Commons Sitting of 15 July 1958

Preamble
The House met at half-past Two o'clock
PRAYERS
[Mr. SPEAKER in the Chair]
PRIVATE BUSINESS
  MANCHESTER CORPORATION BILL (By Order)
    WALTHAM HOLY CROSS URBAN DISTRICT COUNCIL BILL [Lords] (By Order)
    Third Reading deferred till Tomorrow.
  ROCHDALE CORPORATION BILL [Lords]
  As amended, considered; to be read the Third time.
  KENT COUNTY COUNCIL BILL [Lords] (By Order)
  Read a Second time and committed.
ORAL ANSWERS TO QUESTIONS
  TRADE AND COMMERCE

    Trade with China
    Mr. Ellis Smithasked the President of the Board of Trade (1) if he will make a statement on the prospects of trade with China;
    (2) what special mutual arrangements are to be made to increase and accelerate the exports of engineering equipment and civil engineering plant to China.
    The President of the Board of Trade (Sir David Eccles): The prospects depend mainly on the trading policies of the Chinese authorities. Recent trade confirms the forecast made by my hon. Friend the Parliamentary Secretary during the Adjournment Debate on 3rd December last, that we may expect to see a steady but not a sudden or spectacular increase. I am not sure what mutual arrangements the hon. Member has in mind.
    Mr. Ellis Smith: While accepting that that is an encouraging reply, may I ask
    978
    the President of the Board of Trade whether he will now consider taking further steps so that Britain may benefit from the prospects of trade with China? Does he accept that other countries are getting in before us? Does he also agree that there is enormous good will for Britain in China? Has not the time arrived when we should capitalise upon that good will?
    Sir D. Eccles: I have no information that other countries are getting in front of us. We are exchanging purchasing missions. The Chinese have sent a mission here which I believe has been successful, and we are arranging an exhibition of British goods in Pekin in 1960.

    New Industries, North Staffordshire
    Mr. Ellis Smithasked the President of the Board of Trade what action has been taken, since the meeting he had with a deputation on the subject of Swynnerton, to encourage manufacturing concerns to open in the City of Stoke-on-Trent and North Staffordshire.
    Sir D. Eccles: We have continued to bring to the attention of suitable firms the facilities available in North Staffordshire, including Stoke-on-Trent. A number of them have visited the area, but none has yet agreed to set up there.
    Mr. Ellis Smith: Has the President of the Board of Trade made a personal study of the Board of Trade Journal of 11th July, 1958, from which he will see the industrial building that has taken place in Great Britain? Has not the time arrived when the national interests, especially productive cost interests, should be put first? Also, was not it suicidal economic policy to allow the expansion of the great Michelin Tyre Company Limited's works to be taken away from Stoke-on-Trent, and may we have a guarantee that in future that sort of thing will not happen?
    Sir D. Eccles: I always read the Board of Trade Journal. I shall certainly consider the second point that the hon. Gentleman made.

    Greetings Cards (Photographic Positives)
    Mr. G. M. Thomsonasked the President of the Board of Trade the estimated cost in dollars during the last

    979
    financial year of the import of photographic positives of greeting cards from the United States of America.
    Sir D. Eccles: Photographic positives of greeting cards are not separately distinguished in the trade returns, but the value of licences in the last financial year to import them from the United States of America was about £40,000.
    Mr. Thomson: Does not the President of the Board of Trade think that it might be wiser to save some dollars here and safeguard the jobs and opportunities of British artists?
    Sir D. Eccles: I am told by the trade that these positives from America are useful to them technically and for "know-how," not only for the home trade but for the export trade, which likes these designs.

    Jute Industry
    Mr. G. M. Thomsonasked the President of the Board of Trade if he will make a statement on the Government's intentions regarding the future of the United Kingdom jute industry.
    Sir D. Eccles: I would refer the hon. Member to the statement I made in the course of the debate on Industry and Employment in Scotland on Thursday, 10th July.
    Mr. Thomson: Can the President of the Board of Trade say on what grounds he has rejected the proposals that the jute industry has put to him, after painstaking negotiation among its various interests, to maintain employment in the industry? Since he has declared that he himself dislikes the present State trading, does not he feel the responsibility to put forward some alternatives of his own to safeguard employment in the jute industry?
    Sir D. Eccles: I studied very carefully the Federal Council's proposals—those to which, I believe, the hon. Member referred—and we are still thinking about them. Whether we shall have an alternative proposal, I cannot yet say.

    Toilet Preparations (Packaging)
    Mr. Nabarroasked the President of the Board of Trade whether, in view of his official announcement on 1st July, 1958, that many British exports would
    980
    be easier to sell if they were better packed, he will make a special investigation into the difficulties which at present face the important export trade of the toilet preparations industry in this connection, having special regard to the incidence of Purchase Tax on the packages of cosmetics and toilet preparations including notably aerosols, as well as the contents.
    Sir D. Eccles: The toilet preparations industry which maintains a high standard of packaging has done well in exports. The question of Purchase Tax on the packages is for my right hon. Friend the Chancellor of the Exchequer. In my field I am not aware of any problems which would justify a special investigation.
    Mr. Nabarro: Does my right hon. Friend recall that six months ago his Department undertook to discuss this matter carefully with the Chancellor of the Exchequer? Although this industry has done well in the export field, is not it a fact that the potential available to it overseas is many times greater than its present exports? Will my right hon. Friend take up this matter again with the Chancellor with a view to separating the Purchase Tax on the packages from the contents, as it has never been our policy to try to tax packages together with the contents?
    Sir D. Eccles: I saw the exhibition of the packaging industry the other day and noticed that it is making special efforts. As regards the Purchase Tax, my hon. Friend will, I think, have to leave that for some time.
    Mr. Nabarro: I am very disappointed with that answer.

    Cinema Admissions
    Mr. Rankinasked the President of the Board of Trade if he has noted that cinema admissions have fallen in the first quarter of this year, as compared with the corresponding quarter of last year, from 264 million to 199·3 million; and to what extent the figures in his possession for the second quarter of this year show a continuing fall in admissions.
    Sir D. Eccles: I am aware of these figures. It looks as though the decline in the second quarter will not be quite so steep.
    Mr. Rankin: Nevertheless, the decline will still remain and, therefore, the overall decline for the half-year must be seriously perturbing the right hon. Gentleman's mind. Is not that the case? Does he realise that the figures show that despite the reduction, the impact of tax is crushing the industry? Will he think about doing something as early as possible in connection with this serious fall?
    Sir D. Eccles: I agree that the decline is serious, but we cannot control public taste and we have given practical help in the Budget.

    Foreign Firms (Factories, United Kingdom)
    Mrs. Mannasked the President of the Board of Trade what consideration he has given to simplifying the procedure whereby industrialists from the United States and other foreign countries have to apply for permission to establish factories and other industrial enterprises in the United Kingdom; and if he will make a statement.
    Sir D. Eccles: I have examined the present procedure. It is difficult to simplify it because of the requirements of exchange control and the care we take with regard to the location of industry.
    Mrs. Mann: Apart from that, is the President of the Board of Trade aware of the criticism directed to his Department from another place, by a noble Lord whose interest in employment in Scotland is recognised by all parties, in which he said that the efficiency of the arrangements of the Department were very poor indeed and that the Board of Trade's handling of American inquiries compared unfavourably with the practice in Holland, Belgium and West Germany? What has the right hon. Gentleman to say to that criticism?
    Mr. Speaker: The hon. Lady was, I think, quoting from a speech made in another place by a noble Lord who is not a Member of the Government. That is not in order.
    Sir D. Eccles: This is a difficult and important problem. If I could find ways to simplify it, I would; but we have our planning controls and our distribution of industry policy which we must continue to try to operate.

    Cotton Imports (India, Pakistan and Hong Kong)
    Lieut.-Colonel Bromley-Davenportasked the President of the Board of Trade if he can yet make a statement on negotiations with India, Pakistan and Hong Kong in respect of a voluntary three-year ceiling on imports.
    Sir D. Eccles: Since the debate on 30th June, the Cotton Board has announced that the Indian, Pakistan and United Kingdom cotton industries have reached an understanding upon ceiling levels for imports into the United Kingdom. This understanding is conditional upon the conclusion of satisfactory arrangements with the industry in Hong Kong. I understand that the Cotton Board has the question of an early approach to the Hong Kong industry under consideration.
    Lieut.-Colonel Bromley-Davenport: Is my right hon. Friend aware that it is not only the considerable weight of duty-free imports from India, Pakistan and Hong Kong which is causing so much anxiety, but the continued uncertainty about the level they may reach, which is leading to the closing of so many mills? Will my right hon. Friend therefore do all he can to reach an agreement favourable to this country as soon as possible?
    Sir D. Eccles: Yes, we will.
    Mr. Jay: As there is so much anxiety about this, can the President of the Board of Trade at least say how soon these talks with Hong Kong will start?
    Sir D. Eccles: That depends upon the arrangements which the Cotton Board is now making.

    Women's Raincoats
    Mrs. Mannasked the President of the Board of Trade, in view of the numerous complaints regarding tearing from seams and unsatisfactory wear of women's raincoats, why he has taken no steps to enforce the existing British standard in this respect.
    Sir D. Eccles: There is a British standard for plastic rainwear. The standard being voluntary, it is not my business to enforce it. I have no powers to do so.
    Mrs. Mann: Did not the Department six years ago set up a Women's Advisory

    983
    Council of the British Standards Institution? When such a body gives advice, why does not the President of the Board of Trade take it?
    Sir D. Eccles: Not many complaints have been brought to the Board of Trade and it is our opinion that competition is better than legislation, which would be extremely difficult to administer.

    Hire-Purchase Agreements
    Captain Corfieldasked the President of the Board of Trade whether he will introduce legislation to ensure that, subject to suitable safeguards to the owner, the rights of a hirer shall pass to his or her personal representatives upon his or her death during the continuance of a hire-purchase agreement.
    Sir D. Eccles: No, Sir. I have no evidence that the present position whereby the owner may provide specifically that the agreement should come to an end on the death of the hirer has been abused.
    Captain Corfield: Will my right hon. Friend look again at the case which I have submitted to his Department? Does not he agree that it is wrong that a hire-purchase firm can retake possession of any article originally costing over £300, notwithstanding the fact that at the time of death a large sum of money has been paid, a very small amount remains outstanding and the personal representatives are able and willing to pay off the balance?
    Sir D. Eccles: I understand that the case which my hon. and gallant Friend submitted to us is a very rare one. Usually, the owner makes arrangements with the representative of the deceased, but I think it is reasonable that he should have some regard to the financial status of the representative.

    Furniture Industry, Lancashire
    Mr. W. R. Williamsasked the President of the Board of Trade whether he is aware that a number of manufacturing firms in the furniture industry in Manchester and other parts of Lancashire are terminating business owing to hire-purchase restrictions; and what remedial action is proposed.
    Sir D. Eccles: According to my information, two small firms, employing fifty-five workers, have closed down in Lancashire this year.
    Mr. Williams: As that information is quite contrary to that which has reached me, will the President of the Board of Trade make further inquiries in the matter? Is he aware not only that firms are closing down, but that quite a number are going on short-time working and one, if not more, is working only one week out of four? Surely, that is a very unsatisfactory situation in Lancashire, where there is much short-time working in the cotton industry. What is the right hon. Gentleman doing about it?
    Sir D. Eccles: I am aware that there is a decline in the sales of furniture, but it would appear that a considerable proportion of it is due to a change in taste—that is to say, the consumers are showing a preference for television sets, washing machines and things of that nature.

    British Pavilion, Brussels Exhibition (Future Use)
    Lady Gammansasked the President of the Board of Trade whether, in view of its success, he would be willing to consider the possibilities of re-erecting the British Pavilion, at present part of the Brussels Exhibition, on some suitable site in London once the Exhibition has closed.
    Sir D. Eccles: I am obliged to my hon. Friend for her compliment to the British exhibits at the Brussels Exhibition. In due course we shall consider whether some further use of the building and its contents can be made, but I am informed that it would be difficult to dismantle the Government Pavilion and re-erect it on another site.
    Mr. Ellis Smith: Will the President of the Board of Trade also consider other sites? He knows that there are other places in the country besides London.
    Sir D. Eccles: Certainly, I will. The point is, however, that this has been designed deliberately for a particular site and a particular occasion. My experience at the Ministry of Works leads me to think that it is not always successful to transplant such a tailor-made building.

    Export Credits Guarantees
    Mr. Grimondasked the President of the Board of Trade if he will consider extending the Export Credits Guarantee scheme.
    Sir D. Eccles: The Department is prepared to consider new forms of cover when these are sound insurance propositions and do not prejudice the Department's credit insurance operations as a whole.
    Mr. Grimond: Is the President of the Board of Trade aware that if this is a general extension, as I understand it to be, of the powers under the Export Credits Guarantee scheme, it will be very welcome to British exporters who find that one thing with which they have to compete today is the very wide credit terms offered by their competitors in other countries, often with Government assistance?
    Sir D. Eccles: I believe that the great bulk of our exporters think that we are right in trying to keep in step with other countries in the conditions under which credit is insured.

  NATIONAL FINANCE

    Government Contracts (Priority Suppliers)
    Mr. Willeyasked the Chancellor of the Exchequer whether he will make a statement on the arrangements made regarding the placing of Government contracts with priority suppliers.
    The Chancellor of the Exchequer (Mr. Derick Heathcoat Amory): These arrangements are at present under examination between the Departments concerned. One immediate practical step proposed is to arrange for fuller exchange of information and closer co-operation between the contracting Departments and representatives of the priority suppliers. My right hon. Friend the Minister of Labour and National Service is inviting the priority suppliers with whom he is concerned to take part in a Committee under Ministry of Labour chairmanship for this purpose.
    Mr. Willey: Is the right hon. Gentleman aware that his statement will be greatly welcomed by those who are interested in the problem? Will he say
    986
    whether it is possible to include members of organisations catering for the disabled and representatives of the Prison Commissioners on the Committee which he proposes to set up?
    Mr. Amory: I will look into that suggestion.

    Airports, Wales and Scotland (Customs Facilities)
    Mr. Gowerasked the Chancellor of the Exchequer (1) if he will add to the number of civil airports in Wales at which customs facilities are provided;
    (2) at how many civil airports in Wales and Scotland, respectively, customs facilities are provided; and if he will make a statement.
    Mr. Amory: Customs facilities have been provided at three airports in Scotland and at two airports in Wales. In the interests of staffing economy in the customs, the provision of these facilities is limited to airports where there is sufficient foreign traffic to justify customs designation. Applications for extensions of the facilities to additional airports are considered on their merits by reference primarily to the actual or probable foreign traffic, but this policy is applied reasonably and facilities would be provided, if necessary on an experimental basis, for airports which show a real prospect of developing substantial foreign traffic.
    Mr. Gower: Will my right hon. Friend take account of the fact that such development as has occurred in civil aviation in Wales has almost entirely been on local initiative and very largely due to local authorities and other bodies? Does not he think that, in the circumstances, the Treasury could be more helpful, particularly as it is impossible for foreign traffic to be built up until these facilities are provided?
    Mr. Amory: I will take note of what my hon. Friend has said, and I hope that he will take note of my words in my main Answer, which indicate that we are willing to take a risk in this matter, and to carry out an experiment if there seems a reasonable chance of extension. I will bear in mind what my hon. Friend has said and I shall be glad if he keeps in touch with me with any suggestions which he may have to make.
    Mr. P. Morris: Is the right hon. Gentleman aware that applications for the provision of customs facilities at Swansea Airport have been before him for many months now? In view of the fact that the Government have spent nearly £3 million in establishing that airport, that the local authorities have expended many more thousands of pounds since, and that the Minister for Welsh Affairs has promised to make inquiries and to help us, when may we expect a reply? This has been very disappointing and frustrating.
    Mr. Amory: I am in touch with the Minister for Welsh Affairs on this matter. I will write to the hon. Member and tell him when I am in a position to make a statement.

    Nationalised Industries (Investment Programmes)
    Mr. Roy Jenkinsasked the Chancellor of the Exchequer when he proposes to lift the ceiling on the investment programme of nationalised industries.
    Mr. Amory: I cannot usefully add anything to the answer which I gave on this subject to the right hon. Gentleman the Member for Huyton (Mr. H. Wilson) after my statement on 3rd July.
    Mr. Jenkins: But if, as it is clear, the right hon. Gentleman takes the view that it is more desirable to stimulate investment in the private sector than it was at the time of his Budget, why does not he think there should not also be an upward adjustment in the public sector?
    Mr. Amory: The public sector, of course, is completely under our control, and the private investment sector is not. It must be remembered that as far as public investment goes the investment level is an all-time record, and within that total the proportion of the nationalised industries has steadily increased. But I am keeping my eye on the whole situation. The action which I took in relation to private investment was in the light of the fact that there were some signs that private investment was dropping off.
    Viscount Hinchingbrooke: Is my right hon. Friend aware that large numbers of people in this country consider that further reliefs in the private sector should go much further in the direction possibly
    988
    of reduction of taxation and the restitution of post-war credits before anything more is done in the public sector?
    Mr. Amory: I will bear in mind what my noble Friend has said.
    Mr. Jay: When the right hon. Gentleman has made these sweeping relaxations of credit in the private sector, how can he possibly justify keeping restrictions on the public sector at the extreme level of last September, particularly in view of the amount of steel-producing capacity which is unemployed in this country at the present time?
    Mr. Amory: For the reasons which I have given.
    Mr. Jenkins: Do I understand from the Chancellor's sympathetic reply to the noble Lord the Member for Dorset, South (Viscount Hinchingbrooke) that he will be more anxious to encourage expenditure on consumption than on investment in nationalised industry?
    Mr. Amory: Very much to the contrary. I think that I have made it clear that my priority at present is to encourage exports and investment.

    Federation of British Industries (Survey)
    Mr. Roy Jenkinsasked the Chancellor of the Exchequer whether he has studied the results of the recent survey into business prospects conducted by the Federation of British Industries a copy of which has been sent him; and what measures to correct the situation revealed he proposes to take.
    Mr. Amory: I have studied the result of the inquiry into industrial trends, conducted by the Federation of British Industries, with interest, and welcome its initiative in conducting it. As regards the second part of the Question, I would refer the hon. Member to my statement of Thursday, 3rd July.
    Mr. Jenkins: Yes, but as it is clear from this extremely interesting and informative survey that the majority of firms in British industry have a substantial excess capacity at present, what measures does the Chancellor propose to bring that capacity into use?
    Mr. Amory: The actions which the Government have taken in the past few

    989
    months show that we have been very alert in ensuring that our policies are modified whenever necessary in the light of changing circumstances.

    Post-war Credits
    Mr. Gowerasked the Chancellor of the Exchequer if he is aware that in many cases where repayments of post-war credits are made to the widows or children of the deceased holders of such credits, deductions are made for alleged arrears of Income Tax, said to have been incurred by the deceased persons 15 and 16 years ago; if he will take steps to ensure that the Board of Inland Revenue discontinues this practice; and if he will make a statement.
    Mr. Amory: Post-war credit is payable in full only if all the tax for the relevant year was paid. This is made clear in a note on the certificates. While I sympathise with those who receive less than they expect, I am afraid I cannot authorise payment where it is not due.
    Mr. Gower: Is my right hon. Friend aware that many widows and dependents of extremely modest means in my constituency of Barry have been confronted for the first time with demands for these alleged arrears of Income Tax? In many cases they are quite small amounts which are stated to be in respect of fifteen years ago. Does not he think it pathetic that the Treasury should be chasing people in this income group? Should not this matter be treated in a different way?
    Mr. Amory: I wish I could find a way of making sure that every beneficiary knows whether or not there is tax due for the year in question, but I understand that these cases are limited to those where there was a transfer of certificates to a beneficiary prior to 1950.
    Since that date, whenever a certificate has been transferred a note is made on it of any sum still due in taxation. I wish I could think of some other way whereby I could make sure that every beneficiary knew, but if all certificates were sent back for checking it would mean an enormous amount of labour.
    Mr. Shurmer: Is the Chancellor aware that this affects not only dependants drawing post-war credits but people who are themselves drawing their own post-war credits? Is he aware of a case where, out of £33 post-war credits, £6 remained
    990
    after deduction of tax arrears over a period of sixteen years? Surely there are means whereby the Inland Revenue can inform people of these arrears or deduct them year by year. Will he look into these matters and look into special cases of hardship where people who have thought that they had a nest-egg find that they have none?
    Mr. Amory: I realise how disappointing it is to the individual, but I repeat that if all certificates had to be sent back for checking it would mean an enormous amount of work. I have looked into this matter to discover whether there was any other conceivable way of dealing with it, but so far I have not been able to find one.

    Arts Council (Grant)
    Dame Irene Wardasked the Chancellor of the Exchequer if he is aware that public money granted to the Royal Schools of Music, Drama and Art, and to the Ministry of Education in respect of State scholarships for education in the fine arts, is partially stultified by lack of employment in the field of the arts; and whether he will therefore appoint a committee to consider whether the grant in aid of the Arts Council is sufficient to ensure that the money spent at the time of training is productively utilised.
    Mr. Amory: I am sure the Royal College has regard to employment opportunities when deciding how many students to admit. On the second part of my hon. Friend's Question, I think the Council itself is well constituted to make representations about the sufficiency of its grant, which is now nearly five times as large as in 1945–46.
    Dame Irene Ward: Is my right hon. Friend aware that the Answer is hardly satisfactory and that there is an ever-depreciating number of opportunities for those who emerge from the Royal Schools of Music, Drama and Art and R.A.D.A.? Is not it very frustrating and inefficient that there is not some co-ordination between the Treasury and the Arts Council and those who make appointments in the arts?
    Mr. Amory: As my hon. Friend knows, the Treasury makes a grant to the Arts Council and the disposal of that

    991
    grant is entirely at the discretion and within the responsibilities of the Arts Council.
    Dame Irene Ward: That is no answer.

    Retail Price Index
    Mr. Roy Jenkinsasked the Chancellor of the Exchequer what has been the movement in the retail price index from the change in the Bank Rate on 19th September, 1957, to the most recent convenient date; and what was the movement in the comparable period a year earlier.
    Mr. Amory: I would refer the hon. Member to figures published in the Monthly Digest of Statistics.
    Mr. Jenkins: Is not it clear from the figures so published that the rate of price increase over the winter 1956–57 was less than that of the past winter and, therefore, that in so far as the policy of 19th September was specifically attached to the prevention of a price increase, what the Chancellor is now doing is not building on the success of the policy of his right hon. Friend the Member for Monmouth (Mr. Thorneycroft), but escaping from its ruins?
    Mr. Amory: The position about the retail price index figures is as the hon. Member said. The increase in 1957 was 2·4 per cent., whereas in 1958 it was 2·9 per cent. However, my assessment of the degree of stability which we have reached depends on a good many other indications apart from that, and I am satisfied that in general there is a greater measure of stability in the price level of today than there was a year ago.

    27th December, 1958
    Mr. J. Harrisonasked the Chancellor of the Exchequer if, in view of the fact that most of the general public will treat Saturday, 27th December, 1958, as a public holiday owing to its proximity to Christmas Day, he will recommend that that day be proclaimed a public holiday.
    Mr. Pageasked the Chancellor of the Exchequer whether he will recommend that Saturday, 27th December, 1958, be proclaimed a bank holiday.
    Mr. Amory: The answer is "No, Sir."
    Mr. Harrison: As it can be assumed that most factories and business premises will be closed for four days, and as it will be the banks which will be especially affected, can the right hon. Gentleman say why he is so adamant about the matter?
    Mr. Amory: To start with, on all previous occasions where 26th December has fallen on a Friday, Saturday, 27th December, has not been a bank holiday, and I am satisfied that it would not be in the general interest to make it a bank holiday.
    Mr. Page: Has not it in fact been taken as a bank holiday when 27th December has fallen on a Saturday? Would not recognising it as a bank holiday merely be recognising the fact for the few people who have to work on that day, which is certainly not the case for the majority of the population?
    Mr. Amory: I do not think so. For instance, if it were a bank holiday, all shops would be closed and it is in the general interest that food shops, especially food provision shops, should remain open on that Saturday, 27th December.

    Export Credits
    Mr. Grimondasked the Chancellor of the Exchequer if he will take steps to enable buyers in countries suffering temporary financial embarrassment to obtain goods from British exporters on larger credit.
    Mr. Amory: I have nothing to add at present to what I said about export credits in my Budget speech.
    Mr. Grimond: Since the right hon. Gentleman's Budget speech, has not the matter become considerably more urgent, owing to the difficulties by which some Commonwealth countries are temporarily embarrassed, with the consequent cutting down of the buying of British goods? Will the Chancellor reconsider the matter in view of what he said this afternoon about the great importance which he attaches to exports? Is not this one way in which exports could immediately and usefully be stimulated?
    Mr. Amory: I rather agree with the hon. Member. I think that the situation is changing. I have the matter under

    993
    constant review, and I am ready to discuss it with other countries concerned and with international institutions.

    Sterling Area Reserves
    Mr. Grimondasked the Chancellor of the Exchequer what further progress has been made towards increasing the sterling area's reserves or taking other steps to meet a possible deepening of the recession.
    Mr. Amory: At 30th June the United Kingdom's gold and dollar reserves stood at the figure of £1,099 million, which is some £249 million greater than a year ago.
    As regards the second part of the Question, Her Majesty's Government are, of course, in regular contact with the Governments principally concerned and with the appropriate international organisations.
    Mr. Grimond: Here again, is not there some indication that the depression may be passing from America into Europe? Is not this the moment for Her Majesty's Government to make very strong representations for increasing liquid reserves of both Commonwealth currencies and European currencies?
    Mr. Amory: I do not disagree with what the hon. Member has said and, fortunately, there will be opportunities of discussing this important subject at a meeting of O.E.E.C. towards the end of this month, at the Commonwealth Conference in September, and perhaps at the annual meetings of the International Bank and the International Monetary Fund in October.

  HOUSING

    Rented Accommodation (Racial Discrimination)
    Mr. Brockwayasked the Minister of Housing and Local Government and Minister for Welsh Affairs if he will introduce legislation to prevent discrimination against coloured persons when they seek to rent accommodation.
    The Minister of Housing and Local Government and Minister for Welsh Affairs (Mr. Henry Brooke): I do not think that it would be practicable to achieve this by legislation.
    Mr. Brockway: Is the right hon. Gentleman aware that while this discrimination has occurred considerably, if not extensively, in the past, it has been greatly increased as a result of the Rent Act and under the new leases which are being issued in connection with that Act? In view of his responsibility for the Act, will he do something for the protection of these people?
    Mr. Brooke: I deplore all discrimination of colour or creed, but if the hon. Member thinks for a moment, he will realise that the kind of legislation which he suggests would be totally unenforceable.
    Lieut.-Colonel Cordeaux: Does not my right hon. Friend agree that it is far more necessary to introduce legislation to prevent the exploitation of our own people by coloured people who come to this country with the sole object of buying slum property and charging extortionate rents?
    Mr. Brooke: That is a very different question.

    House, Congleton (Demolition)
    Sir A. V. Harveyasked the Minister of Housing and Local Government and Minister for Welsh Affairs why Mr. Richard Barber, 37, Heath Road, Congleton, has not received compensation for his house at 12, King Street, Buglawton, Congleton, which was demolished under a compulsory order, details of which have been forwarded to him.
    Mr. H. Brooke: Questions of compensation are governed by Statute. In this instance I am afraid that the owner does not qualify for compensation under the Slum Clearance (Compensation) Act, 1956.
    The question whether a payment should be made under Section 60 of the Housing Act, 1957, which applies to well maintained houses, was carefully considered. But after inspection of the property by my Inspector, and in accordance with his report on its general condition, the conclusion reached was that the award of a well maintained payment would not be warranted, despite the fact that work had been done to make the interior comfortable.
    Sir A. V. Harvey: Does not my right hon. Friend think that this is most unfair? This man has very limited means

    995
    and has done up the house with his own labour and has had to demolish it himself? Does not my right hon. Friend think that all this is most unjust, and will he reconsider the matter if I send him further details?
    Mr. Brooke: The House must appreciate that this is a most unfortunate case of a man who in 1952 bought a house which had been condemned in 1939. Had he made inquiries, he would have ascertained that it had been condemned. The structural condition of the house was such that in my view it would have been quite impossible to treat it as well maintained. I am very sorry.
    Sir A. V. Harvey: On a point of order. In view of the unsatisfactory nature of the reply, I beg to give notice that I shall raise the matter on the Adjournment.

    Newcastle-upon-Tyne
    Mr. Shortasked the Minister of Housing and Local Government and Minister for Welsh Affairs how many houses were out to contract but not started, and how many were under construction, for the corporation of Newcastle-upon-Tyne on 31st May, 1958; what statement of housing needs has been submitted to him by the corporation; and whether he is satisfied that the rate of building in the past twelve months is adequate to meet this demand within a reasonable period of time.
    Mr. H. Brooke: In answer to the first part of the Question, the Corporation had 587 dwellings under construction at 31st May, 1958, and 257 dwellings in contracts approved by my Department but not yet started.
    In answer to the second part, no submission has been made to me by the Corporation about the total housing needs of their area. The third part therefore does not arise.
    Mr. Short: Is the Minister aware that the waiting list in Newcastle now approaches the 15,000 mark? Does not he agree that this rate of building is quite inadequate to house these people in any reasonable time? Will he do all in his power to co-operate with the local authority to see that these people have at least a reasonable prospect of getting housed?
    Mr. Brooke: I always do all in my power to co-operate. In this case I have agreed that the local authority can start 900 houses this year.
    Mr. Popplewellasked the Minister of Housing and Local Government and Minister for Welsh Affairs how many men were employed on the house building programme of the Newcastle-upon-Tyne Corporation on 31st May, 1957, and 31st May, 1958; and whether he is satisfied that this number is adequate to satisfy the demand for houses in the area within a reasonable time.
    Mr. H. Brooke: The information sought in the Question is not in my possession, but the hon. Member may be able to obtain it from the Corporation.
    Mr. Popplewell: Will the Minister reconsider this matter? Does he agree that the fact that there are thousands of people waiting for a house is an indication that the Minister should consider whether the building force now used for housing construction is sufficient to meet the needs in a reasonable time? Surely it is his responsibility to go into the matter.
    Mr. Brooke: It is the responsibility of the local authority to decide how many people it employs. As I have just said, I have agreed that the local authority shall have an allocation of 900 dwellings for 1958. I think that that should keep it busy.
    Mr. R. W. Elliott: Is my right hon. Friend aware that in the City of Newcastle where, unfortunately, many people are still living in property which is in an advanced state of decay, people are greatly encouraged by the high rate of building in recent years, which has made slum clearance possible once again? Will he guarantee that the maximum encouragement and assistance will be given to the slum clearance drive in the City of Newcastle?
    Mr. Brooke: I am extremely anxious that slum clearance should be pressed forward everywhere. I indicated a programme with which I think the Corporation can go forward this year.
    Mr. Short: In view of the thoroughly unsatisfactory nature of the Minister's reply, I give notice that I shall raise the matter on the Adjournment.

    Municipal Houses (Sale)
    Mr. Swinglerasked the Minister of Housing and Local Government and Minister for Welsh Affairs if he will state, for the latest date for which figures are available, the number and proportion of local authorities which have adopted the policy of selling municipal houses; and how many, and what proportion of, council houses have so far been sold.
    Mr. H. Brooke: Up to 31st May, 454 local authorities, representing 31 per cent. of all housing authorities in England and Wales, had notified the sale of 10,408 houses, representing 0·3 per cent. of all council houses.
    Many more local authorities have approved the policy of selling council houses, but there has been no demand for purchase.
    Mr. Swingler: Does not the fact that only a fractional percentage of council houses have actually been sold show that this policy is a total failure, and does not the Minister now realise that the best policy is to maintain as big a pool of municipal houses to rent as is possible, and to leave provision for owner-occupiers to the private builders?
    Mr. Brooke: No, Sir. I think the local authorities should have greater discretion than the hon. Member would allow them.

    Royal Fine Art Commission (Report)
    Mr. Willeyasked the Minister of Housing and Local Government and Minister for Welsh Affairs what further action he proposes to take regarding speculative housing in view of paragraphs 53 and 54 of the Fifteenth Report of the Royal Fine Art Commission.
    Mr. H. Brooke: A great deal of good advice has been given on this subject in recent years, both through my Department and otherwise, and there are many excellent examples of well-designed modern houses to be seen. It is for local planning authorities to induce private builders to adopt better designs, and I believe that they could do more in this direction. I am sure that all these authorities have read and will profit by the latest Report of the Royal Fine Art Commission.
    Mr. Willey: While we all appreciate the good advice, may I ask the Minister
    998
    if he is aware that these paragraphs are very depressing reading, and demand much more vigorous action by his Department?
    Mr. Brooke: In fact, there is a great deal of good work being done, as well as bad work, in different parts of the country. The truth is that it is very hard to teach taste.
    Mr. Willey: Will the right hon. Gentleman encourage the good?

    Roof Damage, Hatfield (Report)
    Lord Balnielasked the Minister of Housing and Local Government and Minister for Welsh Affairs whether the report of the inquiry into the causes of the roof damage last November at Hatfield New Town has yet been completed; and whether it will be published.
    Mr. H. Brooke: Yes, Sir. The report is being published today by Her Majesty's Stationery Office, and copies will be available in the Vote Office.
    Lord Balniel: Is my right hon. Friend aware that the decision to publish this Report will be widely welcomed in Hatfield by those who suffered this very frightening experience? In view of local apprehensions, can he say whether the cost of repairing these houses will fall on the local tenants?
    Mr. Brooke: I can give my hon. Friend the assurance that the cost, whatever it may be, resulting from this disaster, will not have to be met by the tenants of the Corporation's houses by way of increased rents.

    Quarterly Return
    Mr. Gibsonasked the Minister of Housing and Local Government and Minister for Welsh Affairs how many houses were built by local authorities; and how many by private builders during the second quarter of 1958.
    Mr. H. Brooke: These figures are not yet available. They will be given in full in the Quarterly Housing Return which will be published on 31st July.
    Mr. Gibson: Surely the Minister ought to know by this time what the figures were for the last quarter. Is he aware that there is great disturbance about the fact that the figures for completed houses

    999
    continue to show a fall, and that there has been a fall of over 40,000 completed houses since 1954? In view of the needs, in the large towns at any rate, will he reverse the present policy and allow the local authorities to build houses to accommodate those on their general waiting lists?
    Mr. Brooke: I think Parliament perfectly well understands the policy which the Government are following and I am sure the hon. Gentleman well understands that the figures for one month are never available until they are published at the end of the following month.

  LOCAL GOVERNMENT

    Westminster Abbey Precincts (Development)
    Mr. Parkerasked the Minister of Housing and Local Government and Minister for Welsh Affairs what applications he has received for planning permission in connection with the development of the precincts of Westminster Abbey.
    Mr. H. Brooke: None, Sir. Applications for planning permission are made to the local planning authority, not to me. I understand that that authority on 8th May granted conditional permission to develop the site of Nos. 1–19 Victoria Street with a new office building.
    Mr. Parker: Will the Minister consider having a comprehensive plan prepared on the same lines as in the case of the precincts of St. Paul's?
    Mr. Brooke: The Abbey and its immediate surroundings are included in the Government and Commonwealth special area defined in the development plan. I do not think that the development plan need be amended. What was required in the case of St. Paul's was an amendment to the plan.

