussion less than 24 hours ago, when the Joint Under-Secretary of State for the Home Department, a responsible member of the Government, replying to a Prayer, said that the reason why the firewomen were not getting the wage increase which had been recommended unanimously by both sides of the National Joint Committee, which had considered the matter, was the question of inflationary tendency. The amount involved, we were told, was £4,000 a year, of which probably three-quarters fell on the local authorities and a maximum of £1,000 a year on the Treasury. Because of that £1,000 a year, the Government were interfering to reject completely the unanimous conclusions of the National Joint Committee and they were refusing to give the wage increases which were then asked for. That was less than 24 hours ago.

I imagine, therefore, that the Chancellor will say that we are still in the same position as before and that thought had to be given to discouraging wage increases and encouraging wage restraint. The way to encourage wage restraint is not to encourage dividend increases. Whatever may be said about the size of them, nobody would argue against their psychological importance. As a result of the provisions of the Bill, dividends have already started to increase.

I will quote only one case. It is a report from The Times of as long ago as 5th May. It is headed, "Kemsley Newspapers Tax Benefit". I apologise for referring to a case by name, but I merely repeat what has already been in The Times. It said: Lord Kemsley, the Chairman of Kemsley Newspapers, tells shareholders in his statement with the latest accounts that on the basis of the profits earned in 1957 the charge for Profits Tax would have been reduced by about £130,000 if the flat-rate of 10 per cent. had applied for the profits. He talked about an increased dividend and said that The prospect"— only the prospect— that the Profits Tax burden will be lightened has influenced the Board in their decision to raise the Ordinary dividend from 10 per cent. to 12½ per cent. That was as early as 5th May. That was in contemplation of the reduction in the cost of Profits Tax. I am sure that that is a responsible company and acting in the same way as many other companies are acting, and will act, in increasing dividends.

There have always been good reasons for the differential. My right hon. Friend the Member for Bishop Auckland has made them clear. Previous Chancellors, of both parties, have accepted that. Since the publication of the Royal Commission's Report, saying that the differential should be removed as the years went by, every Conservative Chancellor has either refused to remove it or has increased the differential. Now, the Chancellor is acting in a most harsh manner in interfering with and discrediting wage negotiations on the ground of the danger of inflation.

I will not repeat what the Chief Whip says. I understand him perfectly well, and I understand that he is not agreeing entirely with what I am saying. I do not suppose he could have been here last night and heard all the arguments which were made against firewomen having a wage increase costing £4,000 a year, the arguments being on the ground of inflation.

Having adopted that policy at this late hour and at the wrong time, we are now faced with the extraordinary situation that the sole reason which has prompted the Chancellor is that of administrative convenience. It is a nice, tidy arrangement to have one rate of tax. One thought at the time of the Budget speech that, of course, the Chancellor would be flexible-minded enough to realise that, although there might be arguments both ways, if there were a single rate of tax he would have to make adjustment and exceptions for cases which were not normal cases.

But the whole of today we have been putting forward Amendments to deal with cases which are absolutely apart from the normal run of businesses, and in every single case the Chancellor has turned us down flat, saying, through the Paymaster-General, "We have a single rate of tax, and it matters not whether we are considering local authorities and their undertakings, it matters not whether we are considering bodies which, by their constitution, cannot distribute profits, it matters not if we are considering building societies, it matters not whether we are considering Rugby and the encouragement to play Rugby throughout the country: nothing matters at all, but it has to be a single rate of Profits Tax."

Of course, that is the logical conclusion of this mistaken policy of having a single rate. The real argument in favour of a single rate is administrative convenience. The Chancellor is quite logical in sticking to it, but it produces all these unsatisfactory and inflexible results.

The Chancellor of the Exchequer (Mr. Derick Heathcoat Amory)

This Clause, which provides for the unification of the Profits Tax rates, carries out one of the principal recommendations in the Report of the Royal Commission on the Taxation of Profits and Income and makes what, I think as an important change in our tax system.

I said in my Budget statement, and also in my speech on Second Reading of this Bill, why I decided to bring forward this proposal. After reviewing everything which has been said and written upon this subject I am bound to say that for economic, administrative, fiscal and legislative reasons I believe that this is not only a major reform but an extremely beneficial reform. I agree very much with almost everything my hon. Friend the Member for Portsmouth, Langstone (Mr. Stevens) said tonight on this subject.

I want to make it clear that I am not of the opinion that a recommendation of the Royal Commission or any other committee should be accepted automatically, but I myself, who started with a very open mind on this subject, have been convinced by the arguments which the Royal Commission brought forward. It will be remembered that the majority Report of the Commission favoured strongly the merging of these rates. The minority of the Commission also thought that it would be a good thing to merge the rates, but conditionally on a capital gains tax. It would be out of order to talk about capital gains tax now.

The right hon. Gentleman the Member for Bishop Auckland (Mr. Dalton) gave us a speech tonight, and I personally enjoyed his buoyant self-confidence. It was quite clear that his views and judgments were in direct conflict with those of the majority of the Royal Commission. Incidentally, from the way his right hon. Friend the Member for Colne Valley (Mr. Glenvil Hall) referred to him, I am not sure that that speech ought not to have been made in another place.

The right hon. Gentleman seemed to base his argument a good deal on the fact that, in his opinion, the merging of the rates would be inflationary, but that was against the background of the views expressed by many hon. Members opposite who made it perfectly clear that in their opinion the danger is deflation and not inflation. I should have thought, therefore, that the right hon. Gentleman's argument would not have made a great impact upon them.

I will not cover the ground which was dealt with by the Amendments that we discussed earlier today, designed to give relief to different types of organisations. I would say only that I am convinced that if I began to make exceptions there I should be departing from what I believe was a sound principle put forward by the Royal Commission. There is great force in the argument that if we are to do justice we ought to bring into the field of this Profits Tax all profits, without distinction between different types of corporations. Our object here is to see, as far as possible, that Profits Tax, now at the unified rate, follows as nearly as we can make it the principles on which Income Tax is applied to the profits of corporations of all kinds. As the Royal Commission said, only so can we achieve a fair balancing between the costs and prices of public, semi-public and private corporations.

The main criticism that has been advanced against the merging of the Profits Tax rates in general has been that it would lead to a spending spree in dividends and that it would be hitting companies which plough back a substantial proportion of their profits and pay low dividends. It is perfectly true that this tax will have a different incidence on different units of industry. Some will pay more and some will pay less, but I do not believe that it will stimulate a big rise in the general level of dividends. I have said that before and that remains my view after further study of this question. I believe, now that inflation is being eliminated from our system, that the pressure of profits margins will exert a strong influence in the opposite direction.

I do not believe, anyway, that boards of directors in general, milk their companies by extravagant dividends if they believe that money is required in the business for either immediate needs or for future expansion. If they do, then in the hands of their wealthier share holders those distributions will be subject to Surtax. The majority of the Royal Commission thought that the differential rate exerted only a minor influence on distribution when all other influences had been taken into consideration. We must remember that the lower rate of Profits Tax encouraged the retention of profits and not necessarily the ploughing back of profits. That point was made by the hon. Member for Manchester Cheetham (Mr. H. Lever).

10.30 p.m.

If companies—and there are many in this position—find themselves possessing surpluses after provision for their current and future needs, then it is in the long-term interest of our national economy that the money should find its way to other industries as new capital. The majority Report of the Royal Commission thought that that would be less likely to happen, on the whole, if the profits were retained by those companies which did not need them for ploughing back into their own businesses than if they were distributed. If the Royal Commission was right, then that is a very important factor. Nor did the majority of the Royal Commission consider that profits which were distributed were necessarily more inflationary than profits which were retained.

I regret that this change will lead to an increased tax bill for those low distribution companies which need to retain money as reserves for development, but that is the price which we must pay for a measure which I am convinced will be beneficial, on balance, to industry in general.

One important point has not been mentioned in this debate. That is the cumulative contingent liability of low-distribution companies under the differential Profits Tax system. The Royal Commission thought that that was a very bad feature of the Profits Tax as it has been to date. Of course, the greater the proportion of profits that are put to reserve the greater the magnitude of that contingent liability. Those companies will now be wholly relieved of that liability.

From the many views which I have had from industry, I understand that industry regards the removal of that contingent liability as an important gain. It was put to me that it was something overhanging those companies and that the blow might fall on them when a company might be engaged in a perfectly legitimate and useful process of reconstruction or rationalisation.