    Private Street Works Act, 1892
    Mr. Awberyasked the Minister of Housing and Local Government and Minister for Welsh Affairs if he is aware that although local authorities have power to contribute to the cost of road work in cases of hardship or to spread the charge over a period of thirty years, this does not remove the burden which falls particularly upon the dwellers in
    1000
    corner houses when called upon to make up the road; and, in view of the hardship arising out of the operation of the Private Street Works Act, 1892, if he will now introduce legislation to remove this injustice and make this matter the responsibility of the local authorities.
    The Parliamentary Secretary to the Ministry of Housing and Local Government (Mr. J. R. Bevins): My right hon. Friend is not satisfied that any amendment of the law is required. In the particular case mentioned, there may have been grounds of appeal to my right hon. Friend. I am in course of communicating with the hon. Member.
    Mr. Awbery: Is the Minister aware that, in the case which I sent to him, a man bought a house, and, some years later, the local authority decided to build a road alongside it; and that this man now has to pay £424 towards the cost of building that road, which was not there when he bought the house some years ago? Will the Minister take some steps to remedy this injustice to this man, and not tell him that he can make an appeal against this decision?
    Mr. Bevins: I am aware of the particular circumstances of this case. As I say, it probably is open to him to lodge an appeal with my right hon. Friend. In view of that, I would rather not add to what I have said.

    Synthetic Detergents (Foam)
    Mrs. Slaterasked the Minister of Housing and Local Government and Minister for Welsh Affairs what results there are from his examination of the new washing powder which ceases to foam once it gets into the sewage.
    Mr. Bevins: The foam problem is being studied by the Standing Technical Committee on Synthetic Detergents. The Committee is aware of recent reports that new materials have been discovered and, in co-operation with the manufacturers and the Department of Scientific and Industrial Research, it is investigating the claims made for these materials. It is not yet ready to make a further report.
    Mrs. Slater: Can the Parliamentary Secretary tell us how long it will be before a detailed report is submitted on this problem, because every local sewage works is confronted with it and the cost is terrific?
    Mr. Bevins: We are aware of the seriousness of this problem, but, of course, the question here is to find detergent material which sewage bacteria can digest. That is actually being examined by the Standing Technical Committee at the present time, and I am hopeful we shall have the report before the end of this year.

    Litter
    Captain Pilkingtonasked the Minister of Housing and Local Government and Minister for Welsh Affairs what steps he has taken to advise sweets and tobacco manufacturers that, in order to help in the campaign against litter, they should use a minimum of wrapping-up material.
    Mr. Bevins: My right hon. Friend has not approached manufacturers in this matter, but he is considering further ways of increasing public awareness of the problem of litter. In the meantime my hon. and gallant Friend's Question will no doubt have drawn attention to this particular possibility.
    Captain Pilkington: Would my hon. Friend agree that there is a lot of unnecessary wrapping paper used for goods, and would not co-operation by manufacturers in this respect be very desirable?
    Mr. Bevins: I entirely agree that the excessive wrapping of goods has become something of a craze. We shall put the suggestions which my hon. and gallant Friend has put to my right hon. Friend to the "Keep Britain Tidy" group.

    Land (Compulsory Acquisition)
    Lieut.-Colonel Bromley-Davenportasked the Minister of Housing and Local Government and Minister for Welsh Affairs what progress he has made in his re-examination of the policy of establishing a fair market value as the basis of compensation for compulsory acquisition of land; and when he contemplates bringing in legislation to deal with this matter.
    Mr. H. Brooke: I cannot add to the statement I made on 21st February in the debate on the Bill introduced by my hon. and gallant Friend the Member for Gloucestershire, South (Captain Corfield).
    Lieut.-Colonel Bromley-Davenport: Is my right hon. Friend aware that there is
    1002
    great feeling amongst all parties in the country over this matter, and that people are looking to the Conservative Government not only to rectify the grave injustices which exist, but to take the earliest possible action? Is he further aware that there is considerable criticism that action in this matter was not taken a long time ago?
    Mr. Brooke: I am aware that there is very strong feeling on this matter in many quarters, and that was why I said that the Government were pressing on with a re-examination of the subject.
    Mr. Mitchison: Will the right hon. Gentleman bear in mind that compensation has a brother called betterment, and that there are frequent family squabbles?
    Mr. Brooke: My re-examination has brought me to that point of view.

    Outdoor Advertising (Regulations)
    Mr. Willeyasked the Minister of Housing and Local Government and Minister for Welsh Affairs what progress he has made in making revised regulations about outdoor advertising.
    Mr. H. Brooke: As I said in reply to a Question by my hon. Friend the Member for Southport (Mr. R. F. Hesketh) on 20th May, I am preparing amending regulations concerning areas of special control and the machinery of control.
    As regards advertisements on business premises, I have had a useful discussion with representatives of a number of the organisations principally concerned. Proposals made at that meeting are being examined in more detail with a view to another discussion in the autumn.
    Mr. Willey: In continuing these negotiations and preparing the regulations, will the Minister pay close attention to the criticism made by the Royal Fine Art Commission?
    Mr. Brooke: I am extremely anxious to get the situation right as regards advertisments. I think there is very broad agreement as to what is needed now in the countryside, and I am having this further discussion on the problem of clutter on buildings.

    East Sussex Development Plan
    Colonel Beamishasked the Minister of Housing and Local Government and Minister for Welsh Affairs whether

    1003
    he has now received from the East Sussex County Council the necessary modification maps to enable him to announce his decision on their development plan as a whole; when he intends to give his formal decision about this plan; and whether he is aware of the strong opposition among residents of Ditchling and neighbouring villages to the proposal to make a main highway through the middle of what is recognised as one of the most beautiful villages in Sussex.
    Mr. Bevins: The letter conveying my right hon. Friend's decision to approve the East Sussex Development Plan, with modifications, was sent to the County Council yesterday. He has decided that the proposed Ditchling by-pass should be deleted from the plan: the traffic needs can be further considered at the first review of the plan in 1963.
    Colonel Beamish: Is my hon. Friend aware that that is the best news we have had for a very long time?

    Tees-side (Smell Nuisance)
    Mr. Chetwyndasked the Minister of Housing and Local Government and Minister for Welsh Affairs whether he is aware that the tom-cat smell is still affecting Stockton-on-Tees and Tees-side; and what further action is being taken to treat the effluent which is believed to be the cause of it.
    Mr. Bevins: No, Sir. The District Alkali Inspector has been in touch with the local authorities and there have been no recent reports of this smell.
    There is however a complaint of a fishlike smell, which almost certainly comes from an amines plant. This plant is not controlled under the Alkali Act, but the District Alkali Inspector is co-operating with the local authorities and the company concerned in measures to put a stop to it.
    It is proposed to collect all escapes of gases from the plant and to burn them in a special combustion unit. This work should be completed by the end of August.
    Mr. Chetwynd: Is the Minister aware that it is no less distasteful to my constituents to know that the tom-cat smell has been replaced by a rotten-fish smell? Can we be assured that all the measures
    1004
    will be pushed ahead with the greatest energy to obviate this great nuisance?
    Mr. Bevins: I think the hon. Gentleman's supplementary question shows that impressions of smell are subjective. We shall get on with it.

  SHIPPING
  Mr. Benceasked the Prime Minister what discussions he had with the President of the United States of America during his recent visit on the threat to British shipping arising from the discriminatory practices of the United States administration in regard to their passenger ships.
  The Prime Minister (Mr. Harold Macmillan): None, Sir.
  Mr. Bence: Does not the Prime Minister agree that the maintenance of the British Mercantile Marine and British shipbuilding at the highest possible level is vital to Britain and the British Commonwealth? Will he make representations to the President of the United States on the effect on British shipping of American practice, both in their maritime laws and in the extensive subsidies they are paying for the construction of passenger ships and merchant vessels?
  The Prime Minister: Of course, many United States shipping companies, as well as companies of some other countries, receive shipbuilding subsidies, but there are also other features of international shipping which cause the Government even greater concern at the present time. These matters are being actively considered by my right hon. Friend the Minister of Transport.

  DEFENCE (CENTRAL ORGANISATION)
  Mr. G. Brownasked the Prime Minister whether he will now make a statement about reorganisation of the defence services.
  Sir W. Anstruther-Grayasked the Prime Minister whether he is now in a position to make a statement regarding co-ordination of the defence services.
  Sir J. Smythasked the Prime Minister if he will make a statement with

  1005
  regard to the closer co-ordination of the higher defence organisation.
  The Prime Minister: With permission I will answer this Question and Questions Nos. 52 and 60 together at the end of Questions.

  STEEL STRIP MILL (SITING)
  Mrs. Mannasked the Prime Minister if, in taking into consideration economic and other questions regarding the siting of the steel strip mill, he will also have regard to strategic defence and dispersal, so that such a large capital investment shall not be placed in close proximity to others of a similar character.
  The Prime Minister: Her Majesty's Government are taking every relevant consideration into account.
  Mrs. Mann: Will the Prime Minister have some regard for the people of Wales and not expose them to this danger by having four steel strip mills all in their little territory? Will he remember that we in Scotland are quite willing to take the risk of having at least one?
  The Prime Minister: I am very grateful for that disinterested advice.
  Mr. Woodburn: May we have the right hon. Gentleman's pledge that all circumstances will be taken into account, not merely the economic ones, but the social and other factors as well?
  The Prime Minister: Yes, Sir, every relevant consideration.

  PARLIAMENTARY QUESTIONS AND MEMBERS' CORRESPONDENCE
  Mr. V. Yatesasked the Prime Minister if he will move to appoint a Select Committee to consider the procedure relating to questions, particularly those relating to the day to day working of the nationalised industries.
  Mr. Shinwellasked the Prime Minister whether he will appoint a Select Committee to consider what changes are necessary to enable hon. Members to ask Questions on the activities of boards responsible for the administration of the nationalised industries and services.
  Mr. Nabarroasked the Prime Minister, having regard to the provisions of Section 42 of the Finance Act, 1956, as amended by the Nationalised Industries Loans Act, 1958, whether he will introduce legislation to assure that the contents of all communications, including notably letters, between Members of the House of Commons and Ministers of the Crown on any aspect of the administration, organisation, financing or otherwise of the nationalised industries and State Corporations, shall be absolutely privileged.
  Mr. Chetwyndasked the Prime Minister whether he will instruct Ministers who wish to pass the correspondence of hon. Members to outside sources for comment to seek the approval of the Member concerned before taking this action.
  Mr. Woodburnasked the Prime Minister (1) whether, to protect Members and their constituents in their duty to call attention to grievances and possible maladministration, he will direct that letters from Members of Parliament to Ministers be regarded as confidential and not disclosed to others without the Member's express agreement;
  (2) whether he will introduce declaratory legislation to ensure that the disclosure of private correspondence from Members of Parliament to Ministers without the Member's consent is not subject to the Official Secrets Act;
  (3) whether he will move for the appointment of a Select Committee to advice how the House can make it possible for Members to carry out their duties so far as constituents' grievances are concerned without incurring the risk of legal actions.
  Mr. Haymanasked the Prime Minister whether he will introduce legislation to amend the Ninth Article of the Bill of Rights.
  The Prime Minister: My right hon. Friend the Leader of the House referred last Thursday to a discussion he was to have with you Mr. Speaker. I understand that that discussion has taken place and I hope that a statement can be made covering the points raised by some hon. Members at the earliest opportunity.
  Mr. Yates: Whilst thanking the Prime Minister for that answer, may I ask him

  1007
  to bear in mind that, apart from whether or not letters are privileged, many hon. Members in this House much resent, and always have resented, that they have not been able to ask Questions about the nationalised industries on day-to-day affairs, thereby giving a monopoly to the nationalised industries which is quite undemocratic?
  The Prime Minister: I think the House will feel that it would be better to have a statement dealing with all the points which have been raised, rather than for me to try to deal with them one by one.
  Mr. Woodburn: In the meantime, will the Prime Minister give instructions to the various Departments that letters sent to them by hon. Members should be treated as confidential and not passed on to outsiders without the express consent of the Member concerned?
  The Prime Minister: If they are marked "confidential" no doubt they will be treated as confidential, but I am not going to give a judgment as to what would be the legal effect of that.
  Mr. Shinwell: What did the right hon. Gentleman mean by saying that a statement will be made at the earliest opportunity? Does this mean that a statement will be made before the Recess?
  The Prime Minister: Yes, Sir, it is hoped to make it before the Recess.

  EURATOM
  Mr. J. Hyndasked the Prime Minister whether Her Majesty's Government will now give further consideration to the desirability of proposing full British membership of the Euratom project.
  The Prime Minister: Her Majesty's Government have given careful consideration to this country's relations with Euratom since that organisation came into being. We have accredited Sir William Meiklereid to the Euratom Commission and have opened discussions for an agreement for co-operation between the Commission and Her Majesty's Government. I am confident that arrangements on these lines will result in a close and fruitful collaboration.
  1008
  We also have bilateral agreements with most of the individual member countries of Euratom, and they are fellow members with us of the European Nuclear Energy Agency set up by the Organisation for European Economic Co-operation.
  Mr. Hynd: I hardly think that answers the question whether the Government will give further consideration to full membership, but are the Government really surprised at the difficulties about the Free Trade Area when this Euratom project involves none of the classic arguments about Commonwealth trade or the load of the farmers of this country, and could not he consider whether an offer to join the Euratom project as a full member would give the necessary impetus to Europe to make possible the realisation of the free trade project?
  The Prime Minister: No, Sir, but I think, at this stage at any rate, that opening discussions for the fullest co-operation will have the approval of the hon. Gentleman and we will see how they proceed.
  Sir S. Summers: Will my right hon. Friend bear in mind that there may be very grave objections, and indeed handicaps, to British industrialists if full membership of Euratom were contemplated by the Government?
  The Prime Minister: Yes, Sir. That is why, in the first instance at any rate, we proposed to open discussions for co-operation.
  Mr. Peart: Will the Prime Minister also reject emphatically the idea that we should go in for full membership of Euratom and agree that we should concentrate on leadership in O.E.E.C., and also consider the possibility of creating a Commonwealth Atomic Energy Organisation?
  The Prime Minister: We explained on 4th March that there would be great difficulty for us in accepting full membership, but I think there will be general approval that we should open these discussions for an agreement on co-operation in such a way as to be of general advantage without disadvantage.

  BRITISH FORCES, GERMANY
  Mr. Harold Daviesasked the Prime Minister whether, in view of the reduction in the German contribution to the support

  1009
  of British forces in Germany from £47 million to £12 million for 1958–59, and in order to lessen tension in Europe, he will now consider withdrawing British troops from Germany.
  The Prime Minister: I would refer the hon. Member to the statement published in the OFFICIAL REPORT of 10th June, which explained the settlement reached on local defence costs and the undertaking given by Her Majesty's Government on the future strength of the British Army in Germany.
  Mr. Davies: While thanking the right hon. Gentleman for that reply, may I say that the statement is in no way an indication that 55,000 troops in Germany are a useless token and that if anything were to happen these men would be trapped? Therefore, does not the Prime Minister think it would be worth while at this juncture to reconsider the defence plan for Central Europe and, as a token, withdraw these 55,000 troops and save the taxpayers' money?
  The Prime Minister: I recognise the hon. Gentleman's views about the value of N.A.T.O., but I do not think they are shared by the great generality of the House, and therefore I have answered the Question in the way I have done.

  UNITED KINGDOM AND U.S.A. (ATOMIC ENERGY AGREEMENT)
  Mr. Chetwyndasked the Prime Minister why the agreement with the United States of America for co-operation on the uses of atomic energy for mutual defence purposes does not include the provision or exchange of nuclear warheads.
  The Prime Minister: The United States Atomic Energy Act, as amended, still does not permit the transfer of complete atomic weapons or manufactured nuclear components of such weapons.
  Mr. Chetwynd: Does not this present agreement therefore involve us in extra duplication of production of these weapons for ourselves, with the necessary expense? Did we really ask for them to be included in the agreement?
  The Prime Minister: No, Sir. The Act is an Act of Congress. The agreement can be made only to conform to the
  1010
  Act of Congress. It is now lying on the Table in Congress, and if Congress sits for thirty sitting days between now and the end of the Session I am hoping that the agreement will be accepted. But any agreement made must be in conformity with the Act, and it therefore deals rather with research and development than with the actual interchange of weapons.

  DEFENCE (CENTRAL ORGANISATION)
  The Prime Minister: With permission I will now answer Questions Nos. 46, 52 and 60 together.
  When the present Government was formed my right hon. Friend the Minister of Defence was entrusted with the task of reshaping and reorganising the Armed Forces in accordance with current strategic needs and in the light of the economic capacity of the country. For this purpose I redefined the Minister's functions in relation to the Service Departments and the Ministry of Supply, and gave him increased authority to take decisions on matters of general defence policy affecting the size, shape, organisation, and equipment of the Armed Forces. I announced this to the House on 24th January, 1957.
  These arrangements have now been in operation for eighteen months. As a result of a recent careful review the Government have concluded that they have been justified by practical experience, and that, subject to certain minor alterations, they should now be formally confirmed.
  In addition, three new features are being introduced. First, the composition and operation of the Defence Committee of the Cabinet is being adjusted in order to secure greater flexibility and efficiency. Secondly, a Defence Board is being set up to assist the Minister of Defence in formulating defence policy and for dealing with inter-Service problems. Thirdly, certain adjustments are being made in the Staff organisation, including the assumption by the Chairman of the Chiefs of Staff Committee of the title of Chief of the Defence Staff.
  The Queen has been graciously pleased to approve that Marshal of the Royal Air Force Sir William Dickson be appointed to this new office.

  1011
  For the convenience of the House I have set out in a White Paper an outline of the working of the organisation as adjusted by the changes which I have mentioned. Copies of this White Paper will be available this afternoon.
  Mr. G. Brown: The Prime Minister's statement seems to raise as many new and quite serious questions as it begs most of the existing ones. However, I have a feeling that the attention of the House this afternoon is engaged upon rather more urgent, if not more important, questions than this, and I feel that on the whole it would be better if I deferred questions upon this matter until a later stage. I would ask the Prime Minister, however, whether he can give us an assurance that the Government will facilitate a debate on this and other relevant defence issues before we rise at the end of the month. Perhaps he will add to what is in his statement, which clearly shows that the mutiny which has been going on on the Treasury Bench has been quelled at last, and tell us in whose favour it has been ended.
  The Prime Minister: With regard to a debate, perhaps arrangements could be made through the usual channels if such a debate is required.
  Sir J. Smyth: Does my right hon. Friend realise that any proposals that he may make for reorganisation in this respect which will preserve the individuality, self-expression and high morale of the three Services and, at the same time, make for higher co-ordination at the centre, will receive a very wide measure of approval?
  The Prime Minister: Yes.
  Mr. Shinwell: Can the Prime Minister state whether this scheme in any way affects the status of the three Service Ministers? Do they remain as they are, with full charge of the administration of their respective Departments? Can he also say what is the actual difference between the proposed Defence Board and the present Defence Committee, which has been in operation for several years?
  The Prime Minister: With regard to the first part of the right hon. Gentleman's supplementary question, the responsibility to Parliament of the Service
  1012
  Ministers and the Minister of Supply for the efficient administration of the Armed Forces and their supply remains unchanged. With regard to the White Paper, on the whole it might be mote convenient if hon. and right hon. Members had an opportunity of reading it. We could then debate it, if it is so wished, with perhaps more success than I could achieve in trying to answer detailed questions, out of proportion, in connection with the White Paper as a whole.
  Mr. Shinwell: Does that mean that the Government have not come to a final determination on this matter, but that they will collect the voices and hear what hon. Members have to say before coming to a definite decision?
  The Prime Minister: No, Sir. It means that I think that a debate, or even a series of supplementary questions, could be more effectively carried on if hon. and right hon. Gentlemen had read the White Paper.
  Mr. Gaitskell: I agree with the Prime Minister that any detailed questions should be deferred until we have read the White Paper, but can he say whether the changes in the Defence Committee are explained in the White Paper?
  The Prime Minister: An indication is given of them, and if any further indication is needed I shall do my best to explain it, should the matter be debated.
  Mr. Bellenger: On the point raised by my right hon. Friend, the Prime Minister will know that this is one of the matters about which the House is not given much information, because the Committee concerned is a Committee of the Cabinet. Can the Prime Minister say whether, either in the White Paper or at a future date, he will be more forthcoming as to the duties and composition of that Committee?
  The Prime Minister: The right hon. Gentleman knows that it is not the practice to give accounts of the working of Cabinets or Cabinet Committees. An exception has been made in this case. There is a precedent for it in the White Paper of 1946, which set out both the composition and function of the Defence Committee. I have therefore thought it right to set them out again, together with any changes which are proposed. The

  1013
  right hon. Gentleman will find them set out in fair detail in the White Paper, and if further elucidation is required I think it could best be provided in a debate.

IRAQ AND THE LEBANON
The Secretary of State for Foreign Affairs (Mr. Selwyn Lloyd): With your permission, Mr. Speaker, and that of the House, I wish to make a statement on Iraq and the Lebanon.
In my statement yesterday afternoon I promised to keep the House informed about the situation in Iraq.
The general situation in Bagdad and in Iraq as a whole is still obscure, but I have received today a message from Her Majesty's Ambassador. I regret to inform the House that it appears from this message that Colonel Graham, the Comptroller of the Household, has been killed and two other members of the Embassy staff injured. The relatives of these two members of the staff are being informed.
With these exceptions all British members of the staff of the Embassy, of the British Council, of the British Loan Personnel, Iraq, and of the Bagdad Pact Secretariat, are, as far as can be ascertained, safe and well.
The Embassy buildings in Bagdad have been looted and the residence of the Ambassador burned out. The buildings are now guarded by troops, with members of the British staff in occupation.
There is no report of any injury to members of the British community in Bagdad.
The Iraq Petroleum Company has had news from Kirkuk that all is well, and operations are proceeding as usual. Basra, too, is quiet, and operations there continue.
There is no change in the situation at Habbaniya.
Her Majesty's Ambassador has requested assurances regarding the protection of British lives and property.
I am also arranging for the authorities at present in control in Bagdad to be informed that Her Majesty's Government protest vigorously against the destruction of Her Majesty's Embassy and the treatment of its staff, and hold them responsible for the safety of British lives and property.
1014
There is still no reliable news of the whereabouts of King Feisal, the Crown Prince, and Nuri Said.
I wish now to refer to the Lebanon.
United States forces are landing at Beirut this afternoon at the request of the President of the Lebanon.
Mr. Ellis Smith: Shame.
Mr. Lloyd: The Security Council is also meeting this afternoon, at the request of the United States Government, to discuss the situation.
The President has issued a statement, which has just been published in the last few minutes, giving the reasons for the United States action.
Her Majesty's Government have been in close consultation with the United States Government throughout the present crisis. They were informed in advance of the United States Government's intentions. They believe that the United States action is necessary to preserve the independence and integrity of the Lebanon in this very uncertain situation. This action has Her Majesty's Government's full support.
Mr. Brockway: Shame.
Mr. Lloyd: British troops are not taking part in this operation. British forces in the area have, however, been alerted.
Mr. Bevan: The right hon. and learned Gentleman will no doubt understand that this is regarded on this side of the House as very grave news indeed. Would he be able to tell us what situation has developed in the Lebanon different from what it was to justify American intervention at this stage?
Secondly, can he give us an assurance that no British troops will, in fact, be used and that they will not be sent either to Iraq or to the Lebanon until the House of Commons has had an opportunity of considering the whole situation?
Will the right hon. and learned Gentleman inform the House what the President of the United States has said to be his reasons for this intervention? Will he explain to the House why it is that, before a meeting of the Security Council, Her Majesty's Government approved the intentions of the United States?
Mr. Lloyd: I will attempt to deal with all those questions. I agree with the right hon. Member for Ebbw Vale (Mr. Bevan) that this is a very grave situation. So far as the change in the situation is concerned, it is quite apparent, as the President of the United States has said, that, in the face of the tragic and shocking events which are occurring nearby, more will be required than the United Nations team now in the Lebanon to preserve the integrity of the Lebanon.
On the use of British troops, I have no more to say than I have already said. No British troops are being used in this operation.
On the question of the Security Council, in our view the situation does not admit of any delay. The United States Government told the Security Council of their decision as soon as possible after making it.
Mr. Bevan: If additional help was required in the Lebanon—all the evidence we had was to the effect that the situation was becoming easier rather than worse—[HON. MEMBERS: "No."] I am speaking about the Lebanon—would it not rather be a matter for the Security Council to decide and not for the United States to decide unilaterally? If there was required a greater build-up of United Nations police forces in the Lebanon, was not that a matter for consideration by the Security Council? If intervention by one country unilaterally is just to take place in this way, how far could it be justifiably spread?
Mr. Lloyd: In this case there has been a clear request from the Government of the Lebanon for this assistance, to preserve the integrity and the independence of the Lebanon. If the right hon. Gentleman will study the President's statement, which I will circulate in the OFFICIAL REPORT, I think that he will see the reasons given there.
Mr. Gaitskell: Without wishing in any way to interfere with questions which right hon. and hon. Gentlemen will no doubt wish to put to the Foreign Secretary, and in view of his own admission of the gravity of the situation, would he not agree that the House of Commons should have an opportunity of debating this matter properly at the earliest opportunity? [HON. MEMBERS: "Today."] May I ask the Government, first, whether
1016
they would be prepared to set aside tomorrow for a full day's debate on this matter? In that event I think that my right hon. and hon. Friends would be prepared to co-operate in the passage of the Report stage of the Finance Bill.
Secondly, it is, unfortunately, possible that, as the result of the United States' action, oil supplies may be seriously interfered with. Has any undertaking been received from the United States Government that in that event dollar-free oil supplies will be made available to us in place of what we lose from the Middle East?
The Secretary of State for the Home Department and Lord Privy Seal (Mr. R. A. Butler): The request of the right hon. Member the Leader of the Opposition will certainly receive the immediate consideration of my right hon. Friends and myself. I understand that if we could have an early debate the Opposition would be willing to help us with the earlier passage of the Finance Bill. I now hear from the right hon. Gentleman that it would be so if the debate were tomorrow. The only thing I cannot give an immediate answer about is whether the debate should be tomorrow or perhaps a day later. I suggest that we discuss the matter in the usual way and make an early announcement about when we can meet the request of the Opposition.
Mr. Gaitskell: I suggested a debate tomorrow because I feel that this is a matter which requires a full day's debate. It is not only a matter of United States intervention, but of the whole of the Middle East situation as it is developing. We feel that it will be better to do it then, but it must be done urgently. We do not know what may happen in the next 24 or 48 hours. I must, therefore, make it clear to the Leader of the House that our offer of collaboration was on the understanding that the debate will take place tomorrow.
Mr. Butler: The Opposition are perfectly reasonable in asking for time and suggesting that the business of the Finance Bill could be expedited. It is reasonable, also, that I should have a word with my right hon. Friends and see the Leader of the Opposition immediately afterwards in an attempt to agree to the suggestion that has been made.
Mr. Bevan: If we cannot get an assurance that the debate should be tomorrow there might be some desire to have it tonight, because it is a matter of the utmost urgency. The day after tomorrow will be too late, especially in view of the fact that no assurance has been given that British troops will not be moved into action either in Iraq, the Lebanon or Jordan before the House has had an opportunity of debating the matter. We really do insist that the debate should be—[HON. MEMBERS: "Oh."] Hon. Members will realise that Her Majesty's Government have already decided to support the action of the United States and that, therefore, this matter is of the utmost urgency. We would not wish to exert the rules of the House if we could have an assurance of a much more extentive debate tomorrow than we might be able to obtain tonight.
Sir J. Hutchison: May I ask my right hon. and learned Friend to bear in mind the importance of consultation with our Western European allies and whether any such consultation is going on in any action that is taken?
Mr. Lloyd: I am quite aware of the importance of the point raised by my hon. Friend. We have been in touch with many other Governments.
Mr. Gaitskell: Would the right hon. and learned Gentleman answer the second question that I put to him, about oil supplies?
Mr. Lloyd: That kind of hypothetical question is much better dealt with in debate.
Hon. Members: Oh.
Mr. Langford-Holt: My right hon. and learned Friend mentioned that the whereabouts and position of the King of Iraq were at present unknown. In those circumstances, can he say whom we at present regard as head of the Arab Union?
Mr. Lloyd: Certainly, the King of Iraq, until we know his fate, is the legitimate head of the Arab Union. In the meantime, King Hussein of the Jordan has announced that in his absence he is assuming that position.
Mr. A. Henderson: In view of the fact that, so far as we gathered from
1018
newspaper reports, United Nations' observers, in their report to the Security Council, found that there was no evidence of armed attack from countries neighbouring upon the Lebanon, would the Foreign Secretary consider publishing as a White Paper the full report of the United Nations' observers?
Mr. Lloyd: I will certainly consider the question of publication, but the right hon. and learned Gentleman should remember that the United Nations' observers were expressing opinions about matters which they had not observed because they were not in position at the time—[HON. MEMBERS: "No."]—and that at this moment they are only in position on a very short portion of the front. The information in our possession is that in recent days infiltration has substantially increased.
Sir G. Nicholson: Is there any news of the situation in Jordan?
Mr. Lloyd: The situation in Jordan is quiet.
Mr. Wigg: Will the Foreign Secretary tell the House exactly what is the difference between the Russians responding to the invitation of Kadar, in Hungary, and the Americans responding to the invitation of President Chamoun?
Mr. Lloyd: I think that there is the slight question of whether there is a puppet Government or not.
Mr. Emrys Hughes: Resign.
Mr. Grimond: May I ask the Foreign Secretary whether his decision to support American action in the Lebanon has the approval of the Commonwealth?
Mr. Lloyd: We have been in touch with the Commonwealth. I think it is for the Commonwealth Governments to speak for themselves.
Mr. Patrick Maitland: Will my right hon. and learned Friend rest assured that public opinion will support resolute action?
Mr. Lloyd: I am perfectly certain that public opinion will realise the gravity of the issues at stake and approve the action which has been taken.
Mr. Paget: In view of the way that the Americans treated us over Suez, why do the Government seek to embarrass

1019
ourselves by gratuitously approving an American action which will probably be disastrous? Why can we not say to them, "You made this mess; you are quite big enough to get out of it"?
Mr. Lloyd: In both cases the Government have supported the course which they believed to be right.
Mr. J. Hynd: Is the Foreign Secretary not aware that the House regards his observations this afternoon as far too reminiscent of the Suez situation in his rejection of the report of the United Nations' observers and in his reference to the Commonwealth? Is he really assuring the House that because the Government of a country whose own army is not prepared to defend it cannot defend it, and is asking for our intervention, he is laying down a principle that we are prepared to intervene in any country whose Government cannot govern and asks for intervention?
Mr. Lloyd: We are not satisfied that this is only a question of internal politics in the Lebanon. We have believed that throughout there has been substantial infiltration from without and that the situation in the Lebanon would not have been created without outside interference. The hon. Member is taking a very narrow view of a very broad point.
Mr. Lee: Does the Foreign Secretary recall that the other day the Prime Minister gave me an assurance that Her Majesty's Government were in the closest contact with Commonwealth Governments? Will he say specifically whether Mr. Diefenbaker and others have been fully apprised of the intention of Her Majesty's Government to make this statement today?
Mr. Lloyd: Canada, as a member of the Security Council, can make her position clear in the debate—[HON. MEMBERS: "Answer."]—and we know what that position is.
Captain Pilkington: In view of what has been said by hon. Members opposite, does not my right hon. and learned Friend agree that had Suez been completely instead of only partially successful, probably neither of the situations in Iraq or the Lebanon would have happened?
Mr. Lloyd: I think that we should consider this matter calmly. There are very
1020
grave issues at stake for this country. I think that the matter will be better handled in debate.
Mr. Gaitskell: Before we leave the questions, may I ask the Leader of the House whether he has reached a conclusion on the request I put for a debate tomorrow? In addition, may I ask the Foreign Secretary whether, since events may move very fast in the next few hours, he would be good enough to come to the House and make a further statement later tonight if there is any new development in the situation?
Mr. Butler: It is clear in considering the wishes of the whole House that it would be advisable to have this debate as soon as possible. I did not hear of the Opposition's suggestion, nor of their proposal that we should accelerate the business on the Finance Bill, until I came into the Chamber this afternoon. I have had the opportunity of exchanging a few words with my right hon. Friend the Prime Minister and we feel that the Opposition's wish should be acceded to and would be for the general convenience of hon. Members on both sides of the House.
Mr. Lloyd: I am glad to give the right hon. Member the assurance for which he asked.
Mrs. Castle: On a point of order. Do we understand from what the Foreign Secretary has said that he has given a definite assurance that British troops will not—
Hon. Members: Sit down.
Mr. Speaker: That is not a point of order. I cannot deal with that.
Mrs. Castle: Can I put it—
Mr. Speaker: We are to have a debate tomorrow.
Mrs. Castle: On a point of order. In view of the fact that it is impossible to get clarification on this vital point, I beg to move the Adjournment of the House, under Standing Order No. 9, to call attention to a definite matter of urgent public importance, namely, the refusal of Her Majesty's Government—[Interruption.]—
Mr. Speaker: Order. I ask the House to keep order. I cannot hear the submission of the hon. Lady.
Mrs. Castle: —to give an undertaking that British forces will not be used in the Lebanon or Iraq before this House is consulted.
Mr. Speaker: The hon. Lady asks leave to move the Adjournment of the House under Standing Order No. 9 to discuss a definite matter of urgent public importance, namely, the refusal of Her Majesty's Government to give an undertaking that British forces will not be used in the Lebanon or Iraq before this House is consulted.
I cannot find that within the Standing Order. It is a refusal by a Minister to give an answer for which the hon. Lady has pressed. It has frequently been ruled that that is not a question which could be raised under Standing Order No. 9. As we are to have a debate tomorrow on this subject, I should be violating all precedents if I were to accept the Motion.
Following is President Eisenhower's Statement of 15th July:
Yesterday morning I received from President Chamoun of Lebanon an urgent plea that some United States forces be stationed in Lebanon to help maintain security and to evidence the concern of the United States for the integrity and independence of the Lebanon. President Chamoun's appeal was made with the concurrence of all of the members of the Lebanese Cabinet.
President Chamoun made clear that he considered all immediate United States response imperative if Lebanon's independence, already menaced from without, were to be preserved in the face of the grave developments which occurred yesterday in Baghdad, whereby the lawful Government was violently overthrown and many at its members martyred. In response to this appeal from the Government of the Lebanon the United States has despatched a contingent of United States forces to Lebanon to protec American lives and by their presence there to encourage the Lebanese Government in defence of Lebanese sovereignty and integrity. These forces have not been sent in any act of war. They will demonstrate the concern of the United States for the indepen
1022
dence and integrity of the Lebanon which we deem vital to the national interest and world peace. Our concern will also be shown by economic assistance. We shall act in accordance with these legitimate concerns.
The United States has asked for an emergency meeting of the United Nations Security Council which is being convened this morning as the United Nations Charter recognised there is an inherent right of collective self-defence. In conformity with the spirit of the Charter the United States is reporting measures taken by it to the Security Council of the United Nations and making clear that these measures will be terminated as soon as the Security Council has itself take the measures necessary to maintain international peace and security.
The United States believes that the United Nations can and should take measures which are adequate to preserve the independence and integrity of the Lebanon. It is apparent however that in the face of the tragic and shocking events that are occurring nearby more will be required than the team of United Nations observers now in Lebanon. Therefore the United States will support in the United Nations measures which seem to be adequate to meet the new situation and which will enable the United States forces promptly to be withdrawn.
Lebanon is a small peace-loving state with which the United States has traditionally had the most friendly relations. There are in Lebanon about 2,500 Americans and we cannot, consistently with our historic relations and with the principles of the United Nations stand idly by when Lebanon appeals to us for evidence of our concern and when Lebanon may not be able to preserve internal order and to defend itself against indirect aggression.