There is another change in the Budget which will help low-distribution companies which require to put a large proportion of profits to reserve, and that is the increase in the initial allowances. A most important reason for the change is that it mitigates the very serious cause of distortion in the financial structure of companies which resulted from the differential rates. There was invariably a tendency to encourage companies to resort to loan capital when they should have resorted to increases in equity capital. One can already see the result of that in the balance sheets of many otherwise extremely vigorous companies. The differential rate was unfair to companies which had an issue of preference shares, because the burden fell not on the preference shareholders, but on the equity shareholders.

It is not necessary to stress the advantages which will accrue from the simplification of this part of the tax code and the enormous saving in work both to industry and to the Revenue—and I deliberately put it in that order because the time saved to industry is even more important than the time saved to the Revenue.

Mr. Roy Jenkins

The right hon. Gentleman is basing himself very heavily on the recommendations of the majority of the Royal Commission. Does he not recollect the fact that the majority thought that even a non-differential Profits Tax of this sort was not the way to solve the problem of preference shares, and that a different recommendation was made about that?

Mr. Amory

Yes, I realise that, but the majority of the Royal Commission undoubtedly recognised that the merging of the rates of Profits Tax improved the position enormously for companies which had a substantial proportion of their capital in the form of preference shares—and I think rightly so, too.

I was speaking about the simplification which will result from the merging of these rates. It will also lead to the repeal of a large amount of complicated and contentious legislation on the Statute Book, as hon. Members will see if they look at the Ninth Schedule. It will remove a main incentive to tax avoidance in this sector, and if I had not proposed the merging of the rates on this occasion I should have had to introduce some new and complicated legislation to counter the tax avoidance of which the differential rates were the cause.

I ought to refer to the psychological effect on wage increases. To some people this change is seemingly out to encourage higher dividends. I recognise the relevance of that consideration, but I think that its impact has been very much exaggerated. Our policy, as I think hon. Members know, is not a policy for a wage freeze or a dividend freeze. We want to encourage moderation in dividends and in wages. As my hon. Friend the Member for Portsmouth, Langstone pointed out, dividends have risen enormously less than wages since 1938. I will repeat the figures which he quoted, because they are relevant. Wages and salaries increased by 304 per cent. and dividends by 94 per cent. between 1938 and 1956.

Mr. H. Wilson

Will the right hon. Gentleman give the figures for the last two years?

Mr. Amory

I have not the figures for the last two years, but I think that I have some more recent figures. Between 1948 and 1956, a shorter period, wages and salaries increased by 81 per cent., gross profits of companies by 67 per cent. and ordinary dividends by 77 per cent. There again, ordinary dividends have increased by less than wages over the period.

Mr. Wilson

The right hon. Gentleman now goes back to 1948. Will he now look in another pocket and see whether he has the figures for the last two years? If he has not, will he take it from me that it was stated in the House, on Second Reading, and not challenged at the time, that dividends have risen considerably more than wages in that period?

Mr. Amory

I will accept that from the right hon. Gentleman but only against the background of the figures which I have given, showing the enormous gap between the amount by which wages have risen and the amount by which dividends have risen over the longer period.

Mr. Wilson

If the right hon. Gentleman is using this argument, he is basing himself on the assumption that the distribution of incomes in 1938 was the right distribution. Surely the one thing which even the right hon. Gentleman and the Tory Party will accept is that, in view of the heavy unemployment and the depressed standard of wages in 1938, the relationship between dividends and wages was wrong.

Mr. Amory

I am making no such assumption, but I have not time to follow the right hon. Gentleman into a detailed argument about the developments of the last twenty years.

If, as I believe, the evidence is that in the long-term the perpetuation of the differential rate would have imposed substantial harm on industry in general, I think it is dangerous to argue that we ought not to take remedial action because of the fears which we might have that the reasons for doing so might be misjudged.

My hon. Friend the Member for Armagh (Mr. Armstrong) appealed to me to consider whether a lower rate could be justified on the dividends paid by subsidiaries of foreign companies. He mentioned the relative advantages of taxation on such companies in this country and in other countries. Of course, such companies would no doubt consider not only the relative levels of corporate taxation but also other factors, such as the level of social service contributions.

As long as we had a differential rate there may have been some justification for giving the special relief that was given to foreign companies. But when we have one rate, as we shall have with this merging of the rates for all domestic corporations, I think it would be absolutely impossible to put subsidiaries of foreign companies in a position which would be more advantageous than that of our own companies. I would remind my hon. Friend of the benefit those companies get from the doubling of the initial allowances.