BUSINESS OF THE HOUSE
Proceedings of the Committee on Army and Air Expenditure, 1956–57, exempted, at this day's Sitting, from the provisions of Standing Order No. 1 (Sittings of the House).—[The Prime Minister.]
Ordered,
That the Finance Bill, as amended, may be considered immediately after the recommittal of the Bill and report thereof, notwithstanding the practice of this House as to the interval between the stages of such a Bill.—[Mr. R. A. Butler.]

ORDERS OF THE DAY
  WAYS AND MEANS [10th July]
  Resolutions reported,
  WAYS AND MEANS [10th July]
    INCOME TAX (FURTHER PROVISIONS AS TO SETTLEMENTS)
    1. That any Act of the present Session relating to Finance may amend the provisions of Chapter II of Part XVIII of the Income Tax Act 1952, as to the circumstances in which income paid to or for the benefit of a child of a settlor is to be treated as income of the settlor and a settlement is to be treated as revocable and may add provisions to Chapter III of that Part for treating income arising under certain settlements as income of the settlor; and any such amendment or addition may have effect for surtax purposes for the year 1957–58 as well as subsequent years of assessment.

    DIVIDENDS PAID OUT OF ACCUMULATED PROFITS (SUBVENTION PAYMENTS AND ANNUAL PAYMENTS)
    2. That provision shall be made for disregarding dividends paid out of accumulated profits in determining whether any payment is to be treated under section twenty of the Finance Act, 1953, as a subvention payment or whether any annual payment is payable out of profits or gains brought into charge to tax.
    First Resolutions read a Second time.
    Mr. Harold Wilson: On a point of order, Mr. Speaker. None of us can hear what is being said. We do not know what is being done.
    Mr. Speaker: I assure the right hon. Member that these two Motions which have been put before the House are the Report stage of Resolutions, which must be put forthwith by me.
    Question, That this House doth agree with the Committee in the said Resolution, put forthwith, pursuant to Standing Order No. 86 (Ways and Means Motions and Resolutions), and agreed to.
    Second Resolution read a Second time.
    Question, That this House doth agree with the Committee in the said Resolution, put forthwith, pursuant to Standing Order No. 86 (Ways and Means Motions and Resolutions), and agreed to.
    Instruction to any Committee to which the Finance Bill may be recommitted that
    1024
    they have power to make provision therein pursuant to the said Resolutions.

  FINANCE BILL
  Motion made, and Question proposed,
  That the Bill be recommitted to a Committee of the whole House in respect of the Amendments to Clauses 18, 19, and 20; the new Clause (Settlements on children); and the new Clause (Settlements—discretionary power for benefit of settlor, &c.), standing on the Notice Paper in the name of the Chancellor of the Exchequer.—[Mr. Amory.]
  4.0 p.m.
  Mr. Harold Wilson: May I seek your guidance, Mr. Speaker? I am not sure whether this may be a convenient Motion on which, for a few moments, the House might consider the procedure to be followed today in the wholly unusual circumstances whereby we hope to telescope what would have been a two-day debate into one day, or should we seek to move that the debate be adjourned so that that discussion may take place?
  Mr. Speaker: The Motion is debatable and the right hon. Gentleman is perfectly in order.
  Mr. Wilson: I merely wondered whether I should be going too wide on this rather narrow Motion.
  The whole House will understand the reasons why the Opposition took the initiative in proposing that the Report stage of the Finance Bill, which was to take two days, should be telescoped into one. I think that the Chancellor will agree that we were being fairly abstemious in agreeing to two days for the Report stage and that we have been co-operative throughout the Committee stage of the Bill. If we are to got through this business in one day in an adequate manner, I am sure that the House will recognise that we should bring it to a reasonably early conclusion this evening. In view of the importance of the debate proposed for tomorrow, not to mention the preoccupations of the Chancellor with the big issues which are at stake, I am sure that hon. Members do not wish to go on into the large hours of tomorrow morning, or even the small hours.
  I can give the Chancellor an assurance that we on this side will co-operate to the utmost in this matter. We withdrew

  1025
  a number of Amendments during the Committee stage to facilitate this kind of arrangement, and we shall co-operate to the full by taking this debate as rapidly as possible. But I want to put this question to the Chancellor and to the Patronage Secretary. At every stage in the past, where we have co-operated in this way, the House has been kept up for a long time thereafter by Amendments from hon. Members opposite. There can be no objection to that, because hon. Members opposite have as many rights and duties in this matter as we have. But if we are to co-operate, and recognising that perhaps because of our self-denial there are far more Conservative than Labour Amendments on the Notice Paper, I hope that the Chancellor will appeal to his hon. Friends to show the same degree of restraint and self-denial that we are proposing to show to enable this past of the Bill to be dealt with speedily.
  The Chancellor has made such appeals in the past and sometimes they have fallen on very stony ground. Since we want to allow the right hon. Gentleman and the rest of the House to go to bed at a reasonable hour tonight, I hope that the right hon. Gentleman will renew his appeal so that we do not spend too much time on what, in present circumstances, may be regarded as the minutiæ of the Finance Bill.
  The Chancellor of the Exchequer (Mr. Derick Heathcoat Amory): I agree with what the right hon. Member for Huyton (Mr. H. Wilson) has said about the measure of co-operation which we have had during our discussions on the Finance Bill this year from all parts of the House. Looking back, I think that the balance of time taken by hon. Members on both sides has been fair and reasonable. I am grateful to the right hon. Gentleman for saying that his hon. Friends will co-operate to ensure that we deal with our business today with reasonable dispatch. I am sure that I speak for my right hon. and hon. Friends when I say that we will do so, too. My hon. and learned Friend the Financial Secretary and myself, while remaining lucid in our observations, will try to be as brief as we can.
  Question put and agreed to.
  Bill immediately considered in Committee.
  [Sir CHARLES MACANDREW in the Chair]

  FINANCE BILL

    Clause 18.—(PURCHASES OF SHARES BY FINANCIAL CONCERNS AND PERSONS EXEMPTED FROM TAX.)
    The Financial Secretary to the Treasury (Mr. J. E. S. Simon): I beg to move, in page 12, line 33, at the end to insert:
    (5) Where such a company as is mentioned in the new paragraph (d) set out in subsection (3) of this section has received such a dividend as is mentioned therein, any question whether any dividend on shares in that company is to be brought into account as mentioned in subsection (1) of the said section four or whether any exemption from income tax extending to any dividend on such shares is to be excluded to any extent by subsection (2) of that section shall be determined as if the words "being shares sold or issued to him or otherwise acquired by him after the twenty-sixth day of October, nineteen hundred and fifty-five, and not more than six years before the date on which the dividend becomes payable" in subsection (1) of the said section four, and all similar expressions in that section, were omitted.
    This Amendment relates to Clause 18, which was formerly Clause 16, and which brought under control a new form of dividend stripping which had come to notice after the 1955 legislation, namely, dividend stripping by proxy—the interposition of an intermediate company between the company to be stripped and the stripping company.
    So far as I know, the gaps which this Amendment is designed to cure have not been exploited, but, at any rate, they have come to the imagination of the Inland Revenue since the earlier stages of the Bill, and certainly since the Bill was printed. They arise in this way, having regard to the terms of the original 1955 legislation which did not, of course, have regard to dividend stripping by proxy at all. That legislation would still permit stripping by proxy to take place if the intermediary or subsidiary had already been in the ownership of the principal company—that is, the stripping company—before 27th October, 1955, which was the initial date in the 1955 legislation. That is the first case.
    The second case where stripping by proxy could still take place is if the intermediary or subsidiary, whenever set up, had been in the ownership of the stripping company for more than six years at the time when the stripping by

    1027
    proxy took place. I can, if the Committee wishes, spell that out at greater length, but I hope that I have said sufficient to indicate the two possible gaps in the Clause which was designed to strike at dividend stripping by proxy.
    The remedy which is envisaged is that the limitations which, in a straightforward case, would restrict the operation of the Clause to dividends on shares acquired after 27th October, 1955, and not more than six years before the dividend became payable, should be left out of account in the case of dividend stripping by proxy, and subsection (5) introduced by the present Amendment so provides.
    Mr. Douglas Houghton: Obviously, we on this side of the Committee will support an Amendment which is designed to close a gap, even though no one yet has been noticed to go through it. But it is rather disturbing that the more we consider this form of tax avoidance, the more forms of ingenuity appear to come to light, or the possibility of them.
    One might say that throughout the discussions on this Clause in the Finance Bill we have heard the echoes of the emphatic and bold declaration of the Financial Secretary of 1955 that Section 4 of the Finance Act, No. 2, of 1955, was putting an end to dividend strippers. This Amendment deals with that section of the dividend-stripping legislation which was so clear in 1955. I hope that the hon. and learned Gentleman will be able to assure the Committee that, before the Bill passes out of our hands, in the next few hours, every gap perceivable at the moment will have been closed by the legislation before us, because on a previous occasion the Committee will remember that a former Financial Secretary—now the Minister of Housing and Local Government—was so determined to stop this form of dividend stripping, and so emphatic that the 1955 legislation would do it, that we parted company with the Bill feeling that a widespread form of tax avoidance had been effectively dealt with.
    Since then, we have discovered that it was not. The threat made by the right hon. Gentleman, then the Financial Secretary, and his colleagues, that, if necessary, retrospective legislation would cover new forms of dividend stripping which
    1028
    were discovered, showed how clearly the Government felt that they had effectively dealt with the situation. Apparently, no one thought of dividend stripping by proxy. Dividend strippers there were known to be, but dividend stripping by proxy was, apparently, not then thought of, but has since been regarded as a possible form of tax avoidance.
    We shall come later, very briefly, no doubt, to other provisions which we think might strengthen the hand of the Administration in dealing with this form of tax avoidance. Clearly, we shall support this Amendment, and others that will have the same broad objective, but the Committee cannot help but be disturbed that there seems to be no end to these ingenious forms of tax avoidance. It rather confirms what my right hon. Friend the Member for Huyton (Mr. H. Wilson) suggested in an earlier debate, as, perhaps, becoming urgently necessary; that the right hon. Gentleman the Chancellor of the Exchequer should have additional powers to deal with gaps as they appear, and not have the kind of annual stopping of gaps that is scarcely on the Statute Book before fresh devices are discovered.
    We have those misgivings. Nevertheless, we support the Amendment and hope that it, and the associated Amendments in the next Clause, will do what the hon. and learned Gentleman hopes they will do, and that there will not be any more gaps discovered in the dividend-stripping defences to give rise to serious misgivings about the effectiveness of our taxation legislation in this respect.
    Mr. John Diamond: I should, first, like to thank the Financial Secretary for moving the Amendment. It was considerate of him to rise in his place and say a few words because, of course, when we were last on the Committee stage of the Bill we reached a stage where Amendments were moved with such rapidity that it was impossible for anybody who had not spent many years looking at a gathering from the auctioneer's chair to see how the Chair was able to catch the eye of the mover of an Amendment, and see that it was, in fact, being moved by a nod of the head so slight as to escape the attention of other hon. Members. As we are all endeavouring to get this Bill through even more quickly than we were then, I had feared that the Financial Secretary's head would have been literally oscillating in

    1029
    an effort to get through the Amendments. I therefore think it right to thank the hon. and learned Gentleman, and to ask him to continue this precedent of actually moving the Amendments.
    Having said that, perhaps I might put a slight gloss on some of the words used by my hon. Friend the Member for Sowerby (Mr. Houghton), when he said that hardly was the 1955 Bill a Statute than a new provision had to be thought of. Of course, here is an example of a Bill by no means being a Statute but a further provision having to be introduced to stop, at all events, an imagined possible gap in the defences.
    As we know, this Clause deals with exactly the same difficulties with which the 1957 Finance Act dealt. The Clause is titled in the same way, and deals with precisely the same problem, and the very introduction of this Amendment shows that it is just impossible to foresee, at any given moment, all the possible loopholes there are in any particular piece of tax avoidance machinery. It is just impossible to foresee that. It is only a week or two ago that we were saying the same sort of thing in Committee, when it was then suggested that it was possible to foresee them. The fact that, before two weeks have gone by, the Government find it necessary to introduce another Amendment is of the greatest importance, not only in regard to the Amendment itself but as serving to indicate that this is not an adequate method of dealing with tax avoidance, and, in particular, with dividend stripping.
    When this point was put to the Chancellor, he went so far as to say that the fact that this had been considered in Committee at one stage would have relevance in the decision he had to make later as to whether he would be prepared to make any new provision retrospective. As the Government have, within two weeks, realised that their previous provisions were inadequate, and as we have been pressing the Government to make these dividend-stripping proposals nugatory in regard to tax reclaims, is the hon. and learned Gentleman now able to say that, should this latest Amendment not stop up the latest gap in these anti-dividend-stripping provisions—as I believe it will not—the Government will be prepared, should
    1030
    they last out another year, to introduce in their next Finance Bill, if necessary, retrospective legislation to deal with any avoidance of this Amendment?
    Amendment agreed to.
    Clause, as amended, ordered to stand part of the Bill.

    Clause 19.—(RESTRICTION ON RELIEF FOR LOSSES BY REPAYMENT OF TAX IN CASE OF DIVIDENDS PAID OUT OF ACCUMULATED PROFITS.)
    4.15 p.m.
    Mr. Simon: I beg to move, in page 13, line 26, at the end to insert:
    (2) Where—

    (a) a company carries on a trade other than such a trade as is mentioned in subsection (1) of section four of the Finance (No. 2) Act, 1955; or

    (b) the business of a company consists mainly in the making of investments;

    and the company's income for any year of assessment includes a dividend the net amount of which would, if the company carried on such a trade as is mentioned in the said subsection (1), be required to any extent to be brought into account as a trading receipt which has not borne tax,—

    (i) the gross amount corresponding to so much of the said net amount as would have been required to be brought into account as aforesaid shall be left out of account in determining for the purposes of section twenty of the Finance Act, 1953 (which relates to payments between associated companies in respect of losses), whether the company has any surplus for tax purposes during any period of what is the amount of that surplus; and

    (ii) if any annual payment payable by the company is to any extent payable out of the said dividend, that annual payment shall be deemed to that extent not to be payable out of profits or gains brought into charge to tax, and section one hundred and seventy of the Income Tax Act, 1952, shall apply accordingly.

    Clause 19, formerly Clause 17, deals with the alternative form of dividend stripping which has arisen since the 1955 legislation, namely, dividend stripping carried out for the benefit of an ordinary trading concern which is in a position to claim repayment of Income Tax by reference to trading losses suffered by it. The Clause, as drawn, disqualifies for use in support of a loss claim, not only a dividend which the loss-making concern draws direct after buying up the company being stripped, the victim with the accumulative reserves, but also a dividend received by an intermediary; in other words, dividend stripping by proxy.

    1031
    That is hit at, not only in relation to dealing companies, as in the previous Clause that we have discussed, but also in relation to a company sustaining trading losses and being in a position, therefore, to claim the benefits of the provision of the tax code, which grosses up any dividend paid.
    There are, however, certain devices that might be resorted to to get the fruits of stripping by proxy into the hands of the principal, in this case, the loss-making company, which do not involve the payment of a dividend by an intermediary. In effect, two are struck at by this Clause—the only two that have come to mind. The first is where the intermediary, having stripped the company that is being acquired—the company with the accumulated reserves—instead of paying a dividend to the principal company could, by Section 20 of the 1953 Finance Act, make a subvention payment to the loss-making principal. The Committee will remember that that Section accords certain facilities for marrying the losses and profits of different members of a group of companies.
    The second way in which the intermediary can get the fruits of the stripped dividend into the hands of the principal other than by paying a dividend, which is already covered by Clause 19, as I think it is now, is by entering into a deed of covenant providing for the appropriate annual payment to the principal. Again, I think that I should make it plain to the Committee that no case where such a device has been adopted has come to the notice of the Inland Revenue, but with the thought that has been brought to bear on this problem, as the Committee can well envisage, it has been imagined that those two devices could be resorted to, and that that being the case the gap should obviously be closed.
    The new subsection (2) therefore provides, first, that in the case of a stripped dividend received by the intermediary it must be left out of account in considering whether it has sufficient income available to make a subvention payment to any associated company. To cover the second case—the payment under a deed of covenant—there is a similar provision that the intermediary must account
    1032
    to the Revenue, as a separate transaction, for the Income Tax deductible from any annual payment which it makes out of the stripped dividend which it has received, and it cannot consider that its obligation is discharged by the Income Tax which is deemed to have been deducted by payment of the stripped dividend.
    The hon. Gentleman the Member for Sowerby (Mr. Houghton) asked me, on the last Amendment, whether I could assure him that every conceivable gap had been closed. I think that the terms on which I give an assurance really depend on the meaning of the word "conceivable". I obviously cannot give an assurance that every gap has objectively been closed. I can assure him that this matter has been very closely investigated, as I am sure the Committee will appreciate from the very recondite devices which are now closed by this Amendment and by the one which the Committee has just approved. Very great scrutiny has been brought to bear on this problem and we can now conceive of no gaps which we have not closed; but, of course, human nature is fallible and human reason is fallible, and the Committee will not expect me to go beyond that point.
    Mr. Eric Fletcher: Obviously, on this side of the Committee, we support the Amendment proposed by the hon. and learned Gentleman, but his speech, coupled with his earlier speech, shows the complete inadequacy of this method of trying to deal with this most complicated subject.
    I have no doubt that the matter has received the closest scrutiny and that the Treasury has tried to conjure up every possible device which it can think of which would enable taxpayers in the future to circumvent their present position. I am quite convinced, as the hon. and learned Gentleman himself is, that it cannot be beyond the ingenuity of people who wish to resort to dividend stripping in the future to concoct a device which will evade the net now drawn for about the sixth time, in the efforts which the Treasury has made to produce a completely watertight system which will prevent every kind of dividend stripping.
    I have no doubt that the Treasury has closed a great many gaps, but it is quite

    1033
    obvious that others will make themselves apparent to those whose business it is to seek ways of avoiding the strict letter of the law. I think that the lesson that emerges from our discussions in Committee, and from these two Amendments, is that the Treasury must in future look for a quite different method of protecting the Revenue. It is not good enough to proceed in this piecemeal fashion by very elaborate complicated Clauses, difficult enough for the experts to understand and almost incomprehensible to the layman, which, as history shows, fail in their objective.
    We support the Amendment, but we should draw from it and from the previous Amendment the lesson that in future there will be some quite different approach. I should have thought that we would want in future to have a system whereby the Finance Act lays down a general principle stating the kind of tax avoidance which Parliament wishes to stop, and then leaves it to the discretion of Special Commissioners or, as I would prefer, to a special Taxation Tribunal to find the facts and decide whether a particular transaction is, or is not, legitimate. If it comes within the mischief that Parliament has decided to stop and it fails to satisfy the requirements of Parliament that there is some legitimate basis for it, then any claim that might be made to call back from the Exchequer tax which has already been paid should fail. I hope that in future we shall think on these lines.
    Mr. Diamond: This Amendment deals with a slightly varied form of tax stripping—indeed, it has become more apparent that new methods of tax stripping are almost limitless—but it rests on an incompletely considered alternative.
    The obvious way of passing profits from a company which has made them to a company which needs them is to declare a dividend. The Revenue having been told to do some more thinking and having put their thinking cap on for a further two weeks, have thought out two further methods of transferring profits from a company which has made them. In this case, however, companies transfer the profits before they are made. That is to say, they make an annual payment under a deed of covenant or alternatively they make a subvention payment.
    1034
    These are two methods, but only two of several methods, whereby companies associated with one another and having the same desire pass the profits from the profitable ones for the unprofitable ones to receive them. These are only two methods whereby companies engaged in that operation find success. Two further methods come to mind immediately.
    It is well known that the problem of transferring profits and income from a rich company to a poor company for obvious Income Tax advantages is frequently considered, has been considered for years, and is being continually carried out. It depends on the circumstances of the two companies.
    We are in the situation that we part with the Finance Bill, except for Third Reading, some time or other tonight, and the hon. and learned Gentleman is, therefore, not in a position to introduce any further Amendments and you, Sir Charles, are presumably not in a position to accept any manuscript Amendments. Suppose the Committee came to the conclusion that the usual expedient of selling by one company to another company at inflated or deflated prices was a method of avoiding this anti-dividend stripping legislation. It is frequently a method adopted between two companies where by the richer one gets rid of some of its riches in favour of the poorer one.
    4.30 p.m.
    Supposing, alternatively, these two companies were sharing office accommodation, same sort of premises and services and, as is very usual, because it suited it to do so, one company took responsibility for the whole of the office accommodation, services, staff and so on, and charged the other company an inclusive fee, which frequently happens. Supposing that that inclusive fee were substantially inflated or deflated, as the case may be, as would be within the competence and the propriety of the two companies to do. The result would be that the income would be passed from a rich to a poor company in substantial quantity and would achieve exactly the same result as the deed of covenant for a modest annuity.
    In those circumstances, they would achieve what it was desired to achieve, namely, to pass income or profits from the rich company to the poor company. If that were felt to be a matter which

    1035
    wanted looking at, we would not be able to look at it. We are too late. We have decided that there are other matters to be done. Those are but two which occur to me "off the cuff", having looked at the Amendment and seen what the hon. and learned Gentleman is suggesting.
    Even if those two were decided to be caught in some subtle way which I have not yet observed—I am not a lawyer—by some of the provisions of the Amendment in conjunction with the rest of the Clause, does not the very fact of the Amendment show what nonsense it is to try to make provisions of this kind in these bits and steps for people to try to think of possible developments against which to provide in this way? All that we are attempting to do is to protect the Revenue. The public policy is clearly established. Both sides of the Committee are after the same thing. The only curious thing is that, somehow, the Chancellor seems to have dug his toes in against accepting the advice of the Inland Revenue.
    My hon. Friend the Member for Islington, East (Mr. E. Fletcher) said that the Treasury would have to think again, but it is not fair to blame this on to the Treasury. The Treasury, knowing the facts and how impossible it is for civil servants to think out all the possible and complex economic transactions which can take place over a community of 50 million people over the course of twelve months, obviously has come to its conclusion and said, as was in the Money Resolution which we passed on Budget day, that the proper way to deal with this matter is to have a full and precise warning and, if necessary, to act on that warning and to bring in retrospective legislation.
    The Amendment, in the first place, does not deal with the matter fully as the Committee is attempting to deal with it, and, secondly, shows once more how impossible it is to stop the gaps when the Committee is at one in wishing to stop them in any method other than those which have been suggested on this side of the Committee. I have an obvious preference for the method which I am suggesting, because any other method must be so wide as to catch bona fide transactions as well as those done in bad faith; but, certainly, something would have to be done rather than the present method. Although,
    1036
    therefore, one accepts the Amendment as far as it goes, it only is accepted in the sense that it shows how unsatisfactory is this method of stopping stripping of dividends.
    Mr. Houghton: It will not help to delay the Committee longer on this Amendment. I repeat the feelings of uneasiness which I expressed when I spoke a few moments ago. We are not dealing here with ingenuity so much as rascality. Let us not mince our words, especially since they are privileged. We are dealing with people who are indulging in such artificial devices that they cannot be regarded as in the normal course of trying to arrange one's affairs so as to attract the smallest amount of tax.
    I was glad to hear the Financial Secretary give the assurance that as far as he and the Administration can see, the Clause, after it is amended, will be effective in dealing with further possible attempts at avoidance. The Committee will, however, recall that on 8th November, 1955, the then Financial Secretary to the Treasury, now Minister of Housing and Local Government and Minister for Welsh Affairs, said:
    "The Bill will catch and defeat every dividend-stripping operation where the shares are acquired after 26th October, 1955—Budget Day. From that day dividend stripping will become unprofitable, and the dividend stripper will be out of business—will be out of that business, anyway."—[OFFICIAL REPORT, 8th November, 1955; Vol. 545, c. 1666.]
    Notwithstanding that emphatic statement, the then Chancellor of the Exchequer fortified the legislation of 1955 by making a statement about his readiness to introduce retrospective legislation if other forms of dividend stripping came to light which should be checked, and which not only should be checked but checked retrospectively, if it was thought that they were devices clearly at variance with the attempt of the Chancellor to stop this form of tax avoidance. Yet a whole new Clause in the present Bill—Clause 19—deals with a form of dividend stripping which was not dealt within the 1955 Act and which, apparently, has come to light on a somewhat extensive scale since. Notwithstanding that, the present Chancellor felt unable to fulfil the expectations of the Committee that retrospective legislation would recover the tax lost by devices which he

    1037
    hoped to check in 1955 but which he failed to do.
    As my hon. Friend the Member for Islington, East (Mr. E. Fletcher) has just said, the Committee is virtually helpless in the face of this elaborate network of ingenious activities which has nothing to do with the ordinary business of the community but which is solely directed at milking the revenue. I find little difficulty in distinguishing between all this and the person having his hand in the till. It is as bad as that. We shall simply have to see how it goes.
    The time is, however, rapidly approaching when, on an extremely complicated form of tax avoidance such as this, the Chancellor should be bold enough to ask the House of Commons to give him powers to deal with new forms of tax avoidance of this kind as they arise and not wait for this most complicated and cumbersome method of dealing with ingenious tax avoidance arrangements in the annual Finance Bill.
    Amendment agreed to.
    Mr. Simon: I beg to move, in page 13, line 28, after "person", to insert "or company".
    Clause 19, which has already been considered today by the Committee, provides for the dividend stripping where there is a trading loss. As it stands, it prevents a loss-making concern from using, in respect of a repayment claim, a dividend obtained by milking off the accumulated reserves of a company in which it has acquired a shareholding. By the Amendments which have just been passed, in addition to the dividend, we have provided for the subvention payment and payment under a deed of covenant.
    With a group of companies the acquisition in question might be no more than a technical change of ownership arising out of a rearrangement of the internal structure of the group. I think it was my hon. Friends the Members for Portsmouth, Langstone (Mr. Stevens) and Crosby (Mr. Page) who in Committee drew attention to the fact that the Clause as drawn would prevent or penalise perfectly legitimate operations, and my right hon. Friend the Paymaster-General promised that that matter would be considered and an official Amendment tabled on Report. The Amendment which I am now moving carries out that under
    1038
    taking. It inserts a new subsection which would enable such a dividend to be recognised for the purpose of the recipient's last claim provided that it represents profits earned during the period when the paying company was already a member of the group.
    The procedure starts by indicating the situation in which the let-out is to operate—shares in the company which eventually pays a dividend out of its accumulated reserve (which so far in these discussions I have called company A) and acquired by the company which receives that dividend, company B, from a third company, company C. Under the normal application of Clause 19, the dividend received by company B would be treated as a stripped divided, at any rate to the extent that it must be assumed to be paid out of profits accumulated by company A before the date when its shares are acquired by company B—in other words, treated as though they were preacquisition profits.
    If, however, the companies are associated and are members of a three-company group, the examination of the source of the dividend is to be carried out as if the acquisition of company A shares, the company to be stripped, by company B had taken place on the date when they were originally acquired by company C under sub-paragraph (a), or if company C, the third company, did not become a member of the group until a later date under sub-paragraph (b). In other words, the profits earned by company A during the period of group membership before its shares were taken over by company B will be treated as though they were "post-acquisition" profits and, therefore, available as cover for the dividend that it pays to company B. I think that the Amendment carries out my right hon. Friend's undertaking.
    The remaining part of the Clause covers instances in which there is more than one intra-group transfer, but the way that that operates is plain once the three-company group system is comprehended.
    Mr. Graham Page: I should like to express my gratitude to my hon. and learned Friend for including this Amendment in pursuance of the undertaking given in Committee. It is certainly a complicated subject, but the group transactions are not really dividend

    1039
    stripping in the sense that we have discussed dividend stripping in other Clauses. They do not cause any damage to the taxpayer. It is a matter between the companies within the group.
    Amendment agreed to.
    Further Amendments made: In page 13, line 29, leave out "subsection (1)" and insert "the foregoing provisions".
    In line 31, leave out from first "trade" to end of line, and insert:
    "or business were such a trade as is mentioned in subsection (1) of section four of the said Act of 1955."
    In line 36, at end insert:
    (3) Where shares in a company were acquired by another company from a third company at a time when the three companies were associated, any question whether or to what extent a dividend on those shares was paid out of profits accumulated before the acquisition, shall, for the purposes of this section (but for no other purposes), be determined as if the acquisition had taken place at whichever of the following times is the later, that is to say—

    (a) the time when the shares were acquired by the said third company;

    (b) the time when the said other company and the said third company became associated;

    except that if the said third company had acquired the shares from a fourth company at a time when the four companies were associated, the foregoing provisions of this subsection shall have effect as if for the references in paragraphs (a) and (b) to the third company there were substituted references to the fourth company and for the reference in paragraph (b) to the said other company a reference to the third company; and so on for any greater number of associated companies.
    In this subsection "associated" means, as regards two companies, that one is a subsidiary of the other or both are subsidiaries of a third company, and, as regards three or more companies, that one is associated with each of the others; and "subsidiary" has the meaning assigned to it for certain purposes of the profits tax by section forty-two of the Finance Act, 1938.
    In line 37, leave out from beginning to "which" and insert "() Subsections (5) and (6) of section four of the said Act of 1955".
    In line 39, leave out "definition of" and insert "definitions of 'company' and".
    In line 41, leave out "subsection" and insert "section".—[Mr. Simon.]
    Clause, as amended, ordered to stand part of the Bill.

    Clause 20.—(SETTLEMENTS.)
    4.45 p.m.
    The Solicitor-General (Sir Harry Hylton-Foster): I beg to move, in page 14, line 30, to leave out from "thereof" to "to" in line 31.
    The Amendment removes words which, on further consideration, we think add nothing to the Clause.
    Amendment agreed to.
    The Solicitor-General: I beg to move, in page 15, line 3, to leave out "any" and insert "no".
    I think that it would be convenient if we discussed at the same time the Amendment in page 15, line 4, to leave out from "been" to "and" in line 6 and insert:
    "exercised after the fifteenth day of April, nineteen hundred and fifty-eight, or is or can become exercisable after the fifth day of April, nineteen hundred and fifty-nine or such later date as the Commissioners of Inland Revenue may in any particular case allow".
    The Chairman (Sir Charles Mac-Andrew): Yes.
    The Solicitor-General: The Amendment seeks to change the terms of the let-out that is in the Bill as it stands. It works in two ways. It closes a gap which was left by the Bill as drawn, and it serves to meet some criticisms voiced in Committee by my hon. Friends, in particular my hon. and gallant Friend the Member for Cheltenham (Major Hicks Beach) and my hon. and learned Friend the Member for Darwen (Mr. Fletcher-Cooke).
    The let-out arose in this way. The Committee will remember that subsection (4) of the Clause as it stands let the settlement made before Budget day out of the operation of this Clause if the offending power, if I may use that expression, was released or disclaimed within three months of the passing of the Act. But that did not deal with the kind of villain who might choose before the expiry of that time limit to exercise the power in favour of the settlor. If one takes the Saunders type of settlement, a settled fund of £25,000 with the provision that £100 must at all times remain within the settlement, it may be that before the time limit under this let-out had been reached the power had been exercised to pay out £24,000 of the £25,000 to the

    1041
    settlor and the offending power thereafter released or disclaimed. It is necessary to close such a gap, and that is the point with which the Amendment deals.
    My hon. Friends have complained that the time limit allowed for the let-out was too short. For the reasons that they stated, which I do not wish to repeat, we ventured to express sympathy with that view. It would be going a little further than my normal optimism to hope that my hon. and gallant Friend the Member for Cheltenham would be pleased to see what we have done, but I hope he will nonetheless look favourably upon it, because the time will now be extended to 5th April, 1959, for the exercise of this let-out and power will be given to the Commissioners of Inland Revenue to allow even longer in a particular case. In order to avoid misunderstanding, I should explain how the Commissioners of Inland Revenue will view their duty in respect of this discretion to allow extra time. It is intended to be used only in cases where the parties have themselves taken all reasonable steps to secure the extinction of the power by 5th April and their failure to do so is due to circumstances beyond their control. The fact that a person was unaware of the conditions of the let-out will not be regarded as the reason for extending the time limit. I say that so that there may be no misunderstanding about it.
    The other point dealt with by the Amendment is one raised by my hon. and learned Friend the Member for Darwen. He took the point that the words "release or disclaimer" were not apt to deal with the case where one had to go to the court to extinguish the power. We are obliged to my hon. and learned Friend for emphasising the point, and we have met it by the Amendment.
    Mr. G. R. Mitchison (Kettering): As I understand, this is a rather long extension, from three months to a year from the date of the introduction of the Bill. I suppose that that is to allow for delay in the Chancery Courts, but I find it a little difficult to understand why such a long extension is required. I did not know that the Chancery Courts had enough work at present to justify that amount of time.
    There is this other point. We were told by the right hon. and learned
    1042
    Gentleman what the Commissioners of Inland Revenue would do in allowing an extension of time. The words of the Bill are completely unlimited, and I really fail to see why the simple explanation which the right hon. and learned Gentleman gave us orally could not have been put into the Bill, which contains many explanations far more complicated than that would have been.
    Major W. Hicks Beach (Cheltenham): As my right hon. and learned Friend the Solicitor-General referred to what I have said in Committee, I should like to thank him for the concession made on behalf of the taxpayer. I must confess that I entirely agree that a limitation to six months would have given plenty of time. There is, indeed, an Amendment on the Paper in my name suggesting six months. However, this Clause will work from a practical point of view, whereas as originally drawn it was so unworkable that the kindest thing one could say about it was that it must have been drawn by someone who had never been in practice. We are grateful to my right hon. and learned Friend.
    Mr. Mitchison: Since we are in Committee, and since the hon. and gallant Gentleman the Member for Cheltenham (Major Hicks Beach), who was responsible for originating the change, wanted only six months, and since six months seems plenty of time and nobody but the Government, in their wisdom, wants a year, will not the Government reconsider the matter and go a little way to meet the convenience of the parties concerned? Will they not go back to six months?
    The Solicitor-General: I do not think the hon. and learned Member for Kettering (Mr. Mitchison) need now have any anxiety. Owing to the fact that the offending power cannot be exercised during the interregnum, it really does not matter how long one allows. I know that the office of my hon. and gallant Friend the Member for Cheltenham (Major Hicks Beach) must be wonderfully conducted, but one has heard of offices in his branch of the profession which are at the moment a little understaffed through no fault of theirs. Lay clients will not necessarily be aware of what we are enacting in this rather technical respect, and I dare say that there may have to be some searching

    1043
    through the files of provincial solicitors' offices to find out which of the settlements require purging. No harm can be done because the fang of the settlement has been drawn and it cannot sting during its surviving life.
    Mr. Frederick Mulley: I should like the Solicitor-General to give us a little more information about the exercise of the discretion by the Commissioners of Inland Revenue. I understand that it is seriously thought that they will take the view, under this Clause and the suggested new Clause, that if there is a hypothetical possibility of the settlor marrying one of the objects of the discretion, that will operate so as to take away the escape which is permitted. We may have the absurdity that the settlor's wife may at the moment be one of the objects of the discretionary trust.
    Under these provisions, there will be a means of escape provided that she disclaims benefit within the period set out here; but, in the case of a possible nephew being included and a nephew's spouse, it is hypothetically possible that the settlor might in the future marry the ex-wife of his nephew. In those circumstances, as I understand it, if the Revenue is to take a very strict view as to the future possibility of marriage between an object of the trust and the settlor, these people will not be able to take advantage of the extended period because the trustees will have no power at all to strike out from a trust an object which is already written into the trust.
    I know that this may, to some extent, anticipate an Amendment in the name of the hon. and gallant Member for Cheltenham (Major Hicks Beach), but since that may not be called, I wonder whether, arising out of this Amendment, the right hon. and learned Gentleman could give us some idea of what view the Commissioners of Inland Revenue will take about the remote but nonetheless real possibility of marriage between a settlor and certain of the objects of the discretionary Clause.
    The Solicitor-General: I am obliged to the hon. Gentleman, and I think I understand the point he is making. I do not understand how it can conceivably arise on this Amendment. I was talking about the discretion conferred upon the Commissioners of Inland Revenue to ex
    1044
    tend the time in this matter, the time, as it were, for purging the offending power out of a settlement. I was speaking of no other discretion. On the kind of topic—I suspect that it is out of order—to which the hon. Gentleman was addressing himself, I would say that the Commissioners would be bound by the law, which, if I recollect aright, is to be found in the case of Tennant, a decision of Mr. Justice Lawrence in 1942.
    Amendment agreed to.
    Further Amendment made: In page 15, line 4, to leave out from "been" to "and" in line 6, and to insert:
    "exercised after the fifteenth day of April, nineteen hundred and fifty-eight, or is or can become exercisable after the fifth day of April, nineteen hundred and fifty-nine or such later date as the Commissioners of Inland Revenue may in any particular case allow".—[The Solicitor-General.]
    The Solicitor-General: I beg to move, in page 15, line 8, to leave out from "consideration" to the end of line 9, and to insert:
    "or benefit in connection with the fulfilment of the condition set out in paragraph (a) of this subsection; or if, in the case of a settlement to which subsection (1) of the said section four hundred and four applies by virtue of subsection (1) of this section. the settlement was entered into in connection with any judicial separation or any agreement between spouses to live separate and apart or with the dissolution or annulment of a marriage".
    This Amendment is designed to remove the difficulty my hon. and learned Friend the Member for Darwen (Mr. Fletcher-Cooke) spoke about in Committee, namely, that consideration might be a difficult topic here. All one wants to do is to maintain that the settlor does not get back, as a consideration for the giving up of the power—in that guise, as it were—some funds out of the settlement. We have maintained that position in the Amendment, but we have gone on to make a special let-out for agreements of a certain kind, really in response to representations which came largely, I think, from the Law Society. The kinds of agreements which persons whose marriages have broken down enter into on judicial separation or divorce or, indeed, just a separation agreement, are very often framed in a way quite remote from any element of tax avoidance in terms whereby the husband protects himself from having to pay maintenance payments more than he can afford if his income goes down. We have, therefore, put into

    1045
    the Bill a let-out for agreements of that kind.
    Amendment agreed to.
    Clause, as amended, ordered to stand part of the Bill.

    New Clause.—(SETTLEMENTS ON CHILDREN.)
    (1) Chapter II of Part XVIII of the Income Tax Act, 1952 (which relates to settlements on children) shall be amended in accordance with the following provisions of this section.
    (2) In relation to a payment to which this subsection applies, the words "at the time of the payment" shall be substituted for the words "at the commencement of that year" in subsection (1) of section three hundred and ninety-seven of that Act (which relates to payments in any year of assessment to or for the benefit of a child who at the commencement of that year was an infant and unmarried) and for the words "at the commencement of the year of assessment in which the sum is paid" in paragraph (b) of subsection (2) of section three hundred and ninety-eight of that Act (which makes provision supplementary to the said section three hundred and ninety-seven).
    (3) The reference in the said paragraph (b) to another sum previously paid to or for the benefit of a child who, at the commencement of the year of assessment in which it was paid, was an infant and unmarried, shall be construed, in relation to a payment to which this subsection applies of any such sum, as a reference to a sum so paid to or for the benefit of a child who at the time of the payment was an infant and unmarried.
    (4) Subsections (2) and (3) of this section apply to any payment made after the year 1957–58, except a payment made in the year 1958–59 to or for the benefit of a child born after the sixth day of April, nineteen hundred and fifty-eight and so made by virtue or in consequence of a settlement made before the ninth day of July, of that year.
    (5) In paragraph (ii) of the proviso to section three hundred and ninety-nine of the Income Tax Act, 1952 (which enables a settlement to be treated as irrevocable for the purposes of the said Chapter II notwithstanding that it provides for its determination, if the determination will not, during the lifetime of such a child as is mentioned in that section, benefit any person other than such a child, or the wife, husband or issue of such a child), for the words from "any person" to "issue of such a child" there shall be substituted the words "the settlor or the wife or husband of the settlor".
    (6) In relation to a settlement which would not have been irrevocable within the meaning of the said Part II but for subsection (5) of this section, the reference in paragraph (b) of subsection (2) of the said section three hundred and ninety-eight to the date when it became irrevocable shall be construed as referring to the sixth day of April, nineteen hundred and fifty-eight.—[The Solicitor-General.]
    Brought up, and read the First time.
    5.0 p.m.
    The Solicitor-General: I beg to move, That the Clause be read a Second time.
    I am afraid it is necessary to give some explanation of this Clause, but I will try not to be too long about it. The Clause is designed to deal with two points, both of which give rise to anomalies in a branch of the law about which the Committee knows, a branch designed to deal with tax avoidance by way of settlements by parents on their minor children.
    If I might recall the principle of the legislation, it is really designed to prevent the parent from diverting some of his income to his children, using it for their support and thus, in effect, getting tax relief, whereas if he had made payments to their maintenance out of his own income he could not have got tax relief in respect of those payments.
    The first point which is covered by subsections (2) to (4) of the new Clause is one relating to the criterion as to the cases in which the legislation should apply. The Committee will recall what the general rule is. It is in Section 397 of the Consolidating Measure and it provides, in effect, that where by virtue or in consequence of a settlement income is paid during the life of the settlor to or for the benefit of a child of the settlor in any Income Tax year at the commencement of which the child is an infant and unmarried, then the income is to be treated as the income of the settlor. The criterion is the status of the child at the beginning of the Income Tax year in which the payment is made.
    That gives rise to anomalies, because in effect it applies the legislation too late and makes it go on too long in application. I must leave out the child born on 6th April because, since the law takes no account of fractions of a day, the child is held to be in existence at the commencement of that Revenue year. Except for the child born on 6th April, the parent can in the year of the child's birth divert his income in favour of the child without running the risk of having the income treated as his own operating by way of a settlement in the year of the child's birth.
    On the other hand, if we take the year when the event happens to the child, namely, that it becomes 21 or gets married, as the case may be, in that year if a parent makes a payment under a

    1047
    settlement straightaway upon the happening of the event, incautiously not waiting till the end of the tax year, he will find that although the payment has been made after the child is 21 or after the child has been married, as the case may be, the law will require it to be treated as his, the settlor's, income. Those who have been caught by that one because their advisers did not know it feel a very natural sense of grievance.
    What this Clause does as to the first point is to make the criterion not the status of the child at the beginning of the Revenue year with which we are concerned, but the status of the child as it were at the time when the payment is made. It must be a child for the purpose under 21 and unmarried at the time when the payment is made. That gets rid of the anomalies which have given trouble before. The same principle is applied in connection with the law as to accumulated income under children's settlements.
    There is one case which requires special treatment. That is the case of the settlement made before the Government's intention was known—that is to say, before 9th July this year—where the child is born since 6th April this year. Obviously in fairness that settlor must be treated as he expected to be treated when the settlement was made, and an exception is made in his favour by subsection (4).
    The other point is necessarily a little abstruse and tiresome to explain rapidly, but I will do my best. The Clause alters the definition of what is an irrevocable settlement for the purpose of these provisions. The relevance of an irrevocable settlement in the context is that it affects the law applicable in cases of accumulated income under capital settlements. The general rule is that income accumulated for the benefit of the child in the future is to be treated as paid for his benefit, but there is, as the Committee knows, a limited exception, namely, that where the income is accumulated for the benefit of the child under a settlement of capital and that settlement of capital is irrevocable for the purpose of the relevant provisions, the income escapes being treated as paid out for the benefit of the child. So, as the law is at present, if the income is stored up and not paid out for the benefit of the child in an Income Tax
    1048
    year at the commencement of which the child was under 21 and unmarried, then the payments do not fall to be so treated. The rule as to the criterion applying the status of the child at the commencement of the tax year has been altered by the preceding subsections of the Clause, and I will say no more about it.
    There remains the problem that the limited exception is one which works only for capital settlements which are irrevocable within the terms of the legislation. What is an irrevocable settlement for the purpose is defined in Section 399 of the Consolidating Measure:
    "…a settlement shall not be deemed to be irrevocable if the terms thereof provide—
    (a) for the payment to the settlor…"
    and so on, and
    "(b) for the determination of the settlement by the act or on the default of any person…"
    The Committee will remember that a power to hand out the capital by instalments until none remains in the settlement is a power for the determination of the settlement within the meaning of these provisions. That rule, however, that it
    "shall not be deemed to be irrevocable if the terms thereof provide…for the determination of the settlement by the act or on the default of any person"
    is subject to a qualification set out in provisos. It is the second one that matters here:
    "Provided that a settlement shall not be deemed to be revocable by reason only…
    (ii) that it provides for the determination of the settlement as aforesaid in such a manner that the determination will not, during the lifetime of any such child as aforesaid, benefit any person other than such a child, or the wife, husband or issue of such a child…"
    Of yore, those provisions were thought to be sufficient to protect the provisions normally put in capital settlements of this kind, but of late there has been a tendency to extend the powers to appoint capital by the trustees largely because there was not confidence that the income would be sufficient. There has also been a tendency to spread wide the class of beneficiaries in whose favour the trustees might appoint capital or income—I suspect in order to avoid a risk of property passing upon a death for Estate Duty purposes.
    Those two tendencies have been present, and there are provisions, which modern conveyancers would like to put

    1049
    into settlements and sometimes do, which are caught by the existing provisions of the law, with the result that although there is not the slightest chance of the settlor or the settlor's wife benefiting under the settlement, none the less the whole income arising under it is caught by these provisions.
    It is a rule much harsher than the rule applied by Section 404, dealing with revocable settlements, because there the income is caught in effect only if the exercise of power of revocation has the result of the settlor or his spouse benefiting in some circumstances from the application of the property or income under the settlement. The Clause gets rid of this seeming discrepancy and injustice by widening the exceptions allowed for in the second proviso to Section 399. A settlement which can be determined will not, after the enactment of the Clause, be deemed to be revocable if it can be determined only in such a manner that the determination of it will not during the life-time of the relevant child benefit the settlor or the wife of the settlor as the case may be.
    The possibility of a benefit on discretionary termination of the settlement going to someone outside the class named in the statute, for instance the spouse of a child of the relevant child, will not of itself bar the settlement from being an irrevocable settlement for the purposes of this legislation. As a result of this, some settlements previously revocable will become irrevocable and subsection (6) provides the date on which they would be so. I should draw attention to the misprint in subsection (6). The reference should not be to Part II but to Chapter I.
    Mr. Houghton: The Solicitor General said that the new Clause would remove anomalies. I think that there is rather more in it than that. I was surprised that the right hon. and learned Gentleman did not explain to the Committee why the new Clause has been introduced now. There is nothing new in anything that the right hon. and learned Gentleman has said. This is not the product of the latest imaginative exercise by the Commissioners of Inland Revenue, as in the case of the dividend stripping a little while ago. This is something which the Inland Revenue has known about for a long time.
    1050
    My understanding has been that this was a form of tax avoidance and that the attraction of taking advantage of Section 397 of the Income Tax, 1952, was the benefit in the first year. It rather looks as though the draftsmen of Section 397, when it was first enacted in the Finance Act before the war, overlooked what might be done under a provision which dealt only with the status of a child at the commencement of the year of assessment. Where there was no child at the commencement of the year of assessment and a child was born after the beginning of that Income Tax year, it seemed that it escaped altogether the overriding provision that the income which the settlor had assigned to the child would be regarded for tax purposes as the income of the settlor.
    5.15 p.m.
    The origin of this, if my recollection is correct, is the step which the Chancellor of the day took to deal with the widespread dispositions in favour of minors, which at the time were increasing rapidly in number and which on any reasonable basis the Chancellor was entitled to think were largely bogus. The tax avoidance was in disposing of income to children, which probably in many cases never actually passed. Even if it did, it was devoted to the maintenance of the children which, as the Solicitor-General has pointed out, gave a tax relief to the parent, who was the settlor, in circumstances in which payments made in the ordinary way for the maintenance of children would atract no tax relief beyond the normal child allowance. It was to stop that tax avoidance device that Section 397 of the 1952 Act came into being.
    A friend of mine told me that several years ago when his wife gave birth to a child a very reputable firm of solicitors suggested that there was something he could do to get a substantial advantage in the first year. It seems that at present, if a child is born after 6th April in the tax year, a settlement can be made by the parent on the child for any amount and for that year, but for that year only, the income will be treated for tax purposes as the income of the child, because at the commencement of that year it was neither a minor nor unmarried because it was not born.

    1051
    In that case, a settlement of £1,000 a year on a child would relieve the parent, who obviously in these circumstances would be a Surtax payer, of Income Tax and Surtax on the £1,000 in that year. It would be assessable on the minor, who would be entitled to normal allowances, but no surtax would be payable on that £1,000 income. In more modest cases a parent could settle on a child just enough in the first year not to disqualify the parent from the normal child allowance but which would give tax exemption on the amount of income settled on the child in the first year.
    It could be £99, so that the child would not have an income of £100 and therefore disqualify the parent from the child allowance. The £99 would be exempt from tax in the hands of the minor. It would be regarded as a charge on the income of the parent for tax purposes, and the parent would enjoy the benefit of the child allowance on top. The attraction of adopting this form of settlement has been to get a benefit in the first year.
    The Solicitor-General has pointed out that unless the taxpayer or his advisers were wary and the settlement endured to the time when the child ceased to be a minor or got married the taxpayer might then get caught. I do not want to impute unworthy motives to people, but do these settlements endure? What happens to them after the first year? I strongly doubt whether many of them ever see the light of day after the Inland Revenue has received them in order to determine tax liability in the first year. Therefore, if the Solicitor-General had said that the new Clause was intended not only to correct anomalies but to stop something of a racket, the Committee would have understood better what the new Clause was about.
    If my interpretation of the situation is incorrect; if I am wrong in saying that in some organisations this benefit of tax relief in these circumstances is made widely known amongst the top-ranking executive officers, will the Solicitor-General explain why the Chancellor has brought forward this Clause at this stage? I mentioned to some of my hon. and right hon. Friends, in discussions we were having on the Finance Bill, that I was minded to ask the Chancellor of the
    1052
    Exchequer a question as to how many of these settlements were now being dealt with, and whether they were showing any significant rise.
    Had I had time to ask the question before the Chancellor came forward with his remedial Clause, we might have learned a little more clearly the origins of the action the Chancellor has taken. Of course, I am not rebuking him in any way. I am merely inviting the Solicitor-General to tell the Committee a little more clearly the underlying purpose of this Clause beyond the correction of anomalies as he described them when moving its Second Reading.
    I understand that the definition of irrevocable settlements has probably been a litle harsh and could be amended without any unfairness to the Revenue, but I am still puzzled to know why we have this Clause before us in these circumstances today. Why was it not thought of at the time of the Finance Bill? Have developments taken place in recent months which led the Chancellor to feel that action cannot be taken while the Finance Bill is still before the Committee?
    I shall be prepared to accept any statement by the Minister that in the interests of the protection of the Revenue it was considered desirable to make this correction. On these benches we are all in favour of checking artificial arrangements for tax avoidance, as some of these undoubtedly are, and we shall certainly support the Clause, which in my opinion has, among other objects, very definitely the purpose of checking a form of tax avoidance which has been opened by the words in Section 397:
    "…at the commencement of that year the child was an infant and unmarried"—
    and which the Clause proposes to amend.
    Mr. Page: Before my right hon. and learned Friend answers those questions, may I say that the hon. Gentleman the Member for Sowerby (Mr. Houghton) is exaggerating when he refers to this practice as a racket or as a plan for avoidance of the present law. He must know that the numbers of cases in which the windfall comes in the first year are very small compared with the numbers of cases in which the axe falls in the twenty-first and twenty-second years. Most settlements are made after the child's first few years and not in that

    1053
    first year, and it is to give relief to those who have suffered tax in the twenty-first year that this Clause is introduced. Of course, a well-drawn settlement could avoid that axe by directing the accumulation to the twenty-second birthday instead of the twenty-first. My right hon. and learned Friend in this Clause is assisting the bad draftsman as it were, whereas the good draftsman could get round the law without his assistance.
    In his admirably lucid exposition of this Clause, my right hon. and learned Friend omitted to deal with one point, unless I did not grasp it. Does this Clause have any effect on the payment of the accumulated income after the child becomes twenty-one or married if there is direction for accumulation of the income under the irrevocable settlement during the infancy of the child, and that income is not paid out in the maintenance, education or benefit of the child, and it is then paid to the child or paid on the child reaching majority?
    Mr. Diamond: Before the Minister replies, I want to underline the request made by my hon. Friend the Member for Sowerby (Mr. Houghton), for slightly different reasons. I should have thought that, as the law stands, one gains on the swings what one loses on the roundabouts, except for the fact that the settlements—that is, the swings—where benefit is obtained during the first eleven and a half months of the child's life were less than the benefits lost during the period when the child is twenty but not quite twenty-one.
    I should have thought, therefore, that the effect of this Clause would certainly be to stop the smaller racket to which my hon. Friend referred, that is to say, the rather gentle racket of obtaining the benefit during the first eleven and a half months of the child's life—in other words, where the child was born some time after 6th April of the relevant year; but, on the other hand, was adjusting the situation in favour of the much larger number of taxpayers who are desirous of entering into new settlements as soon as their eldest son is 21 and have found that they cannot usefully do so until their son is not only twenty-one but until the 5th April after his twenty-first birthday.
    So, although it is rather a matter of swings and roundabouts, I should have
    1054
    thought the accent was on the second set. Therefore, I underline my hon. Friend's request for information as to why this Clause is introduced now. Speaking from memory, I believe this practice has been going strong since about 1937, when the relevant provisions were introduced. From that time the textbooks drew attention to the fact, for the whole world to see and for practitioners to take advantage of, that one can provide usefully by way of a deed of covenant in favour of a minor child, in the first year of its birth, if born after 6th April. I hope, therefore, that we shall have an explanation.
    The Solicitor-General: In answer to the question of my hon. Friend the Member for Crosby (Mr. Page), perhaps I was trying to go too fast and so did not contribute more than a sentence to his point. The answer is that the Clause affects the matter of payments out of accumulated income because it changes the criterion in relation to them in an exactly parallel way. I think I said that but, if not, I apologise because I meant to do so.
    I note that the hon. Member for Sowerby (Mr. Houghton) does not quarrel with our treatment of the definition of an irrevocable settlement. On the other point, I do not know of any sinister reason for this matter suddenly arising. I have admired the memory of the hon. Member for Gloucester (Mr. Diamond). I think it was 1936 and not 1937, but it is impressive that he should be so nearly right straight off the cuff.
    As far as we know, this is a matter purely of swings and roundabouts. The Revenue will lose at one end of the period and gain at the other end. I am not prepared to advance at this Box any view as to profitability one way or the other. It was not done for that reason or because of any significant increase in the number of such settlements or the lack of them, as far as I know. It is just that, faced with representations of grievance from people who had been, as it were, caught out in the year of the event of the child becoming twenty-one or married, it seemed on reflection to the Revenue that a much more outwardly fair result would be obtained by adopting this system. We have adopted it, and I believe that it will seem to the taxpayer to be a fairer way of operating

    1055
    it, and it will not make much financial difference to what the Revenue derives from settlements of this kind.
    Question put and agreed to.
    Clause read a Second time, and added to the Bill.

    New Clause.—(SETTLEMENTS—DISCRETIONARY POWER FOR BENEFIT OF SETTLOR, &C.)
    (1) If and so long as the terms of any settlement (wherever made) are such that any person has or may have power, whether immediately or in the future, and whether with or without the consent of any person—

    (a) to pay or apply to or for the benefit of the settlor or the wife or husband of the settlor the whole or any part of the income or property which may at any time arise under or be comprised in the settlement; or

    (b) to secure the payment or application to or for the benefit of the settlor or the wife or husband of the settlor of the whole or any part of that income or property;

    being a power exercisable at his discretion, any income arising under the settlement in any year of assessment or, as the case may be, any income so arising from the property comprised in the settlement or from a corresponding part of that property, or a corresponding part of any such income, shall (so far as it is not so treated apart from this section) be treated for all the purposes of the Income Tax Acts as the income of the settlor for that year and not as the income of any other person, subject however to the following provisions of this section.
    (2) Where the power mentioned in subsection (1) of this section cannot be exercised within six years from the time when any income or class of income first arises under the settlement or from the time when any particular property first becomes comprised in the settlement, then, so long as the power cannot be exercised, that subsection shall not apply to any income arising under the settlement, or as the case may be, any income of that class or income from that property or property representing that property.
    (3) Where, under the proviso to subsection (2) of section four hundred and five of the Income Tax Act, 1952, the settlor is not deemed to have an interest in any income arising under or property comprised in the settlement, subsection (1) of this section shall not apply to that income or, as the case may be, to income arising from that property.
    (4) Subject to subsection (5) of this section, the foregoing provisions of this section shall apply for all the purposes of income tax for the year 1958–59 and subsequent years of assessment and also for estimating an individual's total income for the purposes of surtax for the year 1957–58.
    (5) Where, in the case of any settlement made before the ninth day of July, nineteen hundred and fifty-eight, any income arising
    1056
    under the settlement would, by virtue of the foregoing provisions of this section, fall to be treated (whether for purposes of surtax or for all the purposes of income tax) as the income of the settlor and not as the income of any other person, but would not fall to be so treated apart from those provisions, it shall not be so treated if—

    (a) no power by reason of which it would fall to be so treated has been exercised after the eighth day of July, nineteen hundred and fifty-eight, or is or can become exercisable after the fifth day of April, nineteen hundred and fifty-nine or such later date as the Commissioners of Inland Revenue may in any particular case allow; and

    (b) neither the settlor nor the wife or husband of the settlor has received or is entitled to any consideration or benefit in connection with the fulfilment of the condition set out in paragraph (a) of this subsection.

    (6) This section shall be deemed to be included in Chapter III of Part XVIII of the Income Tax Act, 1952, and to precede section four hundred and six thereof and the references in subsection (1) of section four hundred and seven and subsection (2) of section four hundred and eight of that Act to section four hundred and four thereof shall be construed as including references to this section.—[The Solicitor-General.]
    Brought up, and read the First time.
    5.30 p.m.
    The Solicitor-General: I beg to move, That the Clause be read a Second time.
    This new Clause is designed to stop up what we think is a gap which we have not stopped. To let the hon. Member for Gloucester (Mr. Diamond) off making his usual speech on this subject, I will say that this is a case where the Revenue does not know of existing dodging cases, but is trying to get a move ahead—and it seems a wise thing that that should be done.
    Section 404 of the Income Tax Act, 1952, when extended by Clause 20 of the Bill, does not cover in this matter of revocable settlements all settlements where a settlor has not effectively alienated his money from himself. Even with the extension provided by Clause 20, the provisions do not catch every case where there is a discretionary power for someone under the settlement to pay or apply the income or property to the benefit of the settlor or his spouse.
    Let us suppose a case where a discretion is conferred on someone to pay or apply the settled property in either of

    1057
    two ways at his discretion, either for the benefit of the settlor or the settlor's spouse, or for the benefit of another beneficiary, where the effective decision as to how the funds are to be applied is taken not when the settlement is made, but only from time to time as the income arises for distribution, when the persons in whom the discretion is vested decide to apply it in that way; that is a case which we have not caught and which ought to be caught, subject to the qualifications in the Clause. It is a case where a settlor has not effectively alienated his income away from himself in advance.
    Another example would be a covenant to make annual payments for seven years to a trustee in trust for X, with power for the trustee to make the payments to the wife of the settlor instead. That case would not be caught by existing legislation.
    Another example is a settlement on trust to pay the income of the settled funds, at discretion, to any one or more members of a class, including the settlor's wife. That would not be caught by existing legislation, and nor would the settlement in which neither the settlor nor his wife could become beneficially entitled to any part of the settled funds, but where the settled funds could at discretion be applied for his wife's benefit, for example, in reduction of an overdraft.
    The Clause is drawn in very wide terms and many of the matters are already covered by existing legislation. We have avoided any overlap, so we hope, by the words which indicate that the Clause is to bite only so far as the matter is not covered apart from the Clause. It will not, in practice, apply to accumulated income, because Section 405 of the Income Tax, in practice, catches all income accumulated by trustees which would otherwise fall within the Clause.
    It follows Section 405 of the Act in disregarding the possibility of benefit to the settlor or spouse where that benefit is dependent on the termination of a prior interest by one of the events which are listed in the proviso in Section 405 (2)—things like bankruptcy and other rather sudden and not exactly designed misfortunes in this context. The Clause treats those matters as being excepted from its general provisions. In the circumstances, I need not weary the Committee with
    1058
    further explanation. Should hon. Members desire it, I am respectfully at their service.
    Mr. Houghton: We welcome the Chancellor's attempt to close the stable door before the horse has gone. We understood him to be doing that on an earlier Amendment dealing with dividend stripping.
    This Clause seems to stop up a few gaps. I do not recognise the definition of "gentle racket" which my hon. Friend the Member for Gloucester (Mr. Diamond) used, but it is clear that in this complicated subject of settlements there are many variations and provisions which make it extremely difficult for the Income Tax Act to catch every one of them. They are a form of tax avoidance in many cases and we certainly welcome this Clause, which is a kind of continuation of the previous one.
    We are still without explanation of why the two new Clauses have appeared on the Notice Paper at this late stage in the consideration of the Bill. We would have welcomed them earlier. It adds to our anxiety about the effectiveness of checks on tax avoidance and it gives the feeling that this is a sporadic exercise. It is almost a hit and miss effort, according to whether there is a Finance Bill in the second half of the year, or whether the Committee stage of a Finance Bill lasts long enough for the Chancellor to be advised of additional provisions which should be included in the Bill. It always makes those of us on these benches who are interested in these matters consider whether stopping up gaps as we go along is the most satisfactory way of doing it.
    The Solicitor-General: I thank the hon. Member for welcoming the Clause and I use the opportunity to repair an omission. I should have said that since there is once more a discretion in the Commissioners to extend the time, parallel with the case of the Amendment to Clause 20, my observations in that context as to the view the Commissioners would take about their duty equally apply in this instance.
    Mr. Mitchison: I want only to ask one question. I always feel about this settlement difficulty that the case for which there is not sufficient provision is that where the trustee of one settlement is the settlor of another settlement, and where there is an arrangement between two or

    1059
    more people, formally or informally, by which they each purport to confer an unlimited discretion on the other, on a perfectly good understanding that each will do the right thing, as they would regard it, or the wrong thing as the Revenue would regard it, by the other.
    I wonder whether that kind of case is sufficiently met and whether, now that the Chancellor is taking the course of providing against rackets before they occur, he will see whether he cannot find a racket of that sort lurking about somewhere and take steps to deal with it in this or some future Finance Bill.
    Mr. Mulley: If I may now ask the learned Solicitor-General to reply to the point which I endeavoured to make on an earlier Amendment, I think it would be quite in order, because the form of this new Clause follows exactly the form of Clause 20.
    It seems to me that provision is made, rightly or wrongly, for those people who have, probably deliberately, used this means of tax avoidance to put matters right within the period prescribed by the Clause. On the other hand, it seems to me that the people who, innocently, have included the words "spouse or wife" or something of that kind, can be denied the possibility of putting it right, because, as I understand it, trustees have no power to change the terms of the trust deed.
    It could happen, as I tried to put it earlier, where, simply to widen the objects of the trust deed, someone could provide for a nephew's children to be included in the discretionary class and also provide for the spouse of the nephew, as well as his own children. It is conceivable, though probably extremely unlikely, that the settlor could marry the ex-wife of his nephew, and, in such a contingency, if the Revenue took the extremely rigid view, they could automatically, under this new Clause, as they would under Clause 20, hold that it would not preclude possible benefit in future to the settlor or a possible wife of the settlor.
    If they took an extremely academic view, and there is reason to suppose that they may well do so, I submit, without going into the merits of the possibilities for exemption, that innocent parties may not be able to escape from this net, which has, quite rightly and properly, been laid
    1060
    by the Revenue, whereas those who went in for the idea of tax avoidance will be able to get out.
    The spouse or settlor will be able to disclaim a hypothetical or possible future object of such a discretionary trust, and the disclaimer comes about at the moment when, possibly, they are not even in existence. I should like to ask the Solicitor-General if he could, without straining his conscience about being out of order, answer the point which I endeavoured to make.
    The Solicitor-General: It would not be my conscience, Sir Gordon, but, with great respect, yours that would be strained. Subject to the limits of tolerance which you permit me, I will try to deal with the point which the hon. Gentleman has put to me, and I am sure he will be good enough to indicate if I have not got it right.
    I imagine that he is conceiving the case where, innocently, the settlement has been made in such terms that there is a power of determination in the settlement, and a possibility that the exercise of that power would benefit the unascertained future wife of the settlor, and, therefore, the settlement is caught. The problem which the hon. Member puts to me is whether that power can be purged from the settlement so that the settlement can endure and be cured for the purpose of this Clause.
    Let us suppose that the Variation of Trusts Bill—I am not certain what stage it has reached now, but it is about to become law—actually becomes law. The court, if applied to, will be able to consent to a variation of the settlement getting rid of the offending power, because it could, on behalf of an unascertained wife, consent to that variation under the Bill. That is why we believe that this let-out operates even in the case which the hon. Member has been putting to me. I greatly fear that all this is out of order, but I hope that it is a satisfactory answer to the point which the hon. Member put to me.
    Mr. Mulley: I am much obliged to the learned Solicitor-General, but the Government are legislating in the Finance Bill and seem to be assuming that the position will be made just as between taxpayers by private Members' legislation which is still not law. The Government should

    1061
    have tackled the subject in a more comprehensive way. This is merely another illustration of the rather slipshod way in which the Government have dealt with their legislation.
    5.45 p.m.
    The Solicitor-General: It would be a miserable precedent if we were to try to amend the law on trusts in the Finance Bill.
    Mr. Mitchison: Another example of the slipshod methods of the Government is provided by the fact that the learned Solicitor-General did not answer the point I made.
    Question put and agreed to.
    Clause read a Second time, and added to the Bill.
    Bill reported, with Amendments; as amended (in Committee and on re-committal), considered.

    New Clause.—(PENALTY FOR INCORRECT ACCOUNTS.)
    (1) Where, after the passing of this Act, incorrect accounts are submitted to the surveyor or any Commissioners in connection with the ascertainment of a person's liability to income tax for any year of assessment, that person shall be liable, subject to the following provisions of this section, to be proceeded against as mentioned in paragraph (a) or (b) of subsection (3) of section twenty-five of the Income Tax Act, 1952 (which imposes penalties on persons failing to make certain statements), and the amounts mentioned therein shall be forfeited and recovered accordingly.
    (2) Proceedings under the said subsection (3) shall not be taken against the same person both by virtue of this section and apart from this section in respect of the same year of assessment.
    (3) Where a person discovers that accounts submitted in connection with the ascertainment of his liability to income tax are incorrect and he submits a statement rectifying the accounts, no proceedings shall thereafter be taken against him by virtue of this section in respect of the accounts.
    (4) In proceedings taken against any person by virtue of this section it shall be a defence to prove that the accounts were submitted without his consent or connivance.
    (5) Where accounts for a period not exceeding a year are submitted in connection with the ascertainment of a person's liability to tax for more than one year the penalty recoverable by virtue of this section shall be recoverable in respect of such one only of those years as the Commissioners of Inland Revenue may elect.—[Mr. Simon.]
    Brought up, and read the First time.
    Mr. Simon: I beg to move, That the Clause be read a Second time.
    1062
    This new Clause gives effect to a recommendation of the Royal Commission to the effect that a taxpayer who puts in an incorrect account for Income Tax purposes should be liable to a penalty in the same way as if he had submitted an incorrect return, and also gives effect to an undertaking which I gave in response to the hon. Member for Sowerby (Mr. Houghton) during the Committee stage.
    Sometimes, as the House knows, when accounts have been put in, a formal return is dispensed with. More frequently, a taxpayer fills in his return form before the relevant accounts are available, and the amount of the adjusted profits is subsequently agreed with the Inspector of Taxes. In certain of these cases the form of the return has the effect of incorporating the accounts in the return, so that they become liable to attract the penalty provisions which attach to returns. In other cases no such words are used, and no penalty for making an incorrect return is recoverable in the case of accounts, except, probably, where the accounts are fraudulent. It is therefore reasonable, as the Royal Commission pointed out, that a taxpayer who puts in incorrect accounts should be liable to the same penalty as if he had entered an incorrect figure of profits in a formal return.
    So far as the details of the Clause are concerned, subsection (1) applies the provisions of Section 25 (3) of the 1952 Act, which prescribes the penalties for making incorrect Income Tax returns, or, actually, I should say, failing to make true and correct returns, and it applies these provisions to incorrect accounts.
    Subsection (2) prevents a person from becoming liable to two penalties, under the Section of the 1952 Act to which I have referred for the same year, if he has put in incorrect accounts and also a return which is incorrect by reason of his entering in his return the final figure of the accounts. Subsection (3) is modelled on Section 55 (1) of the Income Tax Act, 1952, and it enables a taxpayer who has made an innocent error in a return to correct it.
    Mr. Donald Chapman: Could the Financial Secretary go a little further in dealing with that subsection and tell us whether, in fact, it covers the case where the Inland Revenue draws the attention of someone to the

    1063
    fact that he has made an incorrect statement of account? If the word "discovered" covers the case in which attention has been drawn to the fact by the Inland Revenue, surely no one in the end will be proceeded against if he agrees to put in a correct statement.
    Mr. Simon: I think the Section of the 1952 Act on which this is modelled is not very easy to interpret, and it is not for me to advise the House as to the law; but, speaking for myself, I should have said that the word "discovers" covers the case in which the Inland Revenue draws the attention of the taxpayer to the incorrectness of his accounts so as to give him the opportunity of correcting them. As I pointed out, if there is fraud the Inland Revenue can proceed under a different provision. I hope that that answers the hon. Member's question.
    Mr. Chapman: Yes. I am much obliged.
    Mr. Simon: Subsection (4) enables the taxpayer who had no hand in the return of the false accounts to escape from the provisions of the Section. In the bulk of cases either the taxpayer himself makes the return or the return is made with his knowledge; but there may be the odd case where the accounts are submitted without any knowledge on the part of the taxpayer, and subsection (4) allows him to escape any penalty. In that respect it goes beyond the provisions of the existing law relating to returns, because at present it is no answer to say, "It was not made with my consent or connivance." This is more favourable to the taxpayer.
    Finally, subsection (5) provides that a person shall not be liable to more than one penalty in respect of any one set of accounts in relation to any one year.
    Mr. Houghton: We welcome the new Clause. I am obliged to the hon. and learned Gentleman for fulfilling a half-promise, which he made in a debate at an earlier stage, to consider at any rate one part of the new Clause that we then proposed to cover two recommendations of the Royal Commission in the one change. The Clause satisfies the recommendation of the Royal Commission in paragraph 1057. which said:
    "accounts submitted in support"—
    1064
    of a return—
    "are not in law themselves a return, although in many cases the words that the taxpayer uses in referring to them have the effect of incorporating them in and so making them part of a return."
    The Royal Commission said:
    "We think there is no place for fine distinctions on this point and we recommend that the law should be amended so as to provide that whenever a taxpayer submits accounts to an assessing authority, either in support of a figure that he has returned or in lieu of a formal return, the accounts should rank as a return for the purposes of assessment and penalty provisions of the Acts."
    When we brought our new Clause before the Committee at an earlier stage we linked with this proposal to bring incorrect accounts within the penalty Sections of the Income Tax Act an obligation to sign the accounts. The hon. and learned Member has not brought forward any proposal to that effect, for the reasons which he gave when we were discussing the combined proposal earlier on. He then expressed doubt whether a signature on the accounts would achieve our purpose in all cases. Yet in subsection (4) of the Clause provision has to be made for a taxpayer submitting accounts which he has not signed and which he could plead in defence had been submitted on his behalf without his consent or connivance. Had the Chancellor accepted the Royal Commission recommendation which we put forward, that taxpayers should be required to sign their accounts, no such defence as that provided for in subsection (4) could ever arise.
    The hon. and learned Member has just pointed out that no such defence could be put forward in the case of an Income Tax return. There a statutory declaration is required on the return form, and once having made that declaration a taxpayer could never plead that the contents of the return were put in without his consent or connivance. Obviously he must take full responsibility for what is contained in a tax return which he signs.
    The Clause does not propose to make the position as watertight as that in regard to the submission of accounts, and that is to be regretted. I presume that if a taxpayer making his tax return in the normal way were to include in the return a statement of his profits, saying, "As per accounts, £2,050", his declaration would cover that statement of his profits, and to that extent would make him responsible

    1065
    if not for the contents of the accounts at any rate for the amount of taxable profits shown in them and transferred to his return form.
    If, on the other hand, the taxpayer were to write, in the space provided on the return form, "As per accounts submitted", and include no figure for his taxable profits, he could plead, if the accounts were submitted without his knowledge or consent, that they had nothing to do with him. By putting in the words "As per accounts" with no figure he would not be committing himself to a declared return of income, which would have been the case if he had included a figure in the return form.
    That rather suggests that these two matters should be tied up more completely than is proposed in the Clause. Clearly, we shall not oppose the Clause, because it does something which the Royal Commission thought should be done and which we regard as desirable from the point of view not only of the Inland Revenue but of the taxpayer. It enables him to know more clearly where he stands when he submits accounts for tax purposes. But it is a flaw that the hon. and learned Member is not proposing to bring the signature on the accounts—which was the subject of a further recommendation by the Royal Commission, in paragraph 1058—within the scope of the new proposals. Our view is that it would have been better to combine the two, as the Royal Commission recommended.
    For reasons which the hon. and learned Member has given, and which were quite unconvincing to hon. Members on this side of the House, he has left out the provision in regard to the signature on the accounts and has exposed the Inland Revenue to a defence by a taxpayer which, really and truly, he should never be in a position to put forward, namely, that he knew nothing about the accounts; that he did not consent to them; that he did not connive in their submission; that he did not sign them; that they were put in on his behalf, and that he can take no responsibility for them. If he is wise enough not to put the amount of his profits on the return form he makes a clean get away. I think that that is unfortunate.
    Question put and agreed to.
    Clause read a Second time, and added to the Bill.
    Mr. Deputy-Speaker (Sir Gordon Touche): New Clause—"Relief from Schedule A of certain owner-occupiers."
    Mr. H. Wilson: On a point of order. This is a new Clause which we hoped would not be moved in order to facilitate the passage of the Bill. We hope to see some reciprocation from the other side of the House.