The right hon. Member for Colne Valley took me to task about the figure that was quoted by my hon. and learned Friend the Financial Secretary concerning the advantage that building societies are going to obtain. The figure, I think, was £1 million. The explanation is, as I think the right hon. Gentleman himself realised, that the lower figure which he mentioned was, of course, for a broken year, whereas the figure to which my hon. and learned Friend referred was the advantage which they will obtain in a full year.

Finally, I was interested in the arguments used by the hon. Member for Cheetham, though they were very difficult to reconcile with the views expressed by all his colleagues. A reason that has not been mentioned this afternoon, and one which I must say carried weight with me, was that the change which we are proposing has been very strongly welcomed by the bodies representative of industrial management, the Federation of British Industries and the National Union of Manufacturers, the latter body containing a large proportion of smaller firms.

It seems to me that there are arguments for a differential rate in particular circumstances, and they may have obtained at a period when we were undergoing a considerable measure of inflation. But I believe that today the economy is robust enough to justify us in attacking longer term objectives. I agree entirely with the majority Report of the Royal Commission, when it said that the arguments against the differential tax structure increased with the years and in the end must prove decisive. It said: Therefore, we recommend that the differential rates should be brought to an end. On a balance of all considerations, I am sure that the unified Profits Tax rate will, in the long run, be better for industry and better for our national economy. That is why I am recommending this Clause to the Committee.

Mr. Gordon Walker

I hasten to agree with the Chancellor on one point, namely, that we support him in his refusal to have a differential between foreign companies and British companies in this country. That would be quite an impossible thing to do once we have a single Profits Tax. It was, of course, a perfectly reasonable thing to do when there was a differential Profits Tax. Apart from that, I must say that the right hon. Gentleman's decision to abolish the differential tax was a bad step and that he and his hon. Friends have advanced very bad and weak arguments in favour of it.

The right hon. Gentleman said that he only became convinced after starting with his mind leaning rather the other way. I wonder whether he will tell us when he became convinced, because since the Royal Commission reported the Lord Privy Seal has been Chancellor of the Exchequer and the Prime Minister has been Chancellor of the Exchequer. Both of them studied the Commission's arguments and both rejected them and they went out of their way to say why they did so. At what stage did the right hon. Gentleman become convinced? Was he convinced in those distant days when his right hon. Friend the Lord Privy Seal was Chancellor of the Exchequer or has he only been convinced, or even only just read the Report, since he came to his present office?

If the right hon. Gentleman was convinced in the time of the Lord Privy Seal, why did he not say so? Why did he keep so quiet? He has said nothing today to explain why it was right, for instance, for the Prime Minister when he was Chancellor of the Exchequer to reject these proposals of the Royal Commission and why it has suddenly become right for the present Chancellor to accept them. There has been a complete contradiction and no attempt has been made to reconcile these matters in any way.

10.45 p.m.

There have been a lot of bad arguments. One of the purposes of the change, we are told, is that it brings in simplicity and equity, and avoids distortion of the capital structure. There is a lot of mumbo-jumbo about that. We have had little evidence of distortion of the capital structure. In fact, we find that the result of what the Chancellor has done has been to produce a crop of inequities and distortions. All sorts of bodies like the Mersey Tunnel Authority, sports associations and the like, now have to bear a higher tax as a result of the Chancellor's activities. The Chancellor does not conceal, though he rather glosses over the fact, that the change has a very ill effect on the economy. It helps the wrong sort of companies. It helps breweries and property companies and hurts the commercial and industrial companies, steel companies and such concerns.

Is that the sort of selective expansion that the Chancellor really wants—breweries before steel companies? He is introducing a tax change which gives fiscal benefits to companies such as breweries and fiscal disadvantages to steel companies and similar bodies. If he really wants to do that, he should justify it. It is no good saying "This is the price one has got to pay for a doctrinaire proposal." It is a tremendous price to pay. It is distorting our economy—the very thing that the Chancellor says he wants to avoid doing.

I say to the hon. Member for Portsmouth, Langstone (Mr. Stevens) that it is not we who say that we have to avoid inflationary consequences of taxation. It is his right hon. Friend who is saying that all the time. It is his right hon. Friend who tells the workers, "You must not have a wage increase. It is very dangerous. It is inflationary." The right hon. Gentleman went out of his way to say that he agreed with almost everything that his hon. Friend the Member for Langstone said. I wonder whether he agreed with his hon. Friend when he said there was no longer any inflationary danger. He got rather near to saying this in the arguments that he was deploying in general.