    New Clause.—(ENLARGEMENT OF LIMITATION ON CHILD ALLOWANCE.)
    At the end of subsection (4) of section two hundred and twelve of the Income Tax Act, 1952 (which subsection limits by reference to the child's income the relief allowed in respect of a child), there shall be added the following words:
    "(in this subsection called 'scholarship income') or of any income earned by the child, So however that the amount of earned income not taken into account shall not exceed one hundred pounds less the amount (if any) of income of the child in his own right not being earned income or scholarship income."—[Mr. Mitchison.]
    Brought up, and read the First time.
    6.0 p.m.
    Mr. Mitchison: I beg to move, That the Clause be read a Second time.
    There is a child allowance of the amount of tax at the standard rate of sums varying from £100 to £150, according to the age of the child. In respect of that allowance there is a limiting sub-section which I propose to read. It is:
    "No relief shall be allowed under this Section in respect of any child who is entitled in his own right to an income exceeding £100 a year; provided that in calculating the income of the child for the purpose of this subsection no account shall be taken of any income to which the child is entitled as the holder of a scholarship, bursary or other similar educational endowment."
    The proposed new Clause would add the following words:
    "(in this subsection called 'scholarship income') or of any income earned by the child, so however that the amount of earned income not taken into account shall not exceed one hundred pounds less the amount (if any) of income of the child in his own right not being earned income or scholarship income".
    The proposal is to give to the parents of children who have an income in excess of £100 a limited extension of that relief. The limitation is intended for, and is weighted in favour of, the child who has an earned income. Let me illustrate this

    1067
    proposal by one or two simple figures, to make the position clearer.
    Suppose that a child has £100 of unearned income and an earned income of £40 or £50. The proposed Clause will not help that child, because the additional £100 cannot be used, having regard to the amount of the unearned income. If the child has an earned income of £140 the child's parents would benefit under the proposed new Clause because the relief would be enlarged by the tax on £40. Then add to that £140 his £60 of unearned income, and the effect of the proposed new Clause is to leave the limit at £100 as it is at present, because the unearned income counterbalances the increase in the form in which it is drafted.
    Let me give a final simple example. An earned income of £180 would get the benefit of what is proposed in the Clause. The limit of relief would be the tax on that £180. If, on the other hand, we add to it £100 of unearned income we then come back to the figure of £100. I hope I have made my meaning clear to all hon. Members—[Interruption.]—except to the hon. Member for Carlton (Mr. Pickthorn) on the back bench there.
    Mr. Kenneth Pickthorn: The hon. and learned Member should cross-examine me.
    Mr. Mitchison: I am not prepared to do that. I do not think that I can carry the matter very much further. I should like to give the reasons why we think that the limitation should be enlarged and why, when putting forward a very limited enlargement, we think that it should be weighted in this way.
    The reasons for enlargement are substantially these. At present, there are cases in which apprentices, one of the large and obvious groups concerned in this relief for parents, are earning more under present conditions than the £100. The present effect, as the Royal Commission pointed out, is that where the child may get £98 a year the parent gets the full benefit of the allowance, but simply because the £100 limit is passed, the whole of the benefit disappears. Obviously, that is a jump of a character which one wants to avoid.
    1068
    We have tried to do it in previous Finance Bills by tapering Clauses, and so on, but they were all open to some objection, though not to so large an objection as is the present Section in the Income Tax Act. What we have done in the proposed new Clause is, to a limited extent, to relieve earned income and to weight it against the children who have unearned incomes by counting scholarship incomes as earned for these purposes, partly with the intention of making this tax in respect of this enlargement progressive, as I think we are entitled to do. We are entitled to say, and we do say, that where there is an unearned income, though it is the child's income, and the whole of it in practice goes to the support of the child in one form or another, there is not the same need for a child allowance.
    When we go beyond the present limit it is right and proper to take that into account, and to diminish the addition which we make in respect of earned income by having regard to the amount of the unearned income of the child. I hope I have made myself clear. The illustrations were only illustrations. I feel sorely tempted to make one other effort. I think I will do so. It will be quite short.
    There is at present a limit of £100 of income, so that if the income, whatever it is, other than scholarship income, is below that amount, the relief is allowed, and if it is above it by however little there is no relief. We propose to enlarge that limit by £100. In doing so, we would allow against the increase thus afforded the amount of any unearned income of the child. I hope that I have made that clear.
    I am bound to say that anyone attempting to make clear a proposition of this kind, after listening to the learned Solicitor-General making much more complicated things clear, always feels himself at a very great disadvantage. At any rate, I do. We feel that we have seen a light, but that ours are flickerings. We believe that the present flickering is soundly based, that the motive is excellent and that something of this kind is overdue because of the rise in the earnings of young men, including apprentices.
    If some such concession is not made in respect of the £100 limit, the effect will be not to encourage young men to

    1069
    earn as much as they can, because the family may lose by their doing so. On the other side of the picture, it will encourage employers and employers' associations to keep down apprentices' pay, bearing in mind that the result may be a fiscal benefit and a fiscal advantage to the parents.
    The latter result may create an anomaly and a sharp, brusque gap at a certain point. It may have the effect of keeping the pay generally by these means under what otherwise would be the appropriate level and have the effect of doing so in regard to young children who, under present conditions, certainly find things no easier than they did in the past and might well be finding them more difficult.
    Mr. Diamond: I beg to second the Motion.
    I do so shortly partly because time presses and, more importantly, because my hon. and learned Friend the Member for Kettering (Mr. Mitchison) has been so clear and precise that it is not necessary to say much more about the Clause. Any further figures I could give would merely confuse what now is a perfectly clear picture. It is another example of the difficulty which arises in regard to allowances for university undergraduates during their vacation times when, apparently, it is the general practice—in some respects a good practice—to go out and get direct experience and some useful cash by taking a job, which is well paid these days. As a result, the undergraduate, without damage to more important work, may earn slightly over £100 during his vacation. He may think that he is earning under £100 and getting some benefits which he thought were tax-free, but which would turn out to be assessable.
    It may be that through a pure misunderstanding the undergraduate's earnings were assessed at more than £100, and, as a result, quite an additional tax burden would be carried on the parent's shoulders. That can be quite calamitous because, for the sake of 30s. or 40s., the additional burden may be very substantial, especially at a time when the child is at the university. I ought to declare an interest in this matter, having had three children at university at the same time and knowing that it is burdensome to
    1070
    cope with that situation. Having declared that interest, I nevertheless think it right that this matter should be given a sympathetic hearing.
    Mr. Simon: The hon. and learned Member for Kettering (Mr. Mitchison) was quite unduly modest in moving the Second Reading of this new Clause, because, in point of fact, his speech was clarity itself. When I say that, I must not be taken as going on to say that it was cogency itself. The very fact that it was so clear showed all the more clearly the faults in the case he propounded, particularly when, again with great clarity, he described the way the tax worked. On the incidence of the figures concerned, I am sure hon. Members must have felt it was rather like a game of snakes and ladders in which one went up to the total and then came down again.
    When we discussed all these allowances in Committee, we were agreed that the proper way to regard them, as I think was made clear by the Royal Commission, is in playing their part in the system of gradation of tax. They are not supposed to reimburse for any disability. They are, however, designed to take their part in the system of gradation of the tax system, and, therefore, designed to take some account of the taxable capacity of the taxpayer.
    6.15 p.m.
    If one looks at these allowances in that way, one sees that certain results follow. The first is that the child's dependence on the parent for financial support reduces the taxable capacity of the parent on whom the child is dependent. That is the fundamental reason for giving an allowance of this sort. Secondly, I should have thought it would be universally agreed that the child's dependence on its parent for financial support bears upon the amount of his income and not upon its nature. What this new Clause does is to differentiate according to the nature of the income and not according to the total amount.
    Surely there is no good reason why the parent's title to a tax allowance for his child should depend on whether any income the child may have is earned or invested income. It is the total income of the child that matters for this purpose, nor its nature. The hon. and learned

    1071
    Member said his aim was to make the tax progressive, but this Clause would not do so. In the first place, it is not a tax; it is an allowance. Secondly, the Clause is not in any way seeking to tilt the tax balance so that it helps those whose income is smaller. On the contrary, the Clause would draw a quite arbitrary distinction according to whether the income is earned or unearned.
    Mr. Mitchison: I am sorry if I used the wrong word. What I had in mind was the type of progressiveness in the earned income allowance. Perhaps I should have invented an adjective and said "earned income allowance-ish" instead of "progressive".
    Mr. Simon: With great respect, where I thought the hon. and learned Member was at fault, and still is at fault, was in not keeping in mind that this is an allowance to the parent. It is in no sense an allowance to the child, but is a parent's allowance counting against his income. Why should the father of an apprentice earning up to £200 a year get an allowance under this Clause while the father of a school child with an investment income of £101 get no allowance? If one approaches the problem in the way I suggest, looking at the income and allowance to the father and the taxable capacity of the father—
    Mr. Mitchison: That father would get an allowance; he would get the £100 allowance. I think if the hon. and learned Gentleman looks at the Clause he will find that is so.
    Mr. Simon: I think I am right in saying that under the Clause as drawn, if there is an investment income of £101 there would be no allowance at all.
    Mr. Mitchison: One does not want to be discussing the wrong thing. That is not so. The whole question about deducting unearned income arises only in the excess over £100. We cannot get at the £100 by means of this Clause. The £100 is there as part of the income, whatever it is. It is only the excess which is affected by the Clause.
    Mr. Simon: I think I am right in saying that the present limit is £100, whether it is earned or unearned. Therefore, if there is an investment income of £101 there is no allowance. I am comparing that case
    1072
    with the case of a child earning £200. I entirely agree with the hon. and learned Member that we all desire to see the system of apprenticeship extended. We all desire to see the apprentice earning a good wage. We certainly do not want to see an abasement of the wages. Nevertheless, the point I made is a valid one, that this is an allowance. Its purpose in the fiscal system is to take part in the system of gradation and it would fail to do so under this new Clause.
    The second point I venture to make is that there must come a point at which it would be too generous to give both the parent an allowance for the child and to give the child the ordinary single person's allowance against his own income. The question of where one draws the line is a matter for judgment. This new Clause seeks to draw it in a different place from the present law. Nevertheless, we all agree that there must come a point at which a line of that sort must be drawn. The question of where the line shall be drawn cannot be viewed, so to speak, platonically: it must be drawn in relation to other allowances.
    The hon. Member for Sowerby (Mr. Houghton) chided me in Committee because of what he thought I had in mind, the repercussions which may be involved in an allowance. Nevertheless, one must have regard to the effect of this tax and this allowance in relation to other allowances, for the reason that if we increase an allowance, that must be paid by somebody else, and it would be wrong to have it paid by another taxpayer who is worse off. It is in regard to the figure of £180 at which a single person begins to pay tax that I ask the House to look at this new Clause.
    At present, the child allowance is £100 for a child not over 11 years of age; £125 between the ages of 11 and 16, and £150 over 16. That means that a child over 16 can get from tax up to £250. This Clause proposes to increase it virtually by £100. Yet that figure of £250 is already greatly in excess of the figure of £180 at which a single person ordinarily starts to pay tax. Therefore, from the point of view of repercussions as well, I submit that this Clause cannot be accepted.
    The third matter I will put shortly. It is the purely capricious incidence of this Clause so far as concerns the income of

    1073
    the child, according to whether it is investment or earned income. I need not make the point more at large than that. The hon. and learned Gentleman gave the figures perfectly clearly and fairly, but they show how the allowance to the father varies purely in accordance not with the income of the child and therefore the burden of the child, but according to how that income is made up as between earned and unearned income.
    Finally, I would point out that the new Clause would cost about £3½ million in a full year. That is not the ultimate reason, but, obviously, it is a matter which would weigh greatly with my right hon. Friend in deciding whether to accept the new Clause which, for the other reasons I have given, is in my submission not acceptable.
    Mr. Houghton: We regret that the Financial Secretary has rejected this new Clause and has been so uncompromising in his criticism of it. I am glad that the hon. and learned Gentleman did not lay too much stress on the cost, because the Chancellor of the Exchequer has already let dividend strippers get away with more than £3½ million. Had the Chancellor taken what we believe to be reasonable steps to recoup the Revenue, at least the right hon. Gentleman would be in a better financial position to meet the cost of the proposals contained in the Clause.
    On the merits of the matter, the hon. and learned Gentleman will remember that in paragraphs 182 to 184 of its Second Report, the Royal Commission had some criticisms to make of the existing structure of the child allowance, in certain respects, of the gradation of the allowance. Last year, the former Chancellor introduced three steps in the child allowance in place of the one which previously obtained. He increased the income limit of the child from £85 to £100, which is the new point of income of the child at which the parent is disqualified from the allowance.
    The Royal Commission recommended a tapering arrangement, which is quite common in tax reliefs of this kind—a tapering arrangement, or a marginal relief, whatever we like to call it. It is a device which removes the anomaly that £1 over the limit disqualifies for the total allowance, and it moderates the effect
    1074
    of the conditions of the relief where they are just exceeded.
    We have a tapering arrangement in connection with age relief and in the case of the allowance for a dependent relative. Marginal problems are dealt with in both those and in other cases. But that is not so regarding the child allowance, and £1 income over the £100 limit disqualifies the parent completely from the tax relief for that Income Tax year. The Royal Commission recommended that something should be done about it and on at least two occasions, on 29th June, 1954, and 29th May, 1957, we made proposals which followed generally the lines of the Royal Commission's recommendations. But on both occasions the proposed changes were rejected, which really means—or so it seems—that the Government have no intention of adopting the recommendations of the Royal Commission contained in paragraphs 182–4 of the second Report about a tapering arrangement.
    That, I think, is deplorable, because the present allowance is manifestly unfair on many parents. Especially we have brought to the attention of the Committee and of the House in the past the grievance of a parent whose child leaves school in the middle of the financial year and who is getting the allowance because the child was still at school at the beginning of the tax year. He may have received it in his code for July, August, September, October or November in that tax year.
    Then, if the child becomes an apprentice, or starts work and earns more than £100, for the remainder of the Income Tax year the allowance is withdrawn from the parent retrospectively. He has to pay additional tax in the following year, because the Inland Revenue in such cases usually disqualifies the parent from the allowance and makes a compensating adjustment in the P.A.Y.E. code for the following year to save the taxpayer from having to pay a lump sum which may bear hardly upon him.
    The Financial Secretary made great play with the fact that we had distinguished between earned and unearned income. He advanced the principle that the real test is the dependency of the child on the parent. If the child has income, it matters not whether it is

    1075
    earned or unearned, it is money just the same; £1 of the unearned income is equivalent to £1 of earned income. There is no difference between the two when we come to measure the dependency of the child on the parent.
    Time will not permit my taking the House back to the Irishman on the Colwyn Commission of 1919–20 who said that he could see no difference between earned and unearned income when applying the test of ability to pay. If the Income Tax is adjusted on ability to pay, what does it matter, he asked, whether the income is earned or unearned? The taxpayer cannot afford any more because his income is unearned than if it were earned. Yet, traditionally, we have given relief to earned income. I am not making any plea to carry that differential into the case of the child allowance on the same ground as we give earned income relief to taxpayers generally.
    6.30 p.m.
    Let me point out, however, that a child in possession of unearned income is usually in possession of that income all the time, and not only in the year of leaving school and going to work. It is usually a kind grandmother or aunt or some other member of the family other than the father or mother who has made the settlement on the child, or it has inherited a capital sum which produces investment income.
    It is true that under the existing arrangement, and under the new Clause, a child with unearned income of over £100 would disqualify the parent from the allowance. The new Clause makes no alteration there, but I do draw a distinction between a child who is drawing unearned income year by year, of which the parent has the benefit and, subject to its being under £100, the parent is not disqualified from the allowance, and the special position of the child when it begins to earn in the year of leaving school and going to work.
    Many parents in my constituency have told me that that is the most expensive year of the child's life, more expensive than when it went to school, because in that same year they had to change over from the requirements of a school child to the requirements of a young person entering on working life—
    Mr. Simon: I need not point out to the hon. Gentleman that that is noticed now, and recognised by the increase in the allowance which has obtained since last year. As against the former £85, I think that it is now £150.
    Mr. Houghton: Yes, I acknowledge that and, of course, it had not escaped me. I merely comment on it by saying that an increase of only £15, from £85 to £100, is very small recognition of the significant change in a child's life in that year of leaving school and starting work.
    Mr. Simon: I was referring not only to the increase from £85 to £100 in the child's maximum earnings to attract the allowance, but also to the increase in the allowance itself in the year that the child leaves school.
    Mr. Houghton: I agree there, but the allowance that the parent loses in the year in which the child leaves school and starts work is greater than it was before. The hon. and learned Gentleman may say that I have an inverted sense of justice, but it remains the truth that the higher the allowance in the last year of going to school the higher the allowance that has to be lost when the child goes to work. The tax penalty is thereby greater. I am sorry to put it in terms unacceptable to the hon. and learned Gentleman, but that is how parents see it, if I may say so, when the allowance is cut off in the year the child leaves school and goes to work—
    Mr. Chapman: Does it not bear even more heavily in the case of the child's last year at university, when it starts to work in the following October? The expenses of a parent in that last year at the university are even greater than those in the last year at school.
    Mr. Houghton: I accept that, on my reasoning, my hon. Friend has there a greater grievance still. I follow his argument, and fully support it. This problem of the child starting work, at whatever age it begins, undoubtedly puts heavier expense on the parent.
    This new Clause is also designed to cover the case of students and undergraduates who are putting their vacations to gainful employment of one kind or another. We are sorry that the hon. and learned Gentleman has not been more forthcoming. It seems that we

    1077
    are up against a blank wall in trying to pursue a reform recommended by the Royal Commission, and I invite my right hon. and hon. Friends to divide the House.
    Question put, That the Clause be read a Second time:—
    The House divided: Ayes 217, Noes 250.

    Division No. 198.]

    AYES

    [6.35 p.m.

    Ainsley, J. W.

    Hastings, S.

    Palmer, A. M. F.

    Albu, A. H.

    Hayman, F. H.

    Pannell, Charles (Leeds, W.)

    Allaun, Frank (Salford, E.)

    Healey, Denis

    Pargiter, G. A.

    Allen, Arthur (Bosworth)

    Henderson, Rt. Hn. A. (Rwly Regis)

    Parker, J.

    Allen, Scholefield (Crewe)

    Herbison, Miss M.

    Parkin, B. T.

    Bacon, Miss Alice

    Hobson, C. R. (Keighley)

    Paton, John

    Baird, J.

    Holman, P.

    Pearson, A.

    Bence, C. R. (Dunbartonshire, E.)

    Holmes, Horace

    Peart, T. F.

    Benn, Hn. Wedgwood (Bristol, S. E.)

    Holt, A. F.

    Pentland, N.

    Benson, Sir George

    Houghton, Douglas

    Popplewell, E.

    Beswick, Frank

    Howell, Charles (Perry Barr)

    Prentice, R. E.

    Bevan, Rt. Hon. A. (Ebbw Vale)

    Howell, Denis (All Saints)

    Price, J. T. (Westhoughton)

    Blackburn, F.

    Hoy, J. H.

    Probert, A. R.

    Blenkinsop, A.

    Hubbard, T. F.

    Proctor, W. T.

    Blyton, W. R.

    Hughes, Emrys (S. Ayrshire)

    Pursey, Cmdr. H.

    Boardman, H.

    Hughes, Hector (Aberdeen, N.)

    Rankin, John

    Bonham Carter, Mark

    Hunter, A. E.

    Redhead, E. C.

    Bottomley, Rt. Hon. A. G.

    Hynd, J. B. (Attercliffe)

    Reeves, J.

    Bowden, H. W. (Leicester, S. W.)

    Irvine, A. J. (Edge Hill)

    Rhodes, H.

    Boyd, T. C.

    Irving, Sydney (Dartford)

    Roberts, Albert (Normanton)

    Brockway, A. P.

    Jay, Rt. Hon. D. P. T.

    Roberts, Goronwy (Caernarvon)

    Broughton, Dr. A. D. D.

    Jeger, Mrs. Lena (Holbn & St. Pncs, S.)

    Rogers, George (Kensington, N.)

    Brown, Thomas (Ince)

    Jenkins, Roy (Stechford)

    Ross, William

    Burke, W. A.

    Johnson, James (Rugby)

    Royle, C.

    Butler, Herbert (Hackney, C.)

    Jones, Rt. Hon. A. Creech (Wakefield)

    Shinwell, Rt. Hon. E.

    Castle, Mrs. B. A.

    Jones, David (The Hartlepools)

    Shurmer, P. L. E.

    Chapman, W. D.

    Jones, J. Idwal (Wrexham)

    Silverman, Julius (Aston)

    Chetwynd, G. R.

    Kenyon, C.

    Silverman, Sydney (Nelson)

    Clunie, J.

    Key, Rt. Hon. C. W.

    Simmons, C. J. (Brierley Hill)

    Coldrick, W.

    King, Dr. H. M.

    Skeffington, A. M.

    Collick, P. H. (Birkenhead)

    Lawson, G. M.

    Slater, Mrs. H. (Stoke, N.)

    Collins, V. J. (shoreditch & Finsbury)

    Ledger, R. J.

    Slater, J. (Sedgefield)

    Craddock, George (Bradford, S.)

    Lee, Frederick (Newton)

    Smith, Ellis (Stoke, S.)

    Cronin, J. D.

    Lee, Miss Jennie (Cannock)

    Snow, J. W.

    Cullen, Mrs. A.

    Lever, Harold (Cheetham)

    Sorensen, R. W.

    Dalton, Rt. Hon. H.

    Lever, Leslie (Ardwick)

    Soskice, Rt. Hon. Sir Frank

    Davies, Ernest (Enfield, E.)

    Lindgren, G. S.

    Spriggs, Leslie

    Davies, Stephen (Merthyr)

    Lipton, Marcus

    Steele, T.

    de Freitas, Geoffrey

    Logan, D. G.

    Stonehouse, John

    Delargy, H. J.

    Mabon, Dr. J. Dickson

    Stones, W. (Consett)

    Diamond, John

    McAlister, Mrs. Mary

    Stross, Dr. Barnett (Stoke-on-Trent, C.)

    Dodds, N. N.

    McCann, J.

    Summerskill, Rt. Hon. E.

    Donnelly, D. L.

    MacColl, J. E.

    Sylvester, G. O.

    Dugdale, Rt. Hn. John (W. Brmwch)

    MacDermot, Niall

    Taylor, Bernard (Mansfield)

    Dye, S.

    McInnes, J.

    Taylor, John (West Lothian)

    Ede, Rt. Hon. J. C.

    McKay, John (Wallsend)

    Thomas, Iorwerth (Rhondda, W.)

    Edwards, Rt. Hon. John (Brighouse)

    McLeavy, Frank

    Thornton, E.

    Edwards, Rt. Hon. Ness (Caerphilly)

    MacPherson, Malcolm (Stirling)

    Tomney, F.

    Edwards, Robert (Bilston)

    Mahon, Simon

    Ungoed-Thomas, Sir Lynn

    Edwards, W. J. (Stepney)

    Mallalieu, E. L. (Brigg)

    Usborne, H. C.

    Evans, Albert (Islington, S. W.)

    Mallalieu, J. P. W. (Huddersfd. E.)

    Viant, S. P.

    Fernyhough, E.

    Mann, Mrs. Jean

    Wade, D. W.

    Finch, H. J.

    Marquand, Rt. Hon. H. A.

    Warbey, W. N.

    Fitch, Alan

    Mason, Roy

    Weitzman, D.

    Fletcher, Eric

    Mayhew, C. P.

    Wells, Percy (Faversham)

    Fraser, Thomas (Hamilton)

    Mellish, R. J.

    Wells, William (Walsall, N.)

    Gaitskell, Rt. Hon. H. T. N.

    Messer, Sir F.

    Wheeldon, W. E.

    George, Lady Megan Lloyd (Car'then)

    Mitchison, G. R.

    White, Mrs. Eirene (E. Flint)

    Gibson, C. W.

    Monslow, W.

    Wilcock, Group Capt. C. A. B.

    Gooch, E. G.

    Morris, Percy (Swansea, W.)

    Wilkins, W. A.

    Gordon Walker, Rt. Hon. P. C.

    Morrison, Rt. Hn. Herbert (Lewis'm, S.)

    Willey, Frederick

    Greenwood, Anthony

    Mort, D. L.

    Williams, David (Neath)

    Grenfell, Rt. Hon. D. R.

    Moss, R.

    Williams, Rev. Llywelyn (A'b'tillery)

    Grey, C. F.

    Moyle, A.

    Williams, W. R. (Openshaw)

    Griffiths, David (Rother Valley)

    Mulley, F. W.

    Williams, W. T. (Barons Court)

    Griffiths, Rt Hon. James (Llanelly)

    Neal, Harold (Bolsover)

    Willis, Eustace (Edinburgh, E.)

    Griffiths, William (Exchange)

    Noel-Baker, Francis (Swindon)

    Wilson, Rt. Hon. Harold (Huyton)

    Grimond, J.

    Oliver, G. H.

    Winterbottom, Richard

    Hale, Leslie

    Orbach, M.

    Woodburn, Rt. Hon. A.

    Hall, Rt. Hn. Glenvil (Colne Valley)

    Oswald, T.

    Woof, R. E.

    Hamilton, W. W.

    Owen, W. J.

    Yates, V. (Ladywood)

    Hannan, W.

    Padley, W. E.

    Harrison, J. (Nottingham, N.)

    Paget, R. T.

    TELLERS FOR THE AYES

    Mr. Short and Mr. Deer.

    NOES

    Agnew, Sir Peter

    Graham, Sir Fergus

    Markham, Major Sir Frank

    Aitken, W. T.

    Grant, Rt. Hon. W. (Woodside)

    Marlowe, A. A. H.

    Allan, R. A. (Paddington, S.)

    Grant-Ferris, Wg. Cdr. R. (Nantwich)

    Marples, Rt. Hon. A. E.

    Alport, C. J. M.

    Green, A.

    Marshall, Douglas

    Amery, Julian (Preston, N.)

    Gresham Cooke, R.

    Mathew, R.

    Amory, Rt. Hn. Heathcoat (Tiverton)

    Grimston, Hon. John (St. Albans)

    Maudling, Rt. Hon. R.

    Anstruther-Gray, Major Sir William

    Grimston, Sir Robert (Westbury)

    Mawby, R. L.

    Arbuthnot, John

    Grosvenor, Lt.-Col. R. G.

    Maydon, Lt.-Comdr. S. L. C.

    Armstrong, C. W.

    Gurden, Harold

    Milligan, Rt. Hon. W. R.

    Ashton, H.

    Hall, John (Wycombe)

    Morrison, John (Salisbury)

    Atkins, H. E.

    Harris, Frederic (Croydon, N. W.)

    Mott-Radclyffe, Sir Charles

    Baldock, Lt.-Cmdr, J. M.

    Harris, Reader (Heston)

    Nabarro, G. D. N.

    Baldwin, Sir Archer

    Harrison, A. B. C. (Maldon)

    Nairn, D. L. S.

    Balniel, Lord

    Harrison, Col. J. H. (Eye)

    Neave, Airey

    Barber, Anthony

    Harvey, John (Walthamstow, E.)

    Nicholson, Sir Godfrey (Farnham)

    Barlow, Sir John

    Heald, Rt. Hon. Sir Lionel

    Nicolson, N. (B'n'm'th, E. & Chr'ch)

    Barter, John

    Heath, Rt. Hon. E. R. G.

    Noble, Comdr. Rt. Hon. Allan

    Batsford, Brian

    Hesketh, R. F.

    Noble, Michael (Argyil)

    Baxter, Sir Beverley

    Hicks-Beach, Maj. W. W.

    Oakshott, H. D.

    Beamish, Col. Tufton

    Hill, Rt. Hon. Charles (Luton)

    O'Neill, Hn. Phelim (Co. Antrim, N.)

    Bell, Philip (Bolton, E.)

    Hill, Mrs. E. (Wythenshawe)

    Ormsby-Gore, Rt. Hon. W. D.

    Bell, Ronald (Bucks, S.)

    Hill, John (S. Norfolk)

    Orr, Capt. L. P. S.

    Hinchingbrooke, Viscount

    Orr-Ewing, Charles Ian (Hendon, N)

    Bennett, F. M. (Torquay)

    Hobson, John (Warwick & Leam'gt'n)

    Page, R. G.

    Bennett, Dr. Reginald

    Hope, Lord John

    Pannell, N. A. (Kirkdale)

    Bevins, J. R. (Toxteth)

    Hornby, R. P.

    Partridge, E.

    Bidgood, J. C.

    Hornsby-Smith, Miss M. P.

    Peel, W. J.

    Biggs-Davison, J. A.

    Horobin, Sir Ian

    Peyton, J. W. W.

    Birch, Rt. Hon. Nigel

    Horsbrugh, Rt. Hon. Dame Florence

    Pickthorn, K. W. M.

    Bishop, F. P.

    Howard, Gerald (Cambridgeshire)

    Pike, Miss Mervyn

    Black, C. W.

    Howard, Hon. Greville (St. Ives)

    Pilkington, Capt. R. A.

    Body, R. F.

    Howard, John (Test)

    Pitt, Miss E. M.

    Bossom, Sir Alfred

    Hudson, W. R. A. (Hull, N.)

    Powell, J. Enoch

    Boyd-Carpenter, Rt. Hon. J. A.

    Hughes Hallett, Vice-Admiral J.

    Price, David (Eastleigh)

    Braine, B. R.

    Hughes-Young, M. H. C.

    Price, Henry (Lewisham, W.)

    Bromley-Davenport, Lt.-Col. W. H.

    Hulbert, Sir Norman

    Prior-Palmer, Brig. O. L.

    Brooman-White, R. C.

    Hurd, A. R.

    Ramsden, J. E.

    Browne, J. Nixon (Craigton)

    Hutchison, Michael Clark (E'b'gh. S.)

    Rawlinson, Peter

    Bullus, Wing Commander E. E.

    Hyde, Montgomery

    Redmayne, M.

    Burden, F. F. A.

    Hylton-Foster, Rt. Hon. Sir Harry

    Rees-Davies, W. R.

    Butler, Rt. Hn. R. A. (Saffron Waiden)

    Irvine, Bryant Godman (Rye)

    Renton, D. L. M.

    Carr, Robert

    Jenkins, Robert (Dulwich)

    Ridsdale, J. E.

    Chichester-Clark, R.

    Jennings, J. C. (Burton)

    Roberts, Sir Peter (Heeley)

    Cole, Norman

    Johnson, Dr. Donald (Carlisle)

    Robertson, Sir David

    Conant, Maj. Sir Roger

    Johnson, Eric (Blackley)

    Rodgers, John (Sevenoaks)

    Cooper-Key, E. M.

    Jones, Rt. Hon. Aubrey (Hall Green)

    Roper, Sir Harold

    Cordeaux, Lt.-Col. J. K.

    Joseph, Sir Keith

    Ropner, Col. Sir Leonard

    Corfield, Capt. F. V.

    Kaberry, D.

    Russell, R. S.

    Craddock, Beresford (Spelthorne)

    Keegan, D.

    Sharples, R. C.

    Crowder, Sir John (Finchley)

    Kerby, Capt. H. B.

    Shepherd, William

    Crowder, Petre (Ruislip—Northwood)

    Kerr, Sir Hamilton

    Simon, J. E. S. (Middlesbrough, W.)

    Cunningham, Knox

    Kershaw, J. A.

    Smyth, Brig. Sir John (Norwood)

    Currie, G. B. H.

    Kimball, M.

    Spearman, Sir Alexander

    Dance, J. C. G.

    Kirk, P. M.

    Speir, R. M.

    D'Avigdor-Goldsmid, Sir Henry

    Lagden, G. W.

    Stanley, Capt. Hon. Richard

    Deedes, W. F.