I say to the hon. Gentleman that we are not arguing that these changes are inflationary. We say that they constitute a regressive and unjust redistribution of wealth. They redistribute wealth wrongly to the rich at a time when every sort of effort is made to hold down wages by the right hon. Gentleman and his friends because it is dangerous.

They do this in two ways. First, they put up dividends. The Chancellor is extremely unconvincing about this part of his argument. All the financial Press has said that dividends will go up as a result of this proposal. My hon. Friend the Member for Gloucester (Mr. Diamond) gave one of a number of concrete examples. Does the right hon. Gentleman think that the National Union of Manufacturers would be so pleased with this change if it had so little effect on dividends as he pretends? Of course, it will increase dividends.

Mr. Stevens

Does the right hon. Gentleman accept bits and pieces in the financial Press rather than the Government Blue Book? Is he and is his right hon. Friend the Member for Huyton (Mr. H. Wilson) aware that the 1958 Blue Book will not be available until next month? Are they only prepared to quote figures which are not available?

Mr. Gordon Walker

I am saying that all the financial Press has assumed as a matter of course that one of the effects will be to put up dividends, and, of course, so have all hon. Gentlemen here. They have assumed that it will put up dividends on the whole—some more than others, breweries more than steel companies, for instance. This whole matted of a remission of this contingent tax liability encourages a distribution of reserves. In the past this has been discouraged because they have borne tax at 3 per cent. paid at the undistributed rate, and people did not distribute them because this would attract the distributed rate of 30 per cent.

Of course, reserves will be distributed in dividends much more than in the past. Because that is happening, capital gains will go up, as my hon. Friend the Member for Manchester, Cheetham (Mr. H. Lever), who seems to have left us again, was saying. It pushes up capital gains. They increase as the dividend rates go up. All this is done to increase the incomes of the rich at a time when the Government say that wages must not go up. This is one of the things we complain about so much in the effect of the tax changes.

The right hon. Gentleman said that it was his policy to encourage moderation in dividends and in wages. He had to go right back to 1938 to prove that he was doing this. But, as my right hon. Friend the Member for Huyton (Mr. H. Wilson) said so very rightly, if the Chancellor makes that comparison, it must be on the assumption that the distribution of wealth in 1938 was somehow the perfect distribution, and one must always try to go back to it as quickly as possible, any departure from it being a distortion of the natural order of things.

What we are really discussing tonight is not what happened between 1938 and today. We are discussing the effect of the Chancellor's Finance Bill. Can the right hon. Gentleman honestly say that he has done anything in his Budget to encourage moderation in dividends, except talk about it? His actions will increase dividends. He has done a lot to encourage moderation in wages, but in this Budget he has done nothing to encourage moderation in dividend distribution.

The hon. Member for Langstone quoted the minority Report of the Royal Commission, and several hon. Members have quoted it against us. But, of course, the minority Report flatly condemned in terms what the Government are now doing. It said that to make this change in isolation, unaccompanied by other changes, would be wholly wrong. The hon. Member for Langstone talked about selective quotation, but he was really guilty of selective quotation himself in this respect. I will give the reference. The minority said that it was against what the Government are now doing, and the reference is page 388, paragraph 105.

Mr. Stevens

I really must protest at the right hon. Gentleman's lapse of memory in saying that I objected to selective quotation. I did nothing of the sort, and I made no such charge.

Mr. Gordon Walker

Perhaps I was wrong; I thought that the hon. Gentleman chided one of my right hon. Friends for selective quotation. In any case, whether he did or not, he himself was guilty of selective quotation.

The minority Report, of course, so far as it said that there should be this change, based that view on the assumption that there would be a capital gains tax. I must point out to hon. Gentlemen opposite that the one thing this change has done is enormously to increase the already great strength of the case for a capital gains tax. As the minority Report showed, there was a good case for it even with a differential Profits Tax, but with a single tax the case is overwhelming. Without it, there is a distribution of wealth towards the rich so that the situation really becomes socially intolerable. There would have to be a capital gains tax to balance a single Profits Tax. Perhaps hon. Gentlemen opposite, who have been jubilant tonight that this change should be made, may, one day, regret it, because it merely increases the strength of the case for a capital gains tax.