    Lambton, Viscount

    Stevens, Geoffrey

    Digby, Simon Wingfield

    Langford-Holt, J. A.

    Steward Harold (Stockport, S.)

    Donaldson, Cmdr. C. E. McA.

    Leather, E. H. C.

    Steward, Sir William (Woolwich, W.)

    Doughty, C. J. A.

    Leavey, J. A.

    Storey, S.

    Drayson, G. B.

    Legge-Bourke, Maj. E. A. H.

    Studholme, Sir Henry

    du Cann, E. D. L.

    Legh, Hon. Peter (Petersfield)

    Summers, Sir Spencer

    Dugdale, Rt. Hn. Sir T. (Richmond)

    Lindsay, Hon. James (Devon, N.)

    Sumner, W. D. M. (Orpington)

    Duncan, Sir James

    Linstead, Sir H. N.

    Taylor, William (Bradford, N.)

    Eden, J. B. (Bournemouth, West)

    Lloyd, Maj. Sir Guy (Renfrew, E.)

    Teeling, W.

    Elliott, R. W. (Ne'castle upon Tyne, N.)

    Longden, Gilbert

    Temple, John M.

    Emmet, Hon. Mrs. Evelyn

    Low, Rt. Hon. Sir Toby

    Thomas, Leslie (Canterbury)

    Errington, Sir Eric

    Lucas, Sir Jocelyn (Portsmouth, S.)

    Thomas, P. J. M. (Conway)

    Farey-Jones, F. W.

    Lucas, P. B. (Brentford & Chiswick)

    Thompson, Kenneth (Walton)

    Fell, A.

    Lucas-Tooth, Sir Hugh

    Thorneycroft, Rt. Hon. P.

    Finlay, Graeme

    McAdden, S. J.

    Thornton-Kemsley, Sir Colin

    Fisher, Nigel

    Macdonald, Sir Peter

    Tiley, A. (Bradford, W.)

    Fletcher-Cooke, C.

    Mackeson, Brig. Sir Harry

    Tilney, John (Wavertrea)

    Fort, R.

    Mackie, J. H. (Galloway)

    Turton, Rt. Hon. R. H.

    Fraser, Hon. Hugh (Stone)

    Fraser, Sir Ian (M'cmbe & Lonsdale)

    McLaughlin, Mrs. P.

    Tweedsmuir, Lady

    Galbraith, Hon. T. G. D.

    Maclean, Sir Fitzroy (Lancaster)

    Vaughan-Morgan, J. K.

    Gammans, Lady

    MacLeod, John (Ross & Cromarty)

    Vickers, Miss Joan

    Garner-Evans, E. H.

    Macmillan, Rt. Hn. Harold (Bromley)

    Vosper, Rt. Hon. D. F.

    George, J. C. (Pollok)

    Maddan, Martin

    Wakefield, Edward (Derbyshire, W.)

    Glover, D.

    Maitland, Cdr. J. F. W. (Horncastle)

    Wall, Patrick

    Godber, J. B.

    Maitland, Hon. Patrick (Lanark)

    Ward, Dame Irene (Tynemouth)

    Gower, H. R.

    Manningham-Buller, Rt. Hon. Sir R.

    Webster, David

    1080

    1081

    Whitelaw, W. S. I.

    Wills, Sir Gerald (Bridgwater)

    Woollam, John Victor

    Williams, Paul (Sunderland, S.)

    Wilson, Geoffrey (Truro)

    Williams, R. Dudley (Exeter)

    Wood, Hon. R.

    TELLERS FOR THE NOES:

    Mr. Bryan and Mr. Gibson-Watt.

    New Clause.—(PERMISSION FOR AN OVERSEAS TRADE CORPORATION TO HAVE A NON-RESIDENT SUBSIDIARY.)
    Section twenty-three of the Finance Act, 1957, shall be amended by the omission of the word "and" at the end of sub-paragraph (ii) of paragraph (a) of subsection (1), and the Insertion of "or
    (iii) it is a principal company not itself carrying on a trade but having a subsidiary company which is not resident and is not carrying on a trade in the United Kingdom but is carrying on a trade outside the United Kingdom, and which would itself qualify as an Overseas Trade Corporation if it were so resident, and section thirty-five of the said Act shall be amended by the addition at the end thereof of—
    '(4) Where the Overseas Trade Corporation receives from another company such as is referred to in section twenty-three, subsection (1), paragraph (a) (iii), being a non-resident subsidiary company a dividend on shares in that company or a grant or loan from that company and

    (a) the non-resident company is a subsidiary of the Overseas Trade Corporation, or

    (b) both the non-resident company and the Overseas Trade Corporation are subsidiary companies of the same principal company which is also an Overseas Trade Corporation

    the dividend, grant or loan shall constitute trading income of the recipient'"—[Sir T. Low.]
    Brought up, and read the First time.
    Sir Toby Low: I beg to move, That the Clause be read a Second time.
    Mr. Speaker: I think that it is possible to discuss this new Clause and the proposed new Clause in the name of the hon. Member for Langstone (Mr. Stevens), which seems to be a related one—"Loss of status by an Overseas Trade Corporation being a principal company"—together.
    Sir T. Low: I think, Mr. Speaker, that it would be convenient to discuss these two Clauses together.
    The object of this Clause is to help our overseas trade, as indeed was the object of the introduction in last year's Finance Act of the overseas trade corporation. As the Finance Act, 1957, stands at present, an overseas trade corporation may be a holding company, but it may only have overseas trade corporations as
    1082
    subsidiaries, that is to say, the subsidiaries must be British registered companies. This restriction which prevents companies registered abroad from being subsidiaries of an overseas trade corporation greatly reduces, in my view and in the view of my hon. Friends, the usefulness of the whole idea.
    This matter was, of course, discussed in Committee on last year's Finance Bill, and in particular on 26th June, 1957, when an Amendment was moved by my right hon. and learned Friend the Member for Kensington, South (Sir P. Spens). As we want to cut the proceedings short as much as possible, I will simply say that everything which my right hon. and learned Friend said on that occasion I should like to say again, but that I shall not say it. I want, however, to say in as few words as I can why I think that this year my right hon. Friend should accept this new Clause whereas last year his right hon. Friend found himself unable to do so. As I am trying to be brief, I hope that he will forgive me if I am a little more blunt than usual and not as courteous as I like to be.
    The fact is that a great deal of our overseas trade is carried on by holding companies registered and resident here working through companies resident and registered overseas. It is also a fact that a great deal of our trade is carried on through branches overseas and not through resident companies overseas. At the moment, a company registered here that works solely through branches overseas can get the O.T.C. relief. A company registered here that works even through one foreign subsidiary registered overseas cannot get that relief. That seems to me to be quite anomalous. It upsets the usefulness of this most important relief. Moreover, it seems anomalous at a time when we know that many companies prefer our traders to operate through companies which are resident and registered in their territory.
    We do not have to look very far at world news to see how nationalism everywhere is rife and to realise that if one is to trade successfully in many foreign countries it is necessary to accord to the local views and work through local registered companies. Not only is it necessary to do that for that reason, but it has

    1083
    been found convenient for other general trading reasons.
    What happens at the moment with holding companies here which work through subsidiaries is that they are unable to make use of the funds in the hands of those subsidiaries for their general trading operations in the world at large. If a company is working through branches and wishes to move money from Africa to India it can do so without attracting tax in this country. If a similar company, in the same line of trade, is working through subsidiaries in Africa and India and wishes, for instance, to transfer surplus funds in India to Africa, for the benefit of its trade and British trade generally, it will find that it can do so only by remitting money from the Indian subsidiary back home which then attracts tax here in the hands of the holding company. In that way, it is penalised compared with the company working through branches. The hon. Member for Birmingham, Northfield (Mr. Chapman) seems to be nodding his head. I understand that to be the position, and he will be able to tell the House if I am wrong.
    Not only is this situation anomalous, but it seems quite contrary to the recommendation of the Royal Commission. Again, if we had more time, I would read to my right hon. Friend the Chancellor what the Royal Commission had to say about it. If I may, however, I will just remind him of what the Commission said in paragraph 641 (2) at page 191 of its Report. The Commission makes it absolutely clear that
    "any comprehensive policy of exempting the profits of overseas trade could not well distinguish the dividends which a parent company draws from its subsidiary from the profits of the subsidiary itself. Each remains at that stage the trader's overseas profits."
    It was trading profits overseas that the overseas trade corporation relief was designed to assist.
    The new Clause seeks to remedy the defect in two ways. First, permission has to be given to an O.T.C. holding company to have a foreign registered subsidiary. Secondly, the income received by the holding company from that subsidiary has to be treated as a trading income. The new Clause, I think, satisfactorily accomplishes both those objects. I commend it to the House and I very
    1084
    much hope that my right hon. Friend the Chancellor will tell us something to indicate that, after the year which has elapsed between when the matter was first discussed and now, he is prepared to take this important step to help overseas traders.
    It seems to me that the importance of helping our overseas trade at this time is paramount. It may well be that hon. Gentlemen and officials of the Revenue have all sorts of fears in their minds about how this and that kind of tax evasion might arise. But we are not concerned here with helping foreign subsidiaries. That is not what the new Clause does. It helps British resident companies which are deliberately trading through foreign subsidiaries as a matter of policy, which all of us in the House know to be a wise policy.
    I noticed in the debates last year and I have noticed in comments and discussions which have taken place since, that the Government are apt to think of this suggestion as a privilege for foreign resident subsidiaries. That is not the object. I say again that the object is to help British resident companies which are trading overseas and which choose to trade overseas through subsidiaries rather than through branches.
    Mr. Bernard Braine: My right hon. Friend the Member for Blackpool, North (Sir T. Low) rightly said that the situation arising from the concession made in the Finance Act last year is anomalous. I would go further and use much stronger language. The present practice makes a discrimination which is both unfortunate and shortsighted.
    A subsidiary company incorporated overseas would be regarded by the Inland Revenue as being resident in the United Kingdom; that is to say, it would be eligible for O.T.C. status, if it held its board meetings in this country. But, of course, if it did so, that would defeat the whole object of organising the parent company's business through a subsidiary overseas. In some cases, as my right hon. Friend so clearly said, it could even be injurious to the best interests of British traders overseas. Certainly, the present situation was never intended by the Royal Commission.
    If I may say so, it is ridiculous that the activities of a company which organises

    1085
    its business overseas through branches should be regarded as patriotic and worthy of tax relief in accordance with what the Royal Commission recommended and what the House saw fit to provide last year, while a company which organises its activities through the medium of subsidiaries is regarded with suspicion and does not enjoy the tax concession. In effect, the Treasury says that this is not a form of trading organisation which should be encouraged.
    This is a discrimination between the old-fashioned type of British company which has long organised its trading activities overseas through the medium of branches, because it has found that this is a convenient way of conducting its affairs—it likes so to operate and, no doubt, will continue to do so quite happily—and the modern kind of company which, in accordance with the twentieth century conception of business organisation, operates through subsidiaries because this is the best way of doing business and is also prudent politically particularly now that the tide of nationalism is running so fiercely.
    As I said during the Third Reading debate last year, the present practice discriminates in favour of absentee pro-proprietors and against that kind of business organisation which brings local nationals and sometimes local capital into partnership with British enterprise. I do not wish to delay the House, but I will give two reasons why a modern, progressive, forward-looking British business, particularly in the Colonial Territories overseas, sees fit to organise itself through the medium of subsidiaries.
    First, it ensures more effective local supervision in that way. Most of the big companies today operating overseas are training local nationals for management. The House approves this practice. It is in line with our policy of encouraging and training dependent peoples to stand on their own feet and to manage their own affairs. Too little credit is given to British companies for the contribution they are making in this modest way towards helping the underdeveloped territories to stand on their own feet. Secondly, this way of conducting business pays very much more regard to the feelings and sensibilities, the pride and interests of the people in those territories.
    In one way or another, we talk a great deal in the House, almost every week,
    1086
    about the importance of Commonwealth co-operation. Yet this modern form of business organisation which is penalised under our present tax practice provides a practical example of how British enterprise has been adjusting itself, quite voluntarily, to modern conditions, permitting a fruitful partnership with people overseas. The law as it stands, on the other hand, encourages the kind of business organisation which does not, in many cases, make for maximum efficiency and may constitute a target for nationalistic campaigns against foreign enterprises in the future.
    There is a further argument, which I hope will weigh with my right hon. Friend. The level of taxation in most under-developed countries is tending to rise. Though I may be wrong, my own observations lead me to conclude that, as the level of export earnings has tended to fall off during the last year and underdeveloped countries have found increasing difficulty in financing their development programmes, the tendency has been for taxation to rise.
    I believe that the trend will continue. If overseas tax rises, the amount of United Kingdom tax collected on remittances home will fall. Thus, the cost of extending the exemption provisions beyond what was provided for last year will obviously be very much less than my right hon. Friend the Prime Minister calculated in 1956, when he was Chancellor, and what my right hon. Friend the Member for Monmouth (Mr. P. Thorneycroft) estimated last year when he rejected my blandishments on the subject. I would also argue that at a time when the terms of trade are still running very much in our favour here and, as a consequence, we are accumulating a good balance, we should take positive steps to encourage trade and investment, particularly in the Commonwealth.
    By supporting this proposed new Clause we would be moving in that direction. I have the greatest pleasure in supporting my right hon. Friend and I hope that my right hon. Friend the Chancellor is prepared to give us a kindly and generous answer.
    7.0 p.m.
    Mr. Chapman: I am glad that this debate is to be brief, because it will enable us to keep it on the very narrow issue with which the Clause really deals.

    1087
    The trouble with the debate of 26th June last year was that it was confused by going wide of the real point at issue. When the Chancellor replied to that debate, he had to point out to his hon. Friends that the point at issue was extraordinarily narrow.
    Sir T. Low indicated assent.
    Mr. Chapman: I am glad to see that the right hon. Member for Blackpool, North (Sir T. Low) agrees with me. The point is that these overseas resident companies are already free of British tax on their trading profit and on their investment income. They are outside the British tax net. Nothing that we did in last year's Finance Bill—and the Chancellor repeated this—in any way prejudiced them.
    The point now at issue is very simple. I think the right hon. Gentleman dealt with it when he moved the Amendment. It is whether a holding company should be allowed to receive profits from overseas resident registered companies here in this country and then transfer them abroad to some other company or subsidiary for use elsewhere without attracting British Income Tax. That is the only point at issue. I hope I can prove to the right hon. Member for Blackpool, North that this point is not worth pursuing. The right hon. Member did not appreciate the main problem when he moved the Clause. As the Chancellor himself pointed out last year, there is already no bar on a holding company in this country transferring any profit between overseas resident companies and subsidiaries without ever coming through this country and attracting tax.
    Sir T. Low: I should like to put the hon. Gentleman right on this point. What he says may be so, but there may be a definite bar on the overseas resident company transferring its funds in any other way than by way of dividend. If the hon. Member would be so kind as to read the exchange control rules of, say, India, he will find that that or something similar applies. If one is to get money out of an Indian resident company, the only way is by way of dividend.
    Mr. Chapman: I am obliged to the right hon. Gentleman. What he is saying is that my argument in that sense is
    1088
    limited and that it will not apply in certain cases. But it remains broadly true, as the Chancellor said last year. He said in column 289:
    "Moreover, so far as the United Kingdom is concerned, if they wish to do so they can switch profits from one company to another overseas. We in the Treasury have no control over that. They can switch from one country overseas to another country overseas, and to the best of my knowledge many of them do so."—[OFFICIAL REPORT, 26th June, 1957: Vol. 572, c. 289.]
    Judging from that, the argument is not so sweeping as it first appeared. It can often be the case that there is no need for these profits to come through a resident holding company in this country, and they can be switched about abroad from one company to another under the jurisdiction of the holding company in this country. We have narrowed the point to the simple one of transfer through a company in this country, back home and out again, and have now discovered it will not apply in many cases.
    In such examples as India, what is the final disadvantage about trying to meet this point? As we said time and time again last year, the disadvantage is that it would be impossible to check whether the Income Tax law was being followed.
    Sir T. Low indicated dissent.
    Mr. Chapman: The right hon. Gentleman shakes his head, but he must read what the Chancellor said; and the right hon. Gentleman was only repeating what was said in the course of the debate last year.
    Mr. Leather: The Chancellor misunderstood it.
    Mr. Chapman: I do not think he misunderstood it. The hon. Member for Somerset, North (Mr. Leather) was the one person in the whole of last year's debate who was so irrelevant that when the Chancellor came to reply he had to pick him out and tell him so. The hon. Gentleman spent the whole of his speech talking about the pioneer industry problem, and all the Chancellor could say in reply was this:
    "The pioneer industry question and the frustration of pioneer relief is quite irrelevant to this question."—[OFFICIAL REPORT, 26th June, 1957; Vol. 572, c. 291.]
    The Chancellor spent a paragraph telling the hon. Member that he was wasting the time of the Committee.
    Mr. Leather: It is not true.
    Mr. Chapman: It is quite true. The hon. Member was singled out to be told that his argument was irrelevant.
    Let me get back to what I was saying.
    Mr. Braine: I want to get this point quite clear. Most of the leading tax authorities who have written on this subject since last year have upheld the validity of the arguments that I used in that debate.
    Mr. Chapman: I am not attacking the hon. Member for Essex, South-East. We can have another discussion about his point outside.
    Let me come back to what I was saying before I talked about the hon. Member for Somerset, North. The point is whether we could check whether overseas registered subsidiaries were acting in accordance with the remainder of the provisions of Part IV of last year's Act. Of course, we could not, because the Chancellor then said that they would be entirely outside the jurisdiction of the Treasury and Board of Inland Revenue. The right hon. Member for Blackpool, North can see the difficulty in lines 6 and 7 of his own proposed new Clause. The proposed new Clause in lines 6 and 7 contains these words:
    "…which would itself qualify as an Overseas Trade Corporation if it were so resident."
    To qualify as an overseas trade corporation the company has to fulfil very tightly drawn requirements in last year's Act. It must not do certain things. It cannot carry on any United Kingdom activities amounting to the exercise of a trade. All the goods which it takes abroad from this country must be free on board and there must be trading at arm's length. All this is to be carefully investigated by the Board of Inland Revenue. Certain activities are totally proscribed and cannot be included as part of the company's activity.
    The right hon. Member for Blackpool, North is really saying that the Inland Revenue would be able to check whether these objectives and requirements were being carried out by a company which was not even registered here and the directors of which could never be summoned by the Board of Inland Revenue to prove whether the requirements are being carried out. If I put the matter in
    1090
    that way, I think the right hon. Gentleman will see the difficulty. The right hon. Member is smiling, but I am only repeating what his right hon. Friend told him last year. He failed to understand it even then.
    Let me quote what the right hon. Member for Monmouth (Mr. P. Thorneycroft) said last year. Perhaps the hon. Member for Somerset, North will laugh at this. The right hon. Member said:
    "We would have had to ensure that these companies, non-resident and outside our jurisdiction, did not do anything which would have rendered them outside the category of an overseas trade corporation, if, in fact, on other grounds, they were able to be an overseas trading corporation. There would have to be a special arrangement to ensure that they did not, for example, carry on any trade in the United Kingdom or did any of the other things, like buying goods before they were free on board, and that when the money was distributed it did not find its way into the hands of the directors or back into the United Kingdom…"—[OFFICIAL REPORT, 26th June, 1957; Vol. 572. c. 290–1.]
    The right hon. Gentleman went on to say that all this was totally impossible to check when these companies were not registered in this country, when they are resident overseas and outside the jurisdiction of the Treasury and the Board of Inland Revenue.
    Mr. Braine: They are never outside it.
    Mr. Chapman: I hear the hon. Member saying that they are never outside it. The fact that a holding company in this country exists does not mean that those intricate and intimate details of the overseas resident company can ever be checked upon substantially and successfully by the Board of Inland Revenue. That is the most important point.
    Mr. Braine: Is the hon. Member aware that under the Companies Acts companies are required to put forward their accounts in standard form? The Treasury possesses wide powers under the existing law, which makes complete nonsense of the hon. Member's argument.
    Mr. Chapman: The hon. Member is mistaken. Those powers do not extend to the checking of these matters in companies registered overseas.
    Mr. Braine: They do not have to.
    Mr. Chapman: Of course not, but in this case they would have to be if they

    1091
    were to qualify as an overseas trade corporation. That is the substantial point.
    Hon. Members opposite did not learn from the answer from their own Chancellor of the Exchequer last year, and it is, I suppose, almost impossible to hope that they will learn from it this year. The substantial point is that they are asking for concessions to companies whose qualifications and conformity to the law cannot be checked upon. In these circumstances, I hope that the Chancellor of the Exchequer will stand firm.
    This matter has been canvassed in a very slipshod article in The Times of 30th June, which ended with some sort of loose phraseology which implied that these companies were at a grave disadvantage from the present law and that all that mattered was that the holding company would still be able to control. That is not all that matters. What matters is that the resident company overseas shall conform to British law. We really cannot check upon that. For these reasons, I hope that the Chancellor of the Exchequer will resist the new Clause.
    Mr. Leather: I support the new Clause. The hon. Member for Birmingham, Northfield (Mr. Chapman) said quite clearly that, in his view, the problem of pioneer industry relief was irrelevant to what we were discussing.
    Mr. Chapman: I said, in the Chancellor's view.
    Mr. Leather: All right. I have already said, and so have many others, that we do not accept that the Chancellor last year ever understood the point. [Laughter.] There is nothing new about that. I said it last year and I still believe it to be true. Indeed, I go further and say to my right hon. Friend the present Chancellor that, with the respect for his honesty and integrity which I have for him, I cannot believe that he understands it either in relation to certain statements made by the Prime Minister when Chancellor of the Exchequer.
    Far from the pioneer industry relief question being irrelevant, that is precisely the point where many of us approached the subject in the first place. If the right hon. Member for Smethwick (Mr. Gordon Walker) is now opposing those of us who are concerned with
    1092
    Commonwealth trade and interests, he has completely reversed his position, because he supported us strongly two years ago.
    Mr. Gordon Walker: On something different.
    Mr. Leather: No. It was on the question of pioneer industry reliefs, which is the main point with which we are concerned, and the nearest to which the hon. Member for Northfield can get is that he regards it as irrelevant.
    7.15 p.m.
    Much of the agitation in this House amongst those of us who are Commonwealth enthusiasts originated on the very point of pioneer industry reliefs. Hon. Members on all sides know perfectly well that in going around the Commonwealth in the last ten years, nothing has caused them more indignation than to see time and time again in Colonial Territories, German, French, Italian and American companies placed at a positive advantage over British companies because of the action of the British Treasury. That is precisely the point on which we started. To say that it is irrelevant is quite ridiculous.
    My hon. Friends have made the case on the facts. What shocks me is that my right hon. Friend the Chancellor of the Exchequer does not consider himself bound by a pledge on this issue. Let me, therefore, quote from HANSARD of 19th June, 1956, part of a speech made by my right hon. Friend the Prime Minister when Chancellor of the Exchequer. On that day I moved a Clause to grant tax relief specifically for pioneer industries. In every country throughout the world it is a condition that to qualify for pioneer industry tax relief a subsidiary must be established in that country. Merely a branch of a British company directed in London does not qualify. Therefore, it is a condition of what we are talking about that it must be an overseas subsidiary. We drove home that point as hard as we could to the Chancellor of that time.
    First, my right hon. Friend told us that he felt that he could not meet us on that occasion. Then, he went on to say:
    "I realised that my decision to defer action on the Commission's broader recommendations would lead to pressure, very determined and sincere pressure, for the early implementation of the recommendations on pioneer industry reliefs, and I realised, too, that there was special

    1093
    force in this argument in relation to the Commonwealth and colonial countries. The first Clause"—
    that is, the Clause concerning this point which I moved on that occasion—
    "is limited to these territories and therefore has a special claim for the reasons which have been very well expressed by my hon. Friends. I think that, in passing, I ought to say that much as I recognise these special claims…I do not think that we ought to exclude the consideration of other countries…although, of course, we have a natural sense of priority towards our own traditional responsibilities."
    In the final paragraph, my right hon. Friend said:
    "This is as far as I can go, but I will add this. If it next year's Budget"—
    that is, the Budget introduced by my right hon. Friend the Member for Monmouth (Mr. P. Thorneycroft)—
    "the Government should be able to introduce reliefs for overseas trade corporations generally, then, of course, the bigger question would settle the smaller one. If, however, circumstances are such, either from the Budgetary or the balance of payments point of view, that I cannot go the whole way…if I cannot go the whole way and deal with the wider questions…I will give this assurance; I will bring forward legislation next year to deal with the matter of the frustration of pioneer industry reliefs, and I will make it apply to profits earned after 6th April, 1956."—[OFFICIAL REPORT, 19th June, 1956; Vol. 554, c. 1265–6.]
    Mr. Diamond: Retrospective?
    Mr. Leather: Retrospective. If that is not a firm and unqualified pledge to deal with pioneer industry reliefs, this House must be hard of hearing.
    Mr. Diamond: Does not the hon. Gentleman appreciate that the precedent has already been set and that the Chancellor of the Exchequer does not accept any such assurance where it deals with retrospective legislation?
    Mr. Leather: The question of retrospective legislation is quite irrelevant. It is as irrelevant as the understanding of the whole issue by some hon. Members opposite. Surely that statement cannot possibly be read in any other way than as a firm pledge to deal, in the Prime Minister's own words, with the
    "frustation of pioneeer industry reliefs."
    That pledge was given on 19th June, 1956. It is now July, 1958, and the Treasury have ratted on that pledge. There can be no other word to describe it. We were given a firm pledge that pioneer
    1094
    industry reliefs would be dealt with. The Government have quite deliberately not done so to this day, and they are still resisting. Surely if the Prime Minister's words which he uttered when he stood at the Box in 1956 mean anything, the Chancellor must give us some assurance that that pledge is to be honoured.
    Mr. Gordon Walker: The hon. Member for Somerset, North (Mr. Leather) is very cocksure of being right. He is trying to persuade the House that he and a few of his hon. Friends are the only people who understand what we are talking about. He has signally failed to convince us of this intrinsically improbable supposition.
    The hon. Gentleman argued a great deal about the benefit to the Commonwealth, but this proposed new Clause is not limited to the Commonwealth at all. It would bring just as much benefit to anybody else. Last year's Chancellor carried out the pledge given by the Prime Minister when he was Chancellor. Any company that takes the trouble to turn itself into an overseas trade corporation gets all the benefits for pioneer relief.
    I hope that the Chancellor will not give way on this point. The arguments that were produced last year by his predecessor were very convincing, and if the Chancellor had any doubts about this he would have to meet the very powerful arguments that his predecessor advanced on this matter and which are just as valid today as they were then.
    We are not in favour of carrying this general principle of the overseas trade corporation further than it has been carried. Last year we on this side of the House were rather doubtful whether it had not gone too far, in any case. One has to keep a balance between overseas and home investment, and not every bit of overseas investment is necessarily good. One can have too much of it. It is important to have home investment. What is invested overseas cannot, at the same time, be invested in this country to raise our own productive capacity and, indeed, to give employment here. What we want are exports rather than massive overseas investment, and we certainly do not want the principle carried further than it was carried last year.

    1095
    We also want to limit what is a tax privilege. Hon. Gentlemen cannot get away from the fact that this is a tax privilege. A tax privilege was given to overseas trade corporations last year—one that benefits Surtax payers more than any other, and one which leads to dangers of tax evasion which, as my hon. Friend the Member for Birmingham, Northfield (Mr. Chapman) said, would be greatly increased—it already exists—if this new Clause were added to the Bill. This is a privilege to overseas registered companies; one cannot get away from it. That is what it is designed to be. It applies to companies which are outside our jurisdiction and ones which could, therefore, easily use the loopholes which exist even for overseas trade corporations.
    Mr. Leather: It is a privilege, but it is not a privilege granted by us. The privilege is granted to these companies by the Colonial Government. What we are objecting to is that our Government deliberately nullifies that privilege. If the Government of Jamaica were to agree to pioneer industry relief to a company because it is doing something which they think is good for their country, that is something of which we should approve. The law as it stands at the moment nullifies it.
    Mr. Gordon Walker: Overseas trade corporations last year cost the Revenue money; that was a tax concession. Before the change, that tax was paid. This would cost the Revenue money and it must, therefore, be a privilege. It means that other taxpayers have to pay more. We must not carry these tax privileges too far in our tax system.
    Mr. Braine: I am following the right hon. Gentleman's argument as closely as I can. Can he say why there should be a distinction between a British company trading overseas, whether it be in the Commonwealth or anywhere else, through the medium of branches, and a British company trading overseas through the medium of, say, 100 per cent. owned subsidiaries?
    Mr. Gordon Walker: One reason is that the overseas trade corporation is within the tax jurisdiction and can be controlled. One that is overseas is not under our tax jurisdiction for almost all
    1096
    the purposes which matter, and there will be great temptations and possibilities of evasion. There is nothing to stop the company with which the hon. Gentleman is concerned from turning itself into an overseas trade corporation. The fact that it does not do so means that it must get some advantage out of its present status. It could get all the benefits from last year's Act, but it chooses not to do so. It must, therefore, get some benefit out of not making this change.
    Sir T. Low: Really, that argument is a bit much. The right hon. Gentleman should remember his former responsibilities. Is he really saying to large companies here who have established subsidiaries in Australia, Canada, Pakistan, South Africa and elsewhere, that they ought to be encouraged by the British Treasury to abandon those subsidiaries?
    Mr. Gordon Walker: The right hon. Gentleman could have put forward a Clause limited to the Commonwealth, which his speech rather suggested that it was, though, of course, it is not. His last intervention suggests that his whole endeavour is to do this within the Commonwealth alone. If he had put forward a Clause limited to the Commonwealth, we would have looked at it with a more favourable eye. He has not done that at all.
    This is a new Clause designed for foreign—not only Commonwealth—resident companies all over the world, leading to the possibilities of tax evasion, and all of which, in these foreign countries, could turn into overseas trade corporations and have decided not to do so. Why?—because it benefits them not to do so.
    Several Hon. Members rose—
    Mr. Speaker: I must remind the House that this is the Report stage. We have passed out of Committee. With these constant interruptions this is degenerating into an argument instead of a debate.
    Mr. Gordon Walker: I hope that the Chancellor will resist the proposed Clause.
    Mr. Amory: The overseas trade corporation scheme has been in existence for only a short time, and I am sure that it is much too early to be dogmatic about any aspect of it. I must confess, however, that the proposal in this Clause, that

    1097
    non-resident subsidiaries should be brought within the scheme, presents a number of real difficulties.
    I recognise, as several of my hon. Friends have said, that there are very often circumstances which make it desirable to conduct business in overseas markets through a locally registered company. There is the argument of national feelings, and it is often desirable to secure local participation. I am quite sure that that applies in a great number of circumstances, and in the circumstances in which it does apply we do not want to do anything to discourage that kind of development.
    But the fact is, when we look back at last year, that the main object of this scheme was to put resident companies into a better relative position. The whole origin of this scheme was essentially one for assisting companies resident in this country. Again there may be many cases where it may be sensible, efficient and in the national interest that the control of the subsidiary companies should remain in this country. Each case must be taken on its merits. The object of the scheme was to do nothing against the non-resident companies at all, but to do something to assist the resident companies which had made a claim that they were relatively handicapped in certain circumstances.
    7.30 p.m.
    I should like to remind the House, because I think it important, that nothing in this Overseas Trading Corporations scheme in any way puts the non-resident company in a worse position than it was in before the scheme was introduced last year. Indeed, in many circumstances, in various matters of taxation, the non-resident company may be still in a better position than the O.T.C. But the real difficulty in my right hon. Friend's proposal is the practical one that to bring non-resident subsidiaries into the O.T.C. scheme would be almost bound to open the door to wide-scale tax avoidance. That is as I see it at present. The switched income between one non-resident subsidiary and another non-resident subsidiary might well never come within the purview of the tax authorities in this country, who would have much less information about the accounts of a non-resident subsidiary than they would about those of a resident subsidiary.
    1098
    It would be unwise for me to put ideas into anyone's head by describing the sort of methods of tax avoidance that I would be afraid of, but this is a real difficulty and at this stage we have not yet found any way round it. Although I am afraid that I have not been able to give the new Clause a very encouraging reception, I emphasise that I do not want at this stage permanently to reject the idea. I concede that there is force in part of the case which my right hon. and hon. Friends put forward.
    These provisions have been on the Statute Book for less than a year, and in most cases their application has covered a much shorter period than that. What I should like to do, and undertake to do, is to give the matter further consideration during the nine months or so before next year's Finance Bill. I intend to seek the views of representatives of business and industry, who are concerned in these practical matters, on this very technical subject. I have no doubt that that is the surest way of discovering whether there is a solution which secures the objectives which my right hon. Friend has in mind whilst at the same time safeguarding the legitimate interests of the Exchequer.
    The way in which one or two hon. Members spoke seemed to imply that in some way we have hit or damaged non-resident subsidiaries. I want to make it clear that we have done nothing of the sort. I must take issue, in as friendly a way as I can, with my hon. Friend the Member for Somerset, North (Mr. Leather), because I do not believe that it is fair to say that in any way whatever a pledge given by my right hon. Friend the Prime Minister in 1956 has been broken. I owe it to my right hon. Friend to make plain the facts.
    What my right hon. Friend said on that occasion was that he would either introduce an Overseas Trading Corporations scheme or, if he did not, he would deal with the more limited problem of the frustration of the pioneer industry relief. He made it clear, and I think it was generally accepted at the time, that the former could be regarded as embracing the latter. Whether our existing O.T.C. scheme is exactly to everybody's liking or not is another question but, broadly speaking, last year we followed

    1099
    the lines of the scheme recommended by the Royal Commission.
    I do not think that there can be any doubt that the Royal Commission, which had recommended in its first Report that action should be taken to deal with the frustration of pioneer industry reliefs thought that the introduction of an O.T.C. scheme which it recommended in its final Report would make it unnecessary to deal with the more limited problem. In fact, the Overseas Trading Corporation scheme very largely, if not entirely, deals with and covers the problem of the pioneer industry reliefs.
    The only case which I think it does not cover is the case of dividends and, as far as one can see, the Royal Commission did not consider that pioneer industry relief, which was relief to the trading concern, should necessarily be carried through distribution to the ultimate owner. Therefore, I am sure that any suggestion that there has been anything in the nature of a breach of faith cannot for a moment be accepted. I hope that my hon. Friend the Member for Somerset, North will not mind my saying it in a somewhat forthright way, because I rather resent his allegations that the Treasury had "ratted", which I think was the term used, on that scheme.
    Finally, I should like to say a few words about the other Clause which we are being allowed to discuss at the same time. Here my hon. Friend the Member for Langstone (Mr. Stevens) seeks to modify the definition of an overseas trading corporation so as to eliminate the disqualification of a holding company if it has a resident subsidiary which is not itself an O.T.C. My hon. Friend no doubt would have pointed out that a parent company which might lose its O.T.C. status, possibly by accident, might suffer a loss in the matter of taxation as a result. I ought to explain that the proviso in question was inserted in the legislation deliberately, as a safeguard against a holding company using exempted profits from an O.T.C. subsidiary to finance a concern trading within the United Kingdom.
    At this stage, I cannot feel that I can safely discard that safeguard. On the other hand, I admit that I have another safeguard which might be effective by
    1100
    itself. What I propose to do, and I hope that this will be a comfort to my hon. Friend, is to give this point careful consideration again before next year's Bill, in the same way as the earlier point with which I have dealt. I hope that with this undertaking which I have given to consult with industry and think these difficult matters over in the light of a little more experience of the working of these provisions, my right hon. and hon. Friends may be willing to consider withdrawing the Clause.
    Sir T. Low: In view of what my right hon. Friend has said, and in the hope that he and the serried ranks opposite will also believe that our purpose is not to benefit foreign subsidiaries but people here, I beg to ask leave to withdraw the motion.
    Motion and Clause, by leave, withdrawn.

    New Clause.—(AGGREGATION.)
    Where part of an estate is entailed, it shall be treated as a separate estate for purposes of estate duty on the rest of the estate except in so far as the rest of the estate passes to the same beneficiary.—[Mr. Arbuthnot.]
    Brought up, and read the First time.
    Mr. John Arbuthnot: I beg to move, That the Clause be read a Second time.
    This Clause seeks to remove what appears to be a considerable injustice to a certain very small number of payers of Estate Duty. Perhaps I can best put the point by taking a simple illustration. Let us take the case of an estate of, say, £¾ million, all except £50,000 of which is entailed to go with a title. The person who dies has no means by which he can dispose of that entailed part of the estate; that is to say, the majority of the estate goes with the title, possibly to a second cousin. It may well be that the life tenant of the estate has one or more daughters who will come into the £50,000 that is left. As the law stands, the £50,000 that is left becomes an almost negligible sum because it bears duty at the rate which is applicable to the £¾ million rather than at the rate which would be applicable to the £50,000.
    If the Solicitor-General feels that the proposed Clause goes too far, I would be happy if the benefit were confined to people who are direct descendants, but

    1101
    I feel that this is a gross injustice and is a matter which affects so few cases that the cost to the Treasury must be negligible, and therefore I hope that my right hon. and learned Friend will be able to give the Clause sympathetic consideration.
    Sir T. Low: I beg to second the Motion.
    The Solicitor-General: Heavy-heartedly, I rise because I know full well I shall not be able to gratify any of the wishes of my right hon. and hon. Friends. The complaint here really is a complaint against the operation of aggregation in general in so far as it applies to this special instance of entailed property. It is true, of course, that not only in relation to entailed property but in relation to other property, too, the existence of the rule about aggregation may work hardship in the kind of case where the property other than that which is settled upon the person who dies, his own free property, is much less in value than the property which is settled. It is a long-standing rule, originating in 1894 at least, and I venture to doubt whether we would be in order in discussing the general application of the rule on this question.
    There is a very important exception to the rule in the relief conferred by my right hon. Friend the present Home Secretary when he was Chancellor of the Exchequer in 1954. I refer to the relief whereby, when the deceased's own property, including any property derived from him which is liable to duty on his death, is of a modest amount. If it does not exceed £10,000, under the relief provided in 1954 it is treated as a separate estate for the purposes of aggregation.
    Over and above that, there is provided marginal relief tapering off, which works when the estate exceeds £10,000. My right hon. and hon. Friends will recall the then Chancellor explaining how he had raised the limit of this relief to £10,000 after an examination of the Estate Duty position in general, in the hope that it would get rid of the great bulk of the hardship in those cases. Therefore, there is a considerable qualification operating against the general rule of aggregation where the deceased's own personal free assets are modest in amount.
    1102
    7.45 p.m.
    I must confess that the proposed Clause is odd in some respects. The usual complaint that the Revenue has about aggregation is based on the fact that it is harsh, that the rate of duty applicable to the estate of the deceased should be raised to a high level by reason of property over which he does not have a power of disposition and which will go outside the family. But entailed property would seem to be that which is most likely to remain within the family. On that account, it would seem to be the worst kind of property to select for special treatment in this context.
    I must confess that in the case my hon. Friend was suggesting as a test there was one factor I did not understand. He referred to the inability of the person who died to have any means by which he could dispose of the estate. He did not attach a date to his example, but I am a little puzzled because, as I understand the law, ever since the Law of Property Act, 1925, the tenant in tail in possession can dispose of the entailed property by will. I would have thought that was an additional reason for choosing entailed property as the kind of property likely to remain within the deceased's family, and, therefore, difficult for selection for special treatment under this branch of the law.
    There is another difficulty. I do not desire to be absurdly technical, but this proposed Clause is a little strange to us when one looks at it. There are really two rates of duty to be considered. There is the rate of duty on property other than the entailed estate and there is the rate of duty on the entailed estate. Under the Clause, as I read it, the rate of duty on any property passing on the death, other than the entailed estate, would be determined without aggregating the entailed property with it, except insofar as the rest of the estate passed to the same beneficiary. That would account for the rate of duty on property within the entailed estate.
    This would still leave the position where the rate of duty on the entailed estate would be governed by the process of aggregation. The property passing to the other beneficiaries would still be aggregated with the entailed property for the purpose of ascertaining the rate of duty on the entailed estate itself and on the other property of the same beneficiary

    1103
    as the entailed estate. I must confess to the House that at the moment I do not see what logical basis one could find for that position, and on that ground alone one would be bound to say that one could not accept the proposed Clause.
    I am sure that my right hon. and hon. Friends will understand that there is an inherent difficulty in this way of trying to deal with what is really a much wider problem. In those circumstances, I much regret that I cannot hold out any hope that we would be able to select entailed property for treatment in some special way in relation to the rule of aggregation.
    Mr. Mitchison: On this side of the House we are, in general, in favour of fragmentation rather than aggregation but, when we get aggregation as a fiscal proposition, we like to stick to it. I am glad, therefore, that this proposed Clause will not be accepted. I want to try to help the Solicitor-General in his difficulties about the form of the Clause by reminding him of the need we all feel from time to time to repeal the Act of Union with Scotland. I have always thought it wise, if one brought forward a measure of that kind, to provide that it should not apply to Scotland.
    Mr. Arbuthnot: While I do not say that I am satisfied with what my right hon. and learned Friend said, and while I can promise him that we shall have another attempt at this in the next Finance Bill and hope that we shall then meet with a more favourable reception, in view of what he has said, I beg to ask leave to withdraw the Motion.
    Motion and Clause, by leave, withdrawn.

    New Clause.—(INCREASE OF ANNUAL ALLOWANCES FOR SHIPS.)
    In paragraph (b) of subsection (1) of section two hundred and eighty-one and in paragraph (b) of subsection (1) of section two hundred and eighty-two of the Income Tax Act, 1952 (which relate to methods of calculating annual allowances on machinery and plant), far the references to five-fourths there shall be substituted, in the case of ships, references to five-thirds.—[Mr. Peyton.]
    Brought up, and read the First time.
    Mr. John Peyton: I beg to move, That the Clause be read a Second time.
    I admit straight away that the present circumstances of the debate, combined
    1104
    with the fact that we have recently had a full day's debate on the problems of the shipping industry, make it possible to cut the discussion very short indeed. While it is not necessary to repeat the full arguments, I hope that the Government are fully aware and cognisant of the difficulties of the industry and that day by day their determination to do something about these problems will grow. I admit that the new Clause is not any great remedy. While its acceptance would be most welcome, it would be idle to suggest that it contains the key to all the difficulties which now face the industry.
    I hope my right hon. Friend will take the opportunity of assuring us that this very difficult problem, this web of difficult problems, is receiving the constant, energetic and unremitting consideration not only of one Department, but of all those Government Departments which are directly and intimately involved.
    As my right hon. Friend knows, there is on the Paper a Motion, signed by more than 100 of my right hon. Friend's own supporters, requesting the Government to take measures to put the British shipping industry on terms of parity—
    Mr. Deputy-Speaker: The hon. Member must not discuss that Motion now.
    Mr. Peyton: I accept your Ruling, of course, Mr. Deputy-Speaker. It is towards that parity that the Clause proposes a small step.
    The Clause, which is designed to increase the annual allowance for depreciation, is particularly germane to what I hope will be the whole approach of the Government. There are two particular advantages which are enjoyed by those who compete with the British shipping industry under flags of convenience—apart from the fact that they have the general advantage of paying virtually no taxation. The first of those advantages is that an owner is free to depreciate his ships in his own time and as he will, so far as he is allowed to do it by the profits he is earning. The second is the certainty that his taxation will not be increased over a period of twenty years—and I appreciate that that is a very difficult point.
    I readily agree that that brings us up against great constitutional difficulties,

    1105
    and it may be that one is asking too much. Nevertheless, one is entitled to remind the Government that there is a remarkably non-partisan approach from both sides of the House towards shipping. I remind my right hon. Friend that my right hon. Friend the Member for Monmouth (Mr. P. Thorneycroft) followed the example of the Labour Government by giving exceptional treatment to the shipping industry.
    I wonder whether there is not some possibility of the Government now accepting that it is highly necessary that the decline in the British share of world tonnage should be arrested, and whether it is not possible for the Government to say that they will approach the matter with a view to giving those two very great advantages, the certainty of no increase in taxation over a period of years, which would make an immense difference to the ease with which a ship owner could finance his building, and that an owner should be free, so far as his profits allow, to depreciate his ships in his own time according to his own choice.
    In these days, when costs have been rising, it is not possible to exaggerate how valuable a boon it would be to the shipping industry to have the certainty of its capital being returned in order that it could be re-employed in new building as soon as possible.
    I have said all that is necessary on this occasion, but I hope that my right hon. Friend will not mistake my brevity as indicating any lack of conviction of the seriousness of the problem. Some hon. Members opposite have taken a great interest in this matter, and I hope that my right hon. Friend will not be allowed lightly to disregard the undoubted importance of the matter, which far transcends any party considerations and whose importance for this country it is hard to exaggerate.
    Mr. Simon Wingfield Digby: I beg to second the Motion.
    Mr. C. R. Hobson: I support the Clause. As the hon. Member for Yeovil (Mr. Peyton) said, this is not a party matter. While both parties have been in power, hon. Members from both sides of the House have shown concern about this vital industry and have sought to obtain special relief for it. I make no excuse for that. Shipping is in a
    1106
    unique position. The industry is already suffering great disabilities because of flags of convenience, to which it would be out of order to refer and which were debated about a fortnight ago. Flags of discrimination are equally objectionable. At least 50 per cent. of American aid was carried in United States ships, and that was discrimination of a very bad kind.
    We are concerned to get extra relief for the industry, and I should have thought that the Government could have accepted this Clause. The industry is vital and earns large invisible exports. It has served the nation very well in peace as in war. The Clause asks for something which should be readily acceptable to the Government. There will be no "come back" from other industries, because most other industries appreciate the unique position of shipping, so that there would be no queue for special treatment for other industries.
    I have a word of warning. Failure to treat shipping in a special way can result only in something which we would all deplore, the use of the flag of Bermuda. It is true that the ships would still be British, but it could be argued that that would be a flag of convenience even though it would be the Red Duster. We do not want such a situation to arise. Whatever may be the difficulties of existing shipowners about transferring to the flag of Bermuda, new companies could be begun and could use that method to avoid taxation.
    I appreciate the narrowness of the debate, and also the fact that I am sailing very close to the wind, to use a nautical metaphor. All I am concerned with is, knowing the narrowness of the debate, to put in a plea from those of us on this side of the House who realise the vital importance of shipping that at least the Treasury and the Government will see some way to give this vital industry special treatment, because we think it rightly deserves it and that the country owes it to the industry.
    8.0 p.m.
    Mr. John Cronin: All of us on both sides of the House feel sympathy with the new Clause moved by the hon. Member for Yeovil (Mr. Peyton), who spoke to it with great moderation. There is no doubt that the shipping industry has had severe difficulties in

    1107
    recent years as a result of the loss of tonnage in wartime and of the necessity to replace ships in times of rising costs, but I feel that there should be a limit to the extent to which the shipping industry receives preferential treatment in taxation.
    The House must be aware that the shipping industry is now in the almost unique position of receiving substantial investment allowances. While many hon. Members on both sides of the House have suggested that shipping has been the Cinderella of industry, one feels that successive Chancellors of the Exchequer have probably played the part of Prince Charming to a much larger extent than was really necessary. The shipping industry is going through some temporary difficulties at present, but the problem is a temporary one. It is in the nature of the industry that it goes through considerable fluctuations of fortune.
    Mr. C. R. Hobson: I am sorry to interrupt my hon. Friend, but he is talking about the temporary nature of the difficulty. Would he not agree that as long as it is legal to operate under flags of convenience for the countries that are using them, the industry is bound, willy-nilly, to run into difficulties, principally because of the flags of convenience?
    Mr. Cronin: I entirely agree with the point made by my hon. Friend. Obviously, the shipping industry will always be up against ships flying flags of convenience, but will this new Clause be a complete answer or any answer at all? It is a very limited problem in regard to flags of convenience.
    The hon. Member for Yeovil pointed out that the industry is having difficulties on account of the rising costs of replacements, but there is at least some sound prima facie evidence that it is not the difficulty of rising costs altogether. It may be that costs will level up or even decrease in the immediate future, and I do not think that the long-term outlook for the shipping industry is so unsatisfactory.
    In fact, some companies are expected to do quite well now. I will not ask hon. Members opposite to accept my word for it, but perhaps I may refer to Mr. Westropp, of the Sunday Express, who, on the 29th of June, recommended
    1108
    that the shares of the P. & O. Company should be bought.
    Mr. Peyton: I am sorry to interrupt the hon. Gentleman, but he made a very similar speech during the course of the Finance Bill last year, in which he showed that he had not really considered this problem very seriously, and he is revealing the same thing now. What we are concerned about on both sides of the House is the continuing decline of British shipping's share of world gross registered tonnage. We are saying that that decline is now at a point which is positively unsafe. The hon. Gentleman has shown very clearly this year, as last year, that he has not given the slightest consideration to that aspect of the matter.
    Mr. Cronin: If the hon. Member will permit me, I will deal with that point later. It is not germane to the argument I am raising now.
    I was saying that Mr. Westropp recommended his readers to buy P. & O shares. He said:
    "A fine return for so fine a security."
    On 6th July, he said:
    "Now that the terms of trade have turned temporarily against the shipping companies, Colonel Bates's conservative policy pays off. Cunards' immensely strong cash investments of £21 million"—
    Mr. C. R. Hobson: And not a liner on the stocks.
    Mr. Cronin: I am not suggesting that that is the position of all shipping companies, but it does appear at least that some shipping companies are in a strong position. My hon. Friend the Member for Keighley (Mr. C. R. Hobson) says, No liner on the stocks," and I accept that, but will this proposal necessarily induce the company to put a liner on the stocks? It is obviously a question of a long-term possible profit.
    I think the most important question here is why should the shipping industry receive this special preferential treatment as opposed to other industries? If I might refer to the Report of the Royal Commission on the Taxation of Profits and Income, I find that in paragraph 359 it said this:
    "It is, for instance, no ground for selecting the shipping industry for special tax reliefs to say that it must maintain large quantities of capital equipment that is subject to rapid obsolescence. That would be quite true of some other industries. Nor can shipping be

    1109
    distinguished because a very large unit has to be replaced at one operation. Other industries, notably the steel industry, must also be faced periodically with large-scale replacement of fixed assets. Actually, if a company owns a large fleet of ships it is to be expected that it will only replace a proportion of its fleet in any one year and to that extent it is in the same position as any other industry."
    The hon. Member for Yeovil pointed out that he felt that I had not studied the question of flags of convenience with sufficient care. We all appreciate the difficulty of flags of convenience, but what is the real reason for this large increase in the use of flags of convenience? Is it because to a considerable extent, the fleets of other countries, such as America and Greece, are very substantially increasing because they have the capital available? They are able to use flags of convenience, and a large proportion of these ships are actually owned by Americans who have the capital and can make the profits. Is it not the case that a large part of the problem of flags of convenience arises from the advance of the shipping industry as owned by the Americans and other nations, and is not specifically a taxation point?
    I do not wish to prolong the discussion, but it seems to me that the case for further preferential treatment for the shipping industry has not been satisfactorily argued, and I think that the Paymaster-General will have to think very carefully before he accepts this new Clause.
    The Paymaster-General (Mr. Reginald Maudling): My hon. Friend the Member for Yeovil (Mr. Peyton), who moved this new Clause, and the hon. Member for Keighley (Mr. C. M. Hobson), have often spoken about these subjects in this House with great knowledge and considerable interest, and, naturally, one pays great attention to what they say. I cannot say the same thing about the hon. Member for Loughborough (Mr. Cronin). I have often wondered from which journals he drew his financial opinions, judging from the speeches he makes, and, having discovered the answer, I am not surprised.
    Turning to the issues raised here, there are two points. First, should the shipping industry have special taxation treatment, and, secondly, if so, should it be in the form now proposed? On the first point, there is no doubt at all that the shipping industry does need special taxation treatment because it is subject to a
    1110
    form of competition which is entirely special. Flags of convenience are things which cannot apply to other industries. One can operate shipping from Panama or Liberia under flags of convenience, but one cannot oparate a motor car factory, and the two are quite different circumstances.
    I would not agree with the hon. Member for Keighley in his censure of the Americans about carrying half their aid goods in their own ships. What the Americans are saying is, "If we give our stocks away, we reserve the right to carry half of them abroad in our own ships," and I would not think there is anything particularly wicked in that. It is not a matter of principle.
    If someone is giving things away I do not think that it can be said to be very wicked of him if he wants to carry half of them in his own ships. It is true that the problem of flags of discrimination may be no less important than the problem of flags of convenience. But it is because of the latter problem that this House has for many years accepted the fundamental fact that the shipping industry is entitled to receive special taxation treatment.
    Although no one can bind successive Governments over the years—and my hon. Friend clearly would not expect that—even if they are of the same political colour there has been so much agreement on both sides of the House about the position of the shipping industry that the leading people in that industry should have considerable confidence that they will continue to receive that treatment in tax matters to which they are entitled in the light of the competition facing them from other countries, particularly countries where no tax is paid.
    As to the method of giving special treatment, there is the investment allowance, which, last year, was doubled, from 20 per cent. to 40 per cent. That is a substantial increase. The figures I have been given show that over a period of five years people in the shipping industry can write off about 88 per cent. of the cost of dry cargo vessels and 95 per cent. of the cost of tankers. That is a fairly substantial percentage. We had a rather impromptu discussion about these matters in Committee, and I then said something which was a little too sweeping, as I have since been

    1111
    told by friends of mine in the industry. I said that an undertaking which regularly ploughs part of its profits into new construction, and gets the benefit of this 40 per cent. additional investment allowance, is left better off than it would have been if it had paid no tax at all. That was a somewhat too sweeping statement. There are certain circumstances in which it would occur, but I should have said that under the investment allowance system not only do people in the industry write off, against their profits over a period, 100 per cent. of what they spend—and therefore they are investing from their gross and not their net profit—but there is also the 40 per cent. to be set off against other profits. That is the true position.
    As my hon. Friend pointed out, the difficulty arises because these allowances cannot be taken at the discretion of the shipowner, at the time which suits him. In certain circumstances he may either be unable to take full advantage of capital allowances or may be able to take advantage of them only by buying ships, or placing orders for ships, at a time when prices are high. I recognise that that is a disadvantage, and that it falls more heavily upon the owners of small rather than large fleets which have regular, steady replacement programmes.
    There is certainly a point worthy of consideration in the Clause, but I am afraid that we cannot accept it at the moment. It would cost £11 million this year, rising to £17 million. Eventually it would fall again, but it would be a very large additional deduction from the revenue accruing to the Exchequer, and in those circumstances my right hon. Friend could not accept it.
    Nor does the Clause necessarily represent the best way to meet the problems of the shipping industry. I think that my hon. Friend is aware that since he last spoke on this subject the shipping industry has presented to the Government a memorandum on this matter, which is now being thoroughly studied. It is too early to give any reactions to it, and all I can say tonight is that I hope my hon. Friend will realise from my previous remarks that the Government are sympathetic to the position of the industry, and are fully aware of its problems; that we have made a very great deal of pro
    1112
    gress; that the investment allowance is a very great help to the industry—as has been generously recognised by the shipowners—and that the Government are willing and ready at any time, in consultation with the industry, to consider whether it is possible, within the bounds of what is fair as between one industry and another, and in the general national interest, to meet the difficulties which are still facing our maritime industry. We all share a belief in the fundamental importance of maintaining the British Mercantile Marine.
    8.15 p.m.
    Mr. Mitchison: I have three comments to make upon the right hon. Gentleman's speech. First, I read through the debate on shipping the other day with great interest, and I am sorry that I did not hear it all. My impression was that the general feeling of the House was that there were undoubted and peculiar difficulties in the shipping industry, largely in connection with flags of convenience. It seemed that the House also felt that the best way to meet the difficulties, if it were possible—and we do not yet know that it is impossible—was by some international agreement rather than by any fiscal concession. I say no more about it than that the investment allowance is obviously an exceptional concession, which is of very considerable value to the industry, having regard to the way in which the business of shipowning and shipbuilding is carried on.
    Secondly, I thought that the right hon. Gentleman was a trifle hard on my hon. Friend the Member for Loughborough (Mr. Cronin), the more so when, in almost the next passage of his speech, there was an appeal from the "Paymaster-General Maudlin'" to the "Paymaster-General Sober". He had to correct his own mistake.
    Thirdly, no promises have been made about the next Budget. I seem to remember that Parliaments have a life of five years, and what is now appearing on the horizon is a larger and larger crop of prospective carrots, held sometimes before one taxpayer and sometimes before another. I would say generally that the outlook for the next Budget is as fertile, as promising, as rosy—if one likes to call it so; for carrots are red, except the blue ones—as one would possibly expect in a Budget in an Election year.
    Mr. Peyton: I would like my right hon. Friend to know that every word he has said is written on my heart; that I shall remember it; that I have noted the tone with which he spoke, and that I understood him to express great sympathy with the case of the industry. In view of the assurance that he has given, however, I beg to ask leave to withdraw the Motion.
    Motion and Clause, by leave, withdrawn.

    New Clause.—(ESTATE DUTY (RELIEF IN CASES OF DEMOLITION OR CLEARANCE ORDERS).)
    (1) In the case of deaths occurring after the commencement of this Act, section thirty-three of the Finance Act, 1956 (which reduces the estate duty chargeable on land compulsorily purchased within five years after the date as at which it is valued for the purposes of duty), shall apply in relation to an interest in a house which is demolished in pursuance of a demolition order under Part II of the Housing Act, 1957, or a clearance order under Part III of that Act, as if—

    (a) the house had been purchased at site value in pursuance of a compulsory purchase order made by virtue of the said Part II or the said Part III, and compensation in respect of the interest had been payable accordingly; and

    (b) the purchase had been made in pursuance of a notice to treat served on the date on which the clearance order or demolition order was made.

    (2) Subsection (1) of this section shall apply where a house which might have been the subject of a demolition order is, without the making of such an order, vacated and demolished in pursuance of an undertaking given to the local authority, as if there had been a demolition order made at the date when the undertaking is given.
    (3) In this section—
    "house" includes any building constructed or adapted wholly or partly as, or for the purposes of, a dwelling;
    "site value" in relation to a house means the value, at the time the valuation is made, of the site as a cleared site available for development in accordance with the requirements of the building byelaws for the time being in force in the district.
    (4) This section shall have effect in relation to a house in Scotland as if for the references to the Housing Act, 1957, there were substituted references to the Housing (Scotland) Act, 1950, and for the reference to the building byelaws there were substituted a reference to the building regulations.—[Mr. Pickthorn.]
    Brought up, and read the First time.
    Mr. Pickthorn: I beg to move, That the Clause be read a Second time.
    1114
    This is not the sort of matter which I flatter myself I understand uniquely well, but I hope that I can explain my point sufficiently without using very many words. It came into my mind because of an experience I had in my constituency, from which I learnt that it is possible for a man who inherits a house to pay Estate Duty on a valuation, say, of £700, and to find that within a year the house is valued for other purposes as nil; that he is ordered to demolish it at his own expense, and that he then gets back only part of the Estate Duty, if he gets any back at all.
    That seemed to me a plain injustice. I know that it is always dangerous to say that something is obviously unjust; it at once arouses in the breasts of those who are properly called reactionaries a determination to assert the opposite. But, on the face of it, this is and was unjust, and I thought that it therefore ought to be put right in cases where the property concerned has been in the same ownership throughout.
    The method proposed to do this is by adapting Section 33 of the Finance Act, 1956, which covers the other cases under the Town and Country Planning Act, so that it will deal with the cases which I have endeavoured to indicate. The new Clause adapts Section 33, so as to treat a demolition notice as if it were a notice to treat for the purpose of compulsory acquisition. It treats the site value as if that amount were payable as compensation on a compulsory purchase.
    This concession would cost very little So far as I can trace, there has been only one case of this kind since the war and I do not suppose there will be many more. That case related to a house valued at £700 for Estate Duty purposes. The plain justice of the matter seems reasonably simple. I hope that it is not necessary for me to champion the proposed new Clause at any greater fullness.
    Mr. Mitchison: Would the hon. Gentleman enlighten my curiosity on one thing. He says that there has been only one case since the war; from where did he get that information? I do not doubt it.
    Mr. Pickthorn: I was told that by the professional experts and I took their word for it. I do not endeavour to hide from the hon. and learned Gentleman

    1115
    that I could not have drafted the proposed new Clause, and I never attempted to do so.
    Mr. Rupert Speir: I beg to second the Motion.
    The purpose of the proposed new Clause is simple. It is to remove an injustice. It is unjust for the State to value a property for Estate Duty at one level and then, for the purpose of paying compensation, to value it at a lower level. My hon. Friend the Member for Carlton (Mr. Pickthorn) has said that the proposed new Clause will not apply to many cases. I hope, therefore, that the Government will be able to give the proposal sympathetic consideration.
    Mr. Simon: In general, all property is valued for Estate Duty purposes according to its value in the market at the time of the death, and that goes for a dwelling-house like any other property. Where the house is compulsorily acquired from the beneficiary by a public authority within five years of the death, its value, as my hon. Friend the Member for Carlton (Mr. Pickthorn) pointed out, for the purpose of Estate Duty may be reduced to the amount of the compensation, by virtue of Section 33 of the Finance Act, 1956.
    That provision does not apply up to now where a house is demolished under a demolition order or a clearance order. The proposed new Clause seeks to adapt or to apply the provisions of Section 33 to that set of circumstances. The way it does it is to say that where a house is demolished under a demolition or clearance order which is made within five years of the death in question, the value for Estate Duty may be reduced to the value of the site, which is normally the compensation payable in the case of a demolition or clearance order, plus the amount of the compensation payable.
    The general conception behind the Clause, as I understand it, is that if the State deprives anyone of his property it ought not to value the property on one basis for the purpose of levying duty on it and on a different basis which produces a lower figure for the purpose of paying compensation. My hon. Friends stigmatised that as unjust, and I think that epithet will commend itself to the House.
    1116
    It seems, therefore, that my hon. Friend has made out his case for the proposed new Clause. It is quite true, as he says, that the Inland Revenue knows of only one case, that which arose in my hon. Friend's constituency and which has led to his proposing the new Clause. It must in its nature be rare. It requires two things, first a liability to Estate Duty on the death of the owner, the estate being over £3,000, and, secondly, the house must have a market value although unfit for human habitation. That is not a frequent combination of circumstances, but it has arisen and it may arise again. Therefore, it should be put right by the House in the way suggested by my hon. Friend.
    Mr. Mitchison: I am sorry to throw cold water on this atmosphere of agreement about what appears to be a singularly small matter. There are objections to the proposed new Clause.
    Let me first point out one small but not unimportant objection. If a house is incapable of habitation and unfit for habitation and is incapable of being made fit at a reasonable cost—which is the test for demolition of a single house or of a clearance area—a clearance order is not the only way of dealing with it. It can be dealt with by a closing order. That was enacted for a good but curious reason. A very bad house may be part of a row of very bad houses, some a bit better than others. If we pull down the worst one the two on each side may fall in. We would not wish to have them demolished, though they may be technically unfit houses. I had something to do with the private Members' Measure in which that provision was enacted.
    The curious result follows that, if the proposed new Clause is now accepted, a house which is demolished will attract advantages which will not be given to those which are in exactly the same circumstances and not subject to closing orders. I am sure that the Treasury, which is always very particular about these niceties, would not wish that sort of thing to happen.
    There seem to be other difficulties of a rather larger nature. I noticed that the Financial Secretary and the seconder of the Motion both said it seemed unjust that if the State pays one price for a house another price should be used for duty purposes. But it is not the State

    1117
    which pays the other price; it is the local authority. They are not the same thing. If we are to expect a complete identity for all monetary purposes between the local authority and the central Government, we shall get some remarkably odd results.
    Mr. Speir: We get very odd remarks from constituents.
    Mr. Mitchison: Whatever odd remarks anyone gets from constituents, I hope the hon. Member will agree that there is some difference in the minds of constituents and, I should have thought, in the minds of hon. Members opposite—between a local authority and central government. If he regards them as identical, I can only say that I do not agree with his point of view, and if he reflects on it a little he will not maintain it himself.
    8.30 p.m.
    I wonder whether this Clause is really worth it? That is why I asked the hon. and learned Gentleman if there had been any case of this sort. The Section in the Finance Act, 1956, deals with houses which may be, and no doubt usually are, perfectly good houses. Some may have considerable value. They are simply houses which are compulsorily acquired. Incidentally, they are not confined to houses compulsorily acquired under planning powers. Suppose the Treasury acquired compulsorily a very eligible private house adjacent to Whitehall and paid a large sum of money for it, the Finance Act would apply to that sort of case. It is intended to apply to every kind of house. In the vast majority of cases the circumstances are wholly different from the very peculiar case we are now considering. The case we are considering is one where the house is unfit to live in because it is very unlikely to become unfit to live in in the five years, which is the maximum—
    Mr. Pickthorn: Less than one year.
    Mr. Mitchison: I am sorry, I do not understand the purpose of the intervention.
    Mr. Pickthorn: The hon. and learned Member says that it is unlikely to happen in less than five years—
    Mr. John Rankin: The hon. Member for Carlton (Mr. Pickthorn) need not be so angry about it.
    Mr. Pickthorn: I am not angry about it, and the hon. Member for Govan (Mr. Rankin) need not be impertinent about it if we are to be disorderly. The hon. and learned Member for Kettering said it could hardly happen in five years, but it happened, I think I am right in saying, in one year, or very little more than a year.
    Mr. Mitchison: I am sorry if I did not make myself clear to the hon. Member for Carlton. I was not in the least angry with him, and I doubt if he was angry with me. The five years to which I referred are the five years in Section 33 of the Finance Act, 1956. Once those five years have passed one cannot get the benefit of these provisions. Conceivably, there may be a house which is wrongly or differently valued for Estate Duty and, if it is compulsorily acquired six years later, one does not get the benefit.
    Obviously, this occurs only very rarely, and in all probability the houses are going to be valued in the same condition, substantially, as when a demolition order is served. It seems very unlikely that the value for Estate Duty purposes will be substantially different from the site value. We were given an instance—the only one—and the difference, if I heard rightly, was £25 to £700, or did I get the figures wrong?
    Mr. Pickthorn: That was not the difference; that was the Estate Duty. The difference was £700 or more.
    Mr. Mitchison: I did not get the figures quite rightly, but this seems a very small business. I should have thought we might get difficulties the other way just as much as in the way we are considering now. We might get wholly unfit houses undervalued for Estate Duty purposes, and subsequently more being attracted under a demolition order. As the hon. Members concerned will remember, there is also a well-maintained house allowance, which may make a considerable difference to the amount allowed on demolition. Generally, my feeling about the Clause is that it is very small beer indeed on the figures, that it is wrongly worded, does not cover the particular case I have mentioned and is hardly worth having.
    Mr. Pickthorn: I wonder whether I might say one word—
    Sir Frederick Messer: Not without permission.
    Mr. Pickthorn: I said I wondered if I might say one word. If anyone wishes to stop me, let him try. It is the conventional way of saying it to say that I will say a word if the House will permit me.
    I think the hon. and learned Member for Kettering (Mr. Mitchison) has misunderstood the thing. I think his main fallacy comes from saying if the house is uninhabitable and incurable. That is the hypothesis from the point of "them"—of the great man, the State, the municipality, whom he asks us not to confuse, and whom I do not think I did confuse. That is not the language of the very small man who, as he said, drinks very small beer, and very little of it, who inherited a very small house.
    Mr. Mitchison: I wonder whether the hon. Member would allow me to remind him that this is any interest in the house. It may be the man living in it or somebody else.
    Mr. Pickthorn: That man in this particular case did get a good maintenance allowance. The fact is that one valuer said the house was worth £700 and within a year a quite different valuer for a quite different purpose, but the emissary of the State, the irresistible emissary, I will not say of the State but of the central authority, valued it at naught. He and his friends and everybody in the village feel there has been a great injustice, and, upon my soul I think there has. As statute law stands—Naboth's vineyard was not too awfully big—as the statute law stands, no more can be done for that case. We think it worth asking the trouble of the House to see that that case does not happen again.
    Question put and agreed to.
    Clause read a Second time, and added to the Bill.

    New Clause.—(INFORMATION AS TO DIVIDEND STRIPPING.)
    (1) The Commissioners of Inland Revenue may by notice in writing require any person to furnish them within such time as they may direct (not being less than twenty-eight days), in respect of any dividend declared paid or received and any claim to repayment of income tax made by that or any other person at any time during the period specified in the notice, such particulars as they consider necessary for the purposes of sections eighteen and nineteen of this Act and of the enactments mentioned in those sections.
    (2) The Treasury may by order direct that the power conferred by the foregoing subsection may be used not only for the purposes mentioned in that subsection, but also for such other purposes as may be specified in the order, being purposes conducive in the opinion of the Treasury to discovering whether the person on whom the notice is served was during the said period engaged by himself or in concert with others in acts, transactions or arrangements, the object of which was, by devices intended to circumvent the effect of the said sections or enactments or any of them, to avoid liability to income tax or to secure the repayment of income tax paid or deemed to have been paid:
    Provided that no order shall be made under this subsection until a draft thereof has been laid before Parliament and approved by a resolution of the Commons House of Parliament.
    (3) If any person on whom a notice is served under this section fails without reasonable excuse to comply with the notice, he shall be liable to a penalty not exceeding fifty pounds and after judgment has been given for that penalty to a further penalty of the like amount during every day on which the failure continues.—[Mr. Houghton.]
    Brought up, and read the First time.
    Mr. Houghton: I beg to move, That the Clause be read a Second time.
    I am sure that the Chancellor must be sick of the subject of dividend stripping by now and so is the whole House, because this is one of the less agreeable chapters of our discussions on the Finance Bill. This new Clause is divided into three parts. Subsection (1) I would call the intelligence service; subsection (2) the detective service, and subsection (3) is the one imposing penalties for those who fail to satisfy the requirements of subsections (1) and (2).
    Subsection (1) gives a standing power to the Commissioners of Inland Revenue to find out what is going on. The subsection would give to the Inland Revenue powers to ask for information regarding
    "any dividend declared paid or received and any claim to repayment of income tax made by that or any other person at any time during the period specified in the notice, such particulars as they consider necessary for the purposes of sections eighteen and nineteen"
    of the present Bill and for other enactments mentioned in those provisions. The purpose of this is to give the Inland Revenue greater powers than we believe it to possess to delve into activities which may assist it in coming to conclusions about the nature and extent of dividend stripping operations.
    Subsection (2) is of a different kind. That would give to the Treasury special

    1121
    powers of investigation, but only under the affirmative Resolution of this House.
    These powers would enable the authorities to go even deeper into transactions which it might be thought were undertaken mainly for the purpose of getting round the elaborate provisions now made against dividend stripping in Section 4 of the Finance Act (No. 2) Act, 1955, and in Clauses 18 and 19 of this Bill. There, the Treasury, once it was given the necessary authority by order of this House, would be able to seek information from persons, whether acting alone
    "…or in concert with others in acts transactions or arrangements, the object of which was, by devices intended to circumvent the effect of the said sections or enactments or any of them, to avoid liability to income tax or to secure the repayment of income tax paid or deemed to have been paid."
    It will be noted that the new Clause does not confer on the Inland Revenue any remedies for what it may discover. That would be possible only by the normal procedure of this House, but, at least, it would enable the Commissioners of Inland Revenue—permanently in the case of the information they could require under subsection (1), and exceptionally in respect of information which, by order, the Treasury might be empowered to seek under subsection (2)—to have all the information necessary to advise the Chancellor on what was happening to the dividend-stripping legislation.
    I know that this is unorthodox—it is not the sort of thing we usually put in Finance Bills—but, surely, when dealing with this underworld, this labyrinth of dividend strippers, the ingenious people who are erecting highly-artificial structures of company transactions and arrangements solely for the purpose of tax avoidance, we must take exceptional steps. We hope, therefore, that in this new Clause the Chancellor will see a desire to reinforce his efforts to stop these malpractices.
    We feel that this is one respect in which he has probably failed the demands of the Committee and the House in his anti-avoidance proposals. We cannot offer any more in this than that the Chancellor will, perhaps, be better informed at the end of it than he would be without this machinery. There is evidence, surely, to the satisfaction of the House that the Chancellor has not been well informed.
    1122
    This is no reflection upon him, or indeed, upon the Inland Revenue.
    The fact remains that in the autumn of 1955, the then Chancellor and the then Financial Secretary confidently recommended what is now Section 4 of the Finance Act (No. 2) Act, 1955, as the end of the dividend stripper, and now that we see in Clauses 18 and 19 that he is not only not dead but alive and kicking and developing new fields of activity, surely the House will realise that something quite exceptional should be provided to enable this scandal to be brought speedily to an end.
    I sincerely hope that the Chancellor will regard this as a proposal, made in a friendly spirit, designed to fortify his efforts, in which we join, to check the dividend strippers. Let us hear no more about the end of dividend stripping until the Chancellor can satisfy us that he has all the facilities available to deal with further malpractices and can convince us that he can dispense with the additional powers that this new Clause seeks to give him. We hope that he will accept our proposal as a genuine attempt to enable him to deal effectively with the difficulties that have taken so much time on this Finance Bill.
    8.45 p.m.
    Mr. Mitchison: I beg to second the Motion.
    The first and third of its subsections come, of course, from the bond-washing provisions. The penalties are the same, the procedure is the same and the only difference is that the scope of subsection (1) of this Clause is rather more restricted than the corresponding one in the bond-washing Clause.
    I trust that the right hon. Gentleman will not object to the principle of these two subsections, whatever he says about the second subsection to which I shall come in a moment. It seems to me that it is quite clear from the history of dividend stripping that the dividend strippers have always been one step ahead of the Treasury and the Treasury has been chronically short of information as to what they are doing.
    I would regard subsection (1) as an aid to collecting information purely for the purposes of these two dividend stripping subsections, if I may so call them, and, of course, the enactments mentioned in

    1123
    them, which are really part of the same picture. I cannot imagine that the Treasury can say that it does not need these two subsections in the light of the history of the matter. The Treasury has three times at least declared that it can cope with dividend stripping and then not done it. The first time was in 1955, the second time was when this Bill was introduced, which was going to complete the picture at any rate as at the present day, and the third time was when we reached the Report stage of the Bill and found some additional provisions for a similar purpose.
    All that can only come from one of two things, either lack of information or lack of meditation. I should not like to accuse the right hon. Gentleman of not having meditated enough on the matter, and I am driven to the conclusion that his information must have been too scanty. In those circumstances, I cannot imagine him refusing these two subsections.
    Subsection (2) is another matter because it has no parallel in the Income Tax Acts; but then dividend stripping has reached a stage when one is a bit short of parallels for it. Given that history, which I will not repeat, is the Treasury prepared to say that we have now, at long last, not only dealt with whatever practices there are at the time, not only dealt with whatever practices the Treasury can foresee, but have also dealt with any other possible variety of dividend stripping which the ingenious tribe of dividend strippers and their professional advisers may devise from time to time? The Treasury cannot say that on the history of the matter.
    One notices the aversion to retrospective legislation in this matter, and therefore one is forced to see if one can deal with this struggle against this Proteus in some other way. What is suggested here is that the Treasury be given powers to ask for information—and the powers, I agree, are in pretty wide terms—but, at the end of the day, it is only information and no one is going to be oppressed by giving it.
    One has to remember that if through lack of information some new device is concocted by the dividend strippers and the Treasury does not become aware of it for a considerable period, then the loss to the Revenue may amount to very large
    1124
    sums indeed. The trouble about the business is that, so far at any rate, there appears to be quite a long gap between the date when a device was thought up and put into operation and the time when action was taken.
    If the Treasury has the power to collect the information, then, attributing to it due intelligence in dealing with the matter, as, of course, we do, it would then become possible to inquire from the Chancellor of the Exchequer whether he proposed to introduce any orders under the Clause, for, of course, he can do nothing under it except on an affirmative Resolution of the House. It exposes him, I admit at once, to a certain amount of Parliamentary responsibility and, therefore, Parliamentary attack in the intervals between one Finance Bill and another.
    What strikes me about this kind of matter is that hon. Members of the House who are interested in these things very often seem to know quite a lot about what is going on. Whether we know or whether we suspect, it is, at any rate, not inconceivable that we might, by reading the contributions of Mr. Westropp to the Sunday Express or otherwise, discover things which we thought merited the attention of the right hon. Gentleman. The object of the Clause, therefore, is not merely to give him powers but to put him in a position where he can be questioned and, to some extent, be urged to take action between one Finance Bill and another.
    What is the present position? Here is this changing dividend stripper, moving from one variety to another, changing his shape continually, devising first one thing and then another, and doing rather well out of it. What is the Chancellor's position? As I see it, he cannot know anything about a new device until it comes up in some form or another on the question of liability to tax. That, of course, might take some time, particularly if it is in the interests of those concerned that he should not know until they have done as much as they can without his knowing. Then, when it does happen, he is still hamstrung between one Finance Bill and another, unless he is prepared to introduce some special legislation, and no Chancellor has ever introduced a single fiscal Measure with the object of saving the Revenue millions of

    1125
    pounds by stopping some kind of device. There is always that handicap on the right hon. Gentleman, a handicap which may last up to one year, and, on a simple average, would appear to last for six months or so, during which time the dividend strippers, even if he already knows of their devices, have a clear run.
    It is to stop that kind of thing that we suggest that, at least, he should collect the necessary information. As an Opposition, we cannot do more. If we could see a way of imposing further liability on dividend strippers or other such persons, we could not introduce the necessary provisions into a money Bill. All we can do is to suggest that the Chancellor should be informed and avoid the sad history of this matter recurring again and again. Otherwise, it seems tolerably clear that it will.
    Mr. Maudling: My right hon. Friend appreciates the desire of hon. Gentlemen opposite to fortify his powers, but he does not feel that the new Clause would have that result, for reasons which I shall endeavour to explain.
    I should make it clear, in view of one or two things which the hon. and learned Member for Kettering (Mr. Mitchison) has just said, that this is not really the matter which the right hon. Gentleman the Member for Huyton (Mr. H. Wilson) had in mind on Second Reading when he spoke about the possibility of action in the meantime.
    Mr. Mitchison indicated assent.
    Mr. Maudling: That other suggestion, an interesting one, will no doubt be pursued on other occasions. We are here concerned with obtaining information. The impression we have is that the new Clause would not be effective for that purpose.
    The hon. and learned Member alluded to the fact that this proposal is based upon the bond washing section. He will not be surprised to know that that point has been pointed out to us as well. It comes under Section 203 of the Income Tax Act, 1952. However, the circumstances are entirely different, because in bond washing the taxpayer did not show the sacrificed dividend on his return of income. He did not receive that dividend. With a stripped dividend it is different, because he receives the dividend. He must include it in his return of income, since the whole purpose of the operation
    1126
    is to put forward the dividend in support of a repayment claim. Dividend stripping cannot take place until the dividend is brought to the notice of the Inland Revenue.
    The Inland Revenue already has considerable powers which seem adequate to obtain information. A company paying a dividend is bound by statute to give the recipient a certificate regarding the gross amount and the tax deducted. The recipient can be called upon to produce this for inspection and appropriate inquiries about the paying company's circumstances can then be made. An inspector of taxes who is not satisfied as to the validity of the claim in any particular respect can withhold repayment and leave it to the claimant to establish his title by a formal appeal. In that case, all the details would be put forward and the onus would be on the claimant to establish his case by adequate evidence.
    We therefore feel that the case here is not in line with that in bond washing. The dividend will have to be brought to the notice of the Inland Revenue for the purposes of the dividend stripping operation itself, and in those circumstances the Revenue's existing powers are entirely adequate to enable them to obtain all the information that they are likely to wish to have. Therefore, we feel that the first subsection of the proposed new Clause is unnecessary and that the Revenue is already sufficiently armed.
    I come now to the second subsection, which is a more novel and ingenious suggestion. Once again, I suggest to the House that it will not achieve the purpose that the hon. and learned Gentleman has in mind. As the Clause is drafted, inquiries under any order extending the Revenue's powers could only relate to transactions already carried out. Obviously, inquiries about transactions merely in contemplation would not be a fruitful field of inquiry. Even if the subsection of the new Clause is used, in view of the fact that it refers only to past transactions, it would not enable the Revenue to learn of new devices any more quickly than it does in present circumstances, when the transactions culminate, as they must, in the repayment claims. Our belief is that in fact this device, although we recognise the idea behind it, would not enable the Revenue to get on to dividend stripping devices any quicker than it can at the moment.

    1127
    There is this positive disadvantage about the proposal. An order of this kind brought before the House would have to give a fairly clear idea of the sort of device that the Revenue had in mind. Once that appeared, the people who are engaged in these practices would be put on notice that this sort of thing was attracting the attention of the Revenue. There might be a little time left to take advantage of the situation, and possibly a number of people who operate in this way but who had not thought of this device might have some undesirable ideas put into their minds. It is important that the Inland Revenue should not expose its hand in advance of taking action. There is clearly a danger of premature exposure of what the Revenue is searching for, thereby putting people on notice and giving an opportunity to complete transactions in advance of the door being closed upon them.
    For the reasons which I have endeavoured to explain, we feel that the new Clause would not in any way add to the ability of the Inland Revenue to deal with the problem of dividend stripping. With regard to the second suggestion, we feel that there is a danger that it might in practice actually hamper the Inland Revenue. Therefore, for both reasons I must advise the House not to accept the proposed new Clause.
    9.0 p.m.
    Mr. H. Wilson: We should be a great deal more impressed by the argument of the Paymaster-General if we could feel that the Inland Revenue was pursuing this problem with the energy that is required, or, perhaps, to put it more fairly, if the Revenue was put by the Treasury in a position in which it could deal with this practice.
    I do not think that the blame rests upon the Revenue. It rests upon successive Chancellors over the past two or three years. It is plain that the Board of Inland Revenue pressed the then Chancellor in 1955 for action, action which was long delayed and which cost the Revenue millions of pounds. It is clear, again, that there was a long delay before the present Chancellor took action. We all know the sorry and miserable story of his failure to deal with this question adequately this year, a story
    1128
    which, in view of the hour, I do not propose to repeat tonight, as we are trying to set an example to hon. Members opposite in the speed with which our Amendments are dealt with. This is only the second Amendment or new Clause which we have moved all day. We promised the Chancellor that we hoped to get it through much more quickly than would his hon. Friends behind him, who, in the particular circumstances of today, have taken far too long.
    I will not go into all the arguments used by my hon. Friend the Member for Sowerby (Mr. Houghton) and by my hon. and learned Friend the Member for Kettering (Mr. Mitchison). The plain fact is that we would like to see the Treasury armed with powers which, as the right hon. Gentleman knows, it would have been out of order for us to put on the Notice Paper today, and which it would be out of order for me to state at any length now. This proposal of ours is complementary to what we would have liked to propose. We would like power to seek information and to take immediate action. We cannot propose the immediate action. We can at least propose the seeking of information.
    My hon. and learned Friend the Member for Kettering, who is always too kind to the Chancellor of the Exchequer, suggested that the Government's failure to act so far was due either to lack of information or to lack of meditation. We know that it is neither of those two reasons. It is, in fact, a lack of determination. We believe that the Government have the information that is required—they have had it for many years. Everybody in the accountancy profession knows what is going on. Hon. Members, on both sides, could give the Chancellor a full resumé.
    Indeed, when this debate is over, I propose to hand to him a full statement on measures of dividend stripping which he has not even begun to deal with. I should be out of order to deal with them now or say how they should be dealt with. I hope, however, that the Chancellor, if he is still in office, will not wait another year before this problem is dealt with. Nevertheless, we believe that it is important to supplement this information and to make it available to the House by the kind of powers that we have proposed.

    1129
    Bond washing was never fully killed by Section 12 of the Finance Act, 1937. It was not until last year that some of the major evils of it were dealt with by the Stock Exchange Council in August. We feel that it will be necessary to have a sustained drive on a much wider front. The information is needed. Powers are needed to take action between Finance Bills. These proposals we cannot move.
    The Paymaster-General advanced one or two plausible arguments towards the end of his speech about putting these gentlemen on warning. That is only an admission that the Government refuse
    to take power to hit them as soon as they can and, if necessary, retrospectively. Despite the plausible nature of that rather inadequate part of the right hon. Gentleman's reply, it is because we feel that the Government have no determination about this matter, except when something is really forced upon them, that we intend to take this matter into the Division Lobby.
    Question put, That the Clause be read a Second time:—
    The House divided: Ayes 204, Noes 245.

    Division No. 199.]

    AYES

    [9.5 p.m.

    Ainsley, J. W.

    Gaitskell, Rt. Hon. H. T. N.

    MacPherson, Malcolm (Stirling)

    Allaun, Frank (Salford, E.)

    George, Lady Megan Lloyd (Car'then)

    Mahon, Simon

    Allen, Arthur (Bosworth)

    Gibson, C. W.

    Mallalieu, E. L. (Brigg)

    Allen, Scholefield (Crewe)

    Gooch, E. G.

    Mallalieu, J. P. W. (Huddersfd, E.)

    Awbery, S. S.

    Gordon Walker, Rt. Hon. P. C.

    Mann, Mrs. Jean

    Bacon, Miss Alice

    Greenwood, Anthony

    Marquand, Rt. Hon. H. A.

    Baird, J.

    Grenfell, Rt. Hon. D. R.

    Mason, Roy

    Balfour, A.

    Grey, C. F.

    Mayhew, C. P.

    Bence, C. R. (Dunbartonshire, E.)

    Griffiths, David (Rother Valley)

    Mellish, R. J.

    Benn, Hn. Wedgwood (Bristol, S. E.)

    Griffiths, Rt. Hon. James (Llanelly)

    Mitchison, G. R.

    Benson, Sir George

    Griffiths, William (Exchange)

    Morris, Percy (Swansea, W.)

    Beswick, Frank

    Hale, Leslie

    Morrison, Rt. Hn. Herbert (Lewis'm, S.)

    Bevan, Rt. Hon. A. (Ebbw Vale)

    Hall, Rt. Hn. Glenvil (Colne Valley)

    Mort, D. L.

    Blackburn, F.

    Hamilton, W. W.

    Moss, R.

    Blenkinsop, A.

    Hannan, W.

    Moyle, A.

    Blyton, W. R.

    Harrison, J. (Nottingham, N.)

    Mulley, F. W.

    Boardman, H.

    Hastings, S.

    Neal, Harold (Bolsover)

    Bottomley, Rt. Hon. A. G.

    Hayman, F. H.

    Noel-Baker, Francis (Swindon)

    Bowden, H. W. (Leicester, S. W.)

    Herbison, Miss M.

    Oliver, G. H.

    Boyd, T. C.

    Hobson, C. R. (Keighley)

    Oswald, T.

    Braddock, Mrs. Elizabeth

    Holman, P.

    Owen, W. J.

    Brockway, A. F.

    Holmes, Horace

    Padley, W. E.

    Broughton, Dr. A. D. D.

    Houghton, Douglas

    Paget, R. T.

    Brown, Rt. Hon. George (Belper)

    Howell, Charles (Perry Barr)

    Palmer, A. M. F.

    Brown, Thomas (Ince)

    Howell, Denis (All Saints)

    Pargiter, G. A.

    Burke, W. A.

    Hoy, J. H.

    Parker, J.

    Butler, Herbert (Hackney, C.)

    Hubbard, T. F.

    Parkin, B. T.

    Castle, Mrs. B. A.

    Hughes, Emrys (S. Ayrshire)

    Paton, John

    Champion, A. J.

    Hunter, A. E.

    Peart, T. F.

    Chapman, W. D.

    Hynd, J. B. (Attercliffe)

    Pentland, N.

    Chetwynd, G. R.

    Irvine, A. J. (Edge Hill)

    Popplewell, E.

    Clunie, J.

    Irving, Sydney (Dartford)

    Prentice, R. E.

    Coldrick, W.

    Jay, Rt. Hon. D. P. T.

    Price, J. T. (Westhoughton)

    Collick, P. H. (Birkenhead)

    Jeger, Mrs. Lena (Holbn & St. Pncs, S.)

    Proctor, W. T.

    Collins, V. J. (Shoreditch & Finsbury)

    Jenkins, Roy (Stechford)

    Pursey, Cmdr. H.

    Cove, W. G.

    Johnson, James (Rugby)

    Rankin, John

    Craddock, George (Bradford, S.)

    Jones, Rt. Hon. A. Creech (Wakefield)

    Redhead, E. C.

    Cronin, J. D.

    Jones, David (The Hartlepools)

    Rhodes, H.

    Cullen, Mrs. A.

    Jones, J. Idwal (Wrexham)

    Roberts, Albert (Normanton)

    Dalton, Rt. Hon. H.

    Jones, T. W. (Merioneth)

    Roberts, Goronwy (Caernarvon)

    Darling, George (Hillsborough)

    Davies, Stephen (Merthyr)

    Kenyon, C.

    Rogers, George (Kensington, N.)

    Deer, G.

    Key, Rt. Hon. C. W.

    Ross, William

    de Freitas, Geoffrey

    King, Dr. H. M.

    Royle, C.

    Delargy, H. J.

    Lawson, G. M.

    Short, E. W.

    Diamond, John

    Ledger, R. J.

    Shurmer, P. L. E.

    Dodds, N. N.

    Lee, Frederick (Newton)

    Silverman, Julius (Aston)

    Dugdale, Rt. Hn. John (W. Brmwch)

    Lee, Miss Jennie (Cannock)

    Silverman, Sydney (Nelson)

    Dye, S.

    Lever, Harold (Cheetham)

    Skeffington, A. M.

    Ede, Rt. Hon. J. C.

    Lever, Leslie (Ardwick)

    Slater, Mrs. H. (Stoke, N.)

    Edwards, Rt. Hon. John (Brighouse)

    Lindgren, G. S.

    Slater, J. (Sedgefield)

    Edwards, Rt. Hon. Ness (Caerphilly)

    Logan, D. G.

    Smith, Ellis (Stoke, S.)

    Edwards, Robert (Bilston)

    Mabon, Dr. J. Dickson

    Sorensen, R. W.

    Edwards, W. J. (Stepney)

    McAlister, Mrs. Mary

    Soskice, Rt. Hon. Sir Frank

    Evans, Albert (Islington, S. W.)

    McCann, J.

    Sparks, J. A.

    Fernyhough, E.

    MacColl, J. E.

    Spriggs, Leslie

    Finch, H. J.

    MacDermot, Niall

    Steele, T.

    Fitch, Alan

    McInnes, J.

    Stonehouse, John

    Fletcher, Eric

    McKay, John (Wallsend)

    Stones, W. (Consett)

    Fraser, Thomas (Hamilton)

    McLeavy, Frank

    Strachey, Rt. Hon. J.

    Stross, Dr. Barnett (Stoke-on-Trent, C.)

    Usborne, H. C.

    Williams, W. R. (Openshaw)

    Summerskill, Rt. Hon. E.

    Warbey, W. N.

    Willis, Eustace (Edinburgh, E.)

    Sylvester, G. O.

    Weitzman, D.

    Wilson, Rt. Hon. Harold (Huyton)

    Taylor, Bernard (Mansfield)

    Wheeldon, W. E.

    Winterbottom, Richard

    Taylor, John (West Lothian)

    White, Mrs. Eirene (E. Flint)

    Woof, R. E.

    Thomas, Iorwerth (Rhondda, W.)

    Wilkins, W. A.

    Yates, V. (Ladywood)

    Thomson, George (Dundee, E.)

    Willey, Frederick

    Thornton, E.

    Williams, David (Neath)

    TELLERS FOR THE AYES:

    Tomney, F.

    Williams, Rev. Llywelyn (Ab'tillery)

    Mr. Pearson and Mr. Simmons.

    Ungoed-Thomas, Sir Lynn

    Williams, Rt. Hon. T. (Don Valley)

    NOES

    Agnew, Sir Peter

    Fort, R.

    Legh, Hon. Peter (Petersfield)

    Aitken, W. T.

    Fraser, Hon. Hugh (Stone)

    Lindsay, Hon. James (Devon, N.)

    Allan, R. A. (Paddington, S.)

    Fraser, Sir Ian (M'cmbe & Lonsdale)

    Linstead, Sir H. N.

    Alport, C. J. M.

    Gammans, Lady

    Lloyd, Maj. Sir Guy (Renfrew, E.)

    Amory, Rt. Hn. Heathcoat (Tiverton)

    Garner-Evans, E. H.

    Longden, Gilbert

    Arbuthnot, John

    George, J. C. (Pollok)

    Low, Rt. Hon. Sir Toby

    Armstrong, C. W.

    Glover, D.

    Lucas, Sir Jocelyn (Portsmouth, S.)

    Ashton, H.

    Godber, J. B.

    Lucas, P. B. (Brentford & Chiswick)

    Atkins, H. E.

    Goodhart, Philip

    Lucas-Tooth, Sir Hugh

    Baldock, Lt.-Cmdr. J. M.

    Gower, H. R.

    Macdonald, Sir Peter

    Baldwin, Sir Archer

    Graham, Sir Fergus

    Mackeson, Brig. Sir Harry

    Balniel, Lord

    Grant-Ferris, Wg Cdr. R. (Nantwich)

    Mackie, J. H. (Galloway)

    Barber, Anthony

    Green, A.

    McLaughlin, Mrs. P.

    Barlow, Sir John

    Gresham Cooke, R.

    Maclean, Sir Fitzroy (Lancaster)

    Barter, John

    Grimond, J.

    Macmillan, Maurice (Halifax)

    Batsford, Brian

    Grimston, Hon. John (St. Albans)

    Maddan, Martin

    Baxter, Sir Beveley

    Grimston, Sir Robert (Westbury)

    Maitland, Cdr. J. F. W. (Horncastle)

    Beamish, Col. Tufton

    Gurden, Harold

    Maitland, Hon. Patrick (Lanark)

    Bell, Philip (Bolton, E.)

    Hall, John (Wycombe)

    Manningham-Buller, Rt. Hn. Sir R.

    Bell, Ronald (Bucks, S.)

    Harris, Frederic (Croydon, N. W.)

    Markham, Major Sir Frank

    Bennett, F. M. (Torquay)

    Harris, Reader (Heston)

    Marlowe, A. A. H.

    Bennett, Dr. Reginald

    Harrison, A. B. C. (Maldon)

    Marshall, Douglas

    Bevins, J. R. (Toxteth)

    Harvey, John (Walthamstow, E.)

    Mathew, R.

    Bidgood, J. C.

    Hay, John

    Maudling, Rt. Hon. R.

    Biggs-Davison, J. A.

    Head, Rt. Hon. A. H.

    Mawby, R. L.

    Birch, Rt. Hon. Nigel

    Heald, Rt. Hon. Sir Lionel

    Maydon, Lt.-Comdr. S. L. C.

    Bishop, F. P.

    Heath, Rt. Hon. E. R. G.

    Milligan, Rt. Hon. W. R.

    Black, C. W.

    Henderson-Stewart, Sir James

    Morrison, John (Salisbury)

    Body, R. F.

    Hesketh, R. F.

    Mott-Radclyffe, Sir Charles

    Bonham Carter, Mark

    Hill, Rt. Hon. Charles (Luton)

    Neave, Airey

    Boothby, Sir Robert

    Hill, Mrs. E. (Wythenshawe)

    Nicholson, Sir Godfrey (Farnham)

    Boyd-Carpenter, Rt. Hon. J. A.

    Hill, John (S. Norfolk)

    Nicolson, N. (B'n'm'th, E. & Chr'ch)

    Braine, B. R.

    Hinchingbrooke, Viscount

    Noble, Comdr. Rt. Hon. Allan

    Brooman-White, R. C.

    Hobson, John (Warwick & Leam'gt'n)

    Noble, Michael (Argyll)

    Browne, J. Nixon (Craigton)

    Holland-Martin, C. J.

    Oakshott, H. D.

    Bryan, P.

    Holt, A. F.

    O'Neill, Hn. Phelim (Co. Antrim. N.)

    Burden, F. F. A.

    Hope, Lord John

    Orr, Capt. L. P. S.

    Butler, Rt. Hn. R. A. (Saffron Walden)

    Hornby, R. P.

    Orr-Ewing, Charles Ian (Hendon, N.)

    Carr, Robert

    Hornsby-Smith, Miss M. P.

    Page, R. G.

    Cary, Sir Robert

    Horsbrugh, Rt. Hon. Dame Florence

    Pannell, N. A. (Kirkdale)

    Chichester-Clark, R.

    Howard, Gerald (Cambridgeshire)

    Partridge, E.

    Clarke, Brig. Terence (Portsmth, W.)

    Howard, Hon. Greville (St. Ives)

    Peel, W. J.

    Cole, Norman

    Howard, John (Test)

    Peyton, J. W. W.

    Conant, Maj. Sir Roger

    Hudson, W. R. A. (Hull, N.)

    Pickthorn, K. W. M.

    Cooper-Key, E. M.

    Hughes, Hallett, Vice-Admiral J.

    Pike, Miss Mervyn

    Cordeaux, Lt.-Col. J. K.

    Hughes-Young, M. H. C.

    Pilkington, Capt. R. A.

    Craddock, Beresford (Spelthorne)

    Hurd, A. R.

    Pitman, I. J.

    Crosthwaite-Eyre, Col. O. E.

    Hutchison, Michael Clark (E'b'gh, S.)

    Pitt, Miss E. M.

    Crowder, Sir John (Finchley)

    Hyde, Montgomery

    Powell, J. Enoch

    Crowder, Petre (Ruislip—Northwood)

    Hylton-Foster, Rt. Hon. Sir Harry

    Price, David (Eastleigh)

    Cunningham, Knox

    Iremonger, T. L.

    Price, Henry (Lewisham, W.)

    Currie, G. B. H.

    Irvine, Bryant Godman (Rye)

    Prior-Palmer, Brig. O. L.

    Dance, J. C. G.

    Jenkins, Robert (Dulwich)

    Ramsden, J. E.

    Davidson, Viscountess

    Jennings, J. C. (Burton)

    Redmayne, M.

    D'Avigdor-Goldsmid, Sir Henry

    Deedes, W. F.

    Jennings, Sir Roland (Hallam)

    Renton, D. L. M.

    Digby, Simon Wingfield

    Johnson, Dr. Donald (Carlisle)

    Ridsdale, J. E.

    Donaldson, Cmdr. C. E. McA.

    Johnson, Eric (Blackley)

    Roberts, Sir Peter (Heeley)

    Doughty, C. J. A.

    Jones, Rt. Hon. Aubrey (Hall Green)

    Rodgers, John (Sevenoaks)

    Drayson, G. B.

    Joseph, Sir Keith

    Roper, Sir Harold

    du Cann, E. D. L.

    Keegan, D.

    Ropner, Col. Sir Leonard

    Dugdale, Rt. Hn. Sir T. (Richmond)

    Kerby, Capt. H. B.

    Sharples, R. C.

    Duncan, Sir James

    Kerr, Sir Hamilton

    Shepherd, William

    Duthie, W. S.

    Kershaw, J. A.

    Simon, J. E. S. (Middlesbrough, W.)

    Eden, J. B. (Bournemouth, West)

    Kimball, M.

    Spearman, Sir Alexander

    Elliott, R. W. (Ne'castle upon Tyne, N.)

    Kirk, P. M.

    Speir, R. M.

    Emmet, Hon. Mrs. Evelyn

    Lagden, G. W.

    Stanley, Capt. Hon. Richard

    Errington, Sir Eric

    Lambton, Viscount

    Stevens, Geoffrey

    Farey-Jones, F. W.

    Lancaster, Col. C. G.

    Steward, Harold (Stockport, S.)

    Fell, A.

    Leather, E. H. C.

    Steward, Sir William (Woolwich, W.)

    Finlay, Graeme

    Leavey, J. A.

    Storey, S.

    Fisher, Nigel

    Legge-Bourke, Maj. E. A. H.

    Stuart, Rt. Hon. James (Moray)

    Fletcher-Cooke, C.

    1132

    1133

    Studholme, Sir Henry

    Tilney, John (Wavertree)

    Webster, David

    Summers, Sir Spencer

    Turton, Rt. Hon. R. H.

    Whitelaw, W. S. I.

    Sumner, W. D. M. (Orpington)

    Tweedsmuir, Lady

    Williams, Paul (Sunderland, S.)

    Taylor, William (Bradford, N.)

    Vane, W. M. F.

    Williams, R. Dudley (Exeter)

    Teeling, W.

    Vaughan-Morgan, J. K.

    Wills, Sir Gerald (Bridgwater)

    Temple, John M.

    Vickers, Miss Joan

    Wilson, Geoffrey (Truro)

    Thomas, Leslie (Canterbury)

    Vosper, Rt. Hon. D. F.

    Wood, Hon. R.

    Thomas, P. J. M. (Conway)

    Wade, D. W.

    Woollam, John Victor

    Thompson, Kenneth (Walton)

    Wakefield, Edward (Derbyshire, W.)

    Thornton-Kemsley, Sir Colin

    Wall, Patrick

    TELLERS FOR THE NOES

    Tiley, A. (Bradford, W.)

    Ward, Dame Irene (Tynemouth)

    Colonel J. H. Harrison and

    Mr. Gibson-Watt.

    New Clause.—(ANNUAL REPORTS OF CHARITABLE BODIES.)
    No body of persons or trust established for charitable purposes only shall be deprived of the exemption granted under paragraph (b) of subsection (1) of section four hundred and forty-seven of the Income Tax Act, 1952, solely by reason of the fact that the body of persons or trust issues an annual report or any transactions free to members.—[Mrs. White.]
    Brought up, and read the First time.
    Mrs. Eirene White: I beg to move, That the Clause be read a Second time.
    The object of the new Clause is to assist learned societies and similar charitable bodies who have relied until recently for part of their income on covenanted subscriptions on which they were allowed to have tax rebates from the Inland Revenue. I raised this matter, which is of considerable concern to a large number of learned and cultural societies, during our debates on the Budget speech.
    I am not sure whether all hon. Members are aware how many societies with varied interests have been affected or believe that they may be affected by the recent activities of the Inland Revenue in disallowing covenanted subscriptions. Societies dealing with subjects as diverse as chemistry, astronomy, numismatics, anthropology, folklore, genealogy, Egyptian, Roman and Hellenic studies and ornithology, and a vast list of similar subjects, have been put in a state of apprehension and confusion by a decision which affected a society with characteristics rather different from those of many of the societies which I have mentioned.
    9.15 p.m.
    When this matter was raised in the Budget debate we did not have a reply from the Government and I therefore took the opportunity of writing to the Financial Secretary on the matter, from whom I received a reply dated 19th June. In this reply the hon. and learned Gentleman referred me in particular to the case of the National Book League
    1134
    which was heard in the High Court in July, 1956, after being heard previously by the Special Commissioners and also in the lower court. The Minister wrote to me as follows:
    "In relation to the matter you raise, the most relevant case, as you know, is the judgment of the Court of Appeal in the National Book League case."
    Far be it from me to chop legal logic with the Solicitor-General, whom I believe is to reply to this debate, but I would like to emphasise that in that case, on which the Financial Secretary based the whole of his letter to me, the Master of the Rolls in delivering judgment pointed out at page 470 of the "Tax Cases Reports" that:
    "The present case must turn upon its own special facts; and, as I shall observe presently, I think the facts in the present case are special in a marked degree."
    In other words, as the Master of the Rolls considered that the case of the National Book League was special in a marked degree, it is not satisfactory to base one's reply in this matter on that case because there were in that instance some special circumstances. I do not wish to detain the House by going into them in any detail, but anyone who has studied this case knows that the National Book League is indeed a charitable body. Its pursuits are most admirable, as all the judges in the Court of Appeal agreed, but it has certain characteristics which do not obtain with many of the other societies mentioned. Among other things, it provides a restaurant and certain facilities which might be considered to be equivalent to club facilities. Also there were other circumstances of a rather ill-advised letter sent by its chairman to its investing subscribers offering them unusual advantages in return for their covenants.
    The Solicitor-General: He gave the show away.
    Mrs. White: That I would grant, and I am not wishing to dispute the judgment of the Court of Appeal. Far be it from

    1135
    me to do that. What I am saying is that it disturbed me very much to find from the letter sent to me by the Financial Secretary that it appears that the Treasury is still considering that the case of the National Book League should be regarded as a test by which one should judge the various other societies concerned in this matter.
    Sir Lynn Ungoed-Thomas (Leicester, North-East): It gave the show away.
    Mrs. White: Indeed the letter of the Financial Secretary gave the show away completely to my mind.
    So far from accepting the case of the National Book League as one which should be universally applicable, as the Solicitor-General is no doubt aware, a number of learned societies came together and decided to put forward two other organisations as possible test cases. I believe that the British Academy and the Society of Antiquaries are making cases to the Special Commissioners and that these are to be considered in a few months' time. It seems to those of us who have looked into the matter that there is more than a question of law at stake. There is also a question of public policy. While I hesitate to dispute any legal matter with the Solicitor-General—
    Mr. John Paton: Why?
    Mrs. White: —I am not yet a Portia come to judgment—I want to put as forcibly as I can the question of public policy which appears to be involved.
    The societies concerned vary from great national learned societies whose names are universally known to small local bodies, local archaeological societies, for example, and I believe that in certain areas there are friends of cathedrals and bodies of that kind whose position is at least in doubt if they issue publications. There are bodies like the Wild Life Trust and similar bodies concerned with the study of natural history and so on, some of them with a small membership and appealing to a limited number of persons, but doing valuable and completely disinterested work in their own line and who find it by no means easy to survive in the present age when the ability of
    1136
    private patrons to support them is not great.
    Therefore, as a matter of public policy, we should seriously consider whether, instead of pursuing the societies—quite legitimately, perhaps—the Inland Revenue should not be directed to take a different line. The societies vary enormously in size and character, conditions of membership, the nature of their publications, and so forth. I admit that it is not easy to legislate satisfactorily for all of them.
    Some whose covenants have been disallowed are in a special position. I am thinking of the society to whose secretary I spoke only today. I am told that this society has lost about £500 a year as a result of the refusal of the Inland Revenue to allow its covenanted subscriptions. On the other hand, it is one of those bodies which, through the Royal Society, which