Of course, a differential Profits Tax has some disadvantages. All taxes have some disadvantages. No one denies that. The single Profits Tax has disadvantages, and so does Income Tax. But this differentiated tax introduced by my right hon. Friend the Member for Bishop Auckland (Mr. Dalton), and later developed and strengthened, as he showed, achieved certain very important social and economic ends. It was anti-inflationary at a time when that was very important. It encouraged the ploughing back of profits. It discriminated in favour of nationally useful industries and against less useful ones like breweries, if I may say so. [Interruption.] Less useful compared with steel. Do hon. Gentlemen say that the expansion of breweries is as important as the expansion of steel concerns? In fact, the differential tax discriminated in favour of things like steel concerns and against things like breweries. It did check capital gains to a considerable extent.

To alter this, without any other changes and in isolation, is really an extremely wrong and reactionary thing to do. It is unjust. It brings new inequities between company and company and corporation and corporation. It creates more anomalies than it cures. My right hon. and hon. Friends will vote with the best possible conscience against this reactionary and bad proposal put forward by the Chancellor.

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

The Committee divided: Ayes 199, Noes 155.

Division No. 185.] AYES [10.55 p.m.
Agnew, Sir Peter Grimston, Hon. John (St. Albans) Neave, Airey
Aitken, W. T. Grimston, Sir Robert (Westbury) Nicholson, Sir Godfrey (Farnham)
Alport, C. J. M. Gurden, Harold Nicolson, N. (B'n'm'th, E. & Chr'ch)
Amory, Rt. Hn. Heathcoat (Tiverton) Harris, Frederic (Croydon, N. W.) Noble, Comdr. Rt. Hon. Allan
Anstruther-Gray, Major Sir William Harris, Reader (Heston) Noble, Michael (Argyll)
Arbuthnot, John Harrison, A. B. C. (Maldon) Nugent, G. R. H.
Armstrong, C. W. Harrison, Col. J. H. (Eye) O'Neill, Hn. Phelim (Co. Antrim, N.)
Ashton, H. Harvey, Sir Arthur Vere (Macclesf'd) Ormsby-Gore, Rt. Hon. W. D.
Atkins, H. E. Harvey, John (Walthamstow, E.) Orr, Capt. L. P. S.
Baldwin, Sir Archer Heald, Rt. Hon. Sir Lionel Orr-Ewing, Charles Ian (Hendon, N.)
Balniel, Lord Heath, Rt. Hon. E. R. G. Osborne, C.
Barber, Anthony Henderson-Stewart, Sir James Page, R. G.
Barlow, Sir John Hesketh, R. F. Pannell, N. A. (Kirkdale)
Barter, John Hill, Mrs. E. (Wythenshawe) Partridge, E.
Batsford, Brian Hirst, Geoffrey Peyton, J. W. W.
Baxter, Sir Beverley Hobson, John (Warwick & Leam'gt'n) Pickthorn, K. W. M.
Biggs-Davison, J. A. Holland-Martin, C. J. Pike, Miss Mervyn
Bingham, R. M. Holt, A. F. Pilkington, Capt. R. A.
Bishop, F. P. Hope, Lord John Pitman, I. J.
Black, C. W. Hornby, R. P. Pitt, Miss E. M.
Body, R. F. Horobin, Sir Ian Ramsden, J. E.
Bonham Carter, Mark Howard, Gerald (Cambridgeshire) Redmayne, M.
Boyle, Sir Edward Hudson, W. R. A. (Hull, N.) Rees-Davies, W. R.
Braine, B. R. Hughes-Young, M. H. C. Renton, D. L. M.
Bromley-Davenport, Lt.-Col. W. H. Hutchison, Michael Clark (E'b'gh, S.) Ridsdale, J. E.
Brooman-White, R. C. Hyde, Montgomery Roberts, Sir Peter (Heeley)
Bryan, P. Hylton-Foster, Rt. Hon. Sir Harry Roper, Sir Harold
Burden, F. F. A. Irvine, Bryant Godman (Rye) Scott-Miller, Cmdr. R.
Carr, Robert Jenkins, Robert (Dulwich) Sharples, R. C.
Cary, Sir Robert Johnson, Dr. Donald (Carlisle) Shepherd, William
Conant, Maj. Sir Roger Johnson, Eric (Blackley) Simon, J. E. S. (Middlesbrough, W.)
Cooper, A. E. Joseph, Sir Keith Smithers, Peter (Winchester)
Craddock, Beresford (Spelthorne) Kerr, Sir Hamilton Spearman, Sir Alexander
Crosthwaite-Eyre, Col. O. E. Kershaw, J. A. Speir, R. M.
Crowder, Petre (Ruislip—Northwood) Kimball, M. Stanley, Capt. Hon. Richard
Currie, G. B. H. Lambton, Viscount Stevens, Geoffrey
Dance, J. C. G. Langford-Holt, J. A. Steward, Harold (Stockport, S.)
Davidson, Viscountess Leburn, W. G. Steward, Sir William (Woolwich, W.)
D'Avigdor-Goldsmid, Sir Henry Legge-Bourke, Maj. E. A. H. Stuart, Rt. Hon. James (Moray)
Deedes, W. F. Legh, Hon. Peter (Petersfield) Studholme, Sir Henry
Donaldson, Cmdr, C. E. McA. Lennox-Boyd, Rt. Hon. A. T. Summers, Sir Spencer
Doughty, C. J. A. Linstead, Sir H. N. Taylor, Sir Charles (Eastbourne)
Drayson, G. B. Lloyd, Maj. Sir Guy (Renfrew, E.) Taylor, William (Bradford, N.)
du Cann, E. D. L. Longden, Gilbert Teeling, W.
Duncan, Sir James Low, Rt. Hon. Sir Toby Temple, John M.
Eden, J. B. (Bournemouth, West) Lucas, P. B. (Brentford & Chiswick) Thompson, Kenneth (Walton)
Elliott, R. W. (Ne'castle upon Tyne, N.) Lucas-Tooth, Sir Hugh Thompson, R. (Croydon, S.)
Emmet, Hon. Mrs. Evelyn Macdonald, Sir Peter Thorneycroft, Rt. Hon. P.
Errington, Sir Eric Mackeson, Brig. Sir Harry Thornton-Kemsley, Sir Colin
Farey-Jones, F. W. McKibbin, Alan Tiley, A. (Bradford, W.)
Fell, A. Mackie, J. H. (Galloway) Tilney, John (Wavertree)
Finlay, Graeme McLaughlin, Mrs. P. Vickers, Miss Joan
Fisher, Nigel Maclean, Sir Fitzroy (Lancaster) Vosper, Rt. Hon. D. F.
Fletcher-Cooke, C. Macmillan, Maurice (Halifax) Wade, D. W.
Fraser, Hon. Hugh (Stone)
Fraser, Sir Ian (M'cmbe & Lonsdale) Macpherson, Niall (Dumfries) Wakefield, Edward (Derbyshire, W.)
Gammans, Lady Maddan, Martin Wakefield, Sir Wavell (St. M'lebone)
Garner-Evans, E. H. Markham, Major Sir Frank Wall, Patrick
George, J. C. (Pollok) Marlowe, A. A. H. Webster, David
Gibson-Watt, D. Marshall, Douglas Whitelaw, W. S. I.
Glyn, Col. Richard H. Mathew, R. Williams, Paul (Sunderland, S.)
Gough, C. F. H. Maudling, Rt. Hon. R. Williams, R. Dudley (Exeter)
Gower, H. R. Mawby, R. L. Wills, Sir Gerald (Bridgwater)
Graham, Sir Fergus Medlicott, Sir Frank Wilson, Geoffrey (Truro)
Grant, Rt. Hon. W. (Woodside) Milligan, Rt. Hon. W. R. Woollam, John Victor
Green, A. Mott-Radclyffe, Sir Charles
Gresham Cooke, R. Nabarro, G. D. N. TELLERS FOR THE AYES
Grimond, J. Nairn, D. L. S. Mr. Oakshott and
Mr. Chichester-Clark.
Ainsley, J. W. Awbery, S. S. Bence, C. R. (Dunbartonshire, E.)
Albu, A. H. Bacon, Miss Alice Benn, Hn. Wedgwood (Bristol, S. E.)
Allaun, Frank (Salford, E.) Balfour, A. Benson, Sir George
Allen, Arthur (Bosworth) Bellenger, Rt. Hon. F. J. Beswick, Frank
Blyton, W. R. Howell, Charles (Perry Barr) Paget, R. T.
Bottomley, Rt. Hon. A. G. Howell, Denis (All Saints) Palmer, A. M. F.
Bowden, H. W. (Leicester, S. W.) Hoy, J. H. Pargiter, G. A.
Braddock, Mrs. Elizabeth Hughes, Emrys (S. Ayrshire) Pearson, A.
Brockway, A. F. Hughes, Hector (Aberdeen, N.) Peart, T. F.
Broughton, Dr. A. D. D. Hunter, A. E. Pentland, N.
Brown, Thomas (Ince) Hynd, H. (Accrington) Popplewell, E.
Burke, W. A. Hynd, J. B. (Attercliffe) Price, J. T. (Westhoughton)
Butler, Mrs. Joyce (Wood Green) Irving, Sydney (Dartford) Probert, A. R.
Champion, A. J. Janner, B. Pursey, Cmdr. H.
Clunie, J. Jay, Rt. Hon. D. P. T. Redhead, E. C.
Collins, V. J. (Shoreditch & Finsbury) Jeger, George (Goole) Reynolds, G. W.
Craddock, George (Bradford, S.) Jenkins, Roy (Stechford) Rhodes, H.
Cronin, J. D. Johnson, James (Rugby) Rogers, George (Kensington, N.)
Crossman, R. H. S. Jones, David (The Hartlepools) Shurmer, P. L. E.
Dalton, Rt. Hon. H. Jones, Jack (Rotherham) Silverman, Julius (Aston)
Davies, Stephen (Merthyr) Jones, J. Idwal (Wrexham) Skeffington, A. M.
Deer, G. Jones, T. W. (Merioneth) Slater, Mrs. H. (Stoke, N.)
de Freitas, Geoffrey Kenyon, C. Smith, Ellis (Stoke, S.)
Delargy, H. J. King, Dr. H. M. Sorensen, R. W.
Diamond, John Lawson, G. M. Soskice, Rt. Hon. Sir Frank
Dodds, N. N. Lee, Frederick (Newton) Sparks, J. A.
Donnelly, D. L. Lee, Miss Jennie (Cannock) Spriggs, Leslie
Dugdale, Rt. Hn. John (W. Brmwch) Lever, Harold (Cheetham) Stonehouse, John
Ede, Rt. Hon. J. C. Lever, Leslie (Ardwick) Stones, W. (Consett)
Edelman, M. Lindgren, G. S. Stross, Dr. Barnett (Stoke-on-Trent, C.)
Edwards, Rt. Hon. Ness (Caerphilly) Logan, D. G. Summerskill, Rt. Hon. E.
Edwards, W. J. (Stepney) Mabon, Dr. J. Dickson Sylvester, G. O.
Evans, Albert (Islington, S. W.) McAlister, Mrs. Mary Taylor, Bernard (Mansfield)
Fernyhough, E. McCann, J. Taylor, John (West Lothian)
Fletcher, Eric MacColl, J. E. Thomas, George (Cardiff)
Foot, D. M. MacDermot, Niall Thomas, Iorwerth (Rhondda, W.)
Fraser, Thomas (Hamilton) McInnes, J. Thomson, George (Dundee, E.)
George, Lady Megan Lloyd (Car'then)
Gibson, C. W. MacPherson, Malcolm (Stirling) Warbey, W. N.
Gordon Walker, Rt. Hon. P. C. Mahon, Simon Watkins, T. E.
Grenfell, Rt. Hon. D. R. Mallalieu, J. P. W. (Huddersfd, E. Weitzman, D.
Grey, C. F. Mann, Mrs. Jean Wells, William (Walsall, N.)
Griffiths, David (Rother Valley) Mason, Roy Wheeldon, W. E.
Griffiths, William (Exchange) Mitchison, G. R. Wilcock, Group Capt. C. A. B.
Hall, Rt. Hn. Glenvil (Colne Valley) Morris, Percy (Swansea, W.) Williams, Rev. Llywelyn (Ab'tillery)
Hannan, W. Moss, R. Willis, Eustace (Edinburgh, E.)
Harrison, J. (Nottingham, N.) Moyle, A. Wilson, Rt. Hon. Harold (Huyton)
Hayman, F. H. Neal, Harold (Bolsover) Winterbottom, Richard
Henderson, Rt. Hn. A.(Rwly Regis) Oram, A. E. Woodburn, Rt. Hon. A.
Herbison, Miss M. Orbach, M. Yates, V. (Ladywood)
Hewitson, Capt. M. Oswald, T.
Hobson, C. R. (Keighley) Owen, W. J. TELLERS FOR THE NOES:
Holman, P. Padley, W. E. Mr. Short and Mr. Simmons
Houghton, Douglas

Clause ordered to stand part of the Bill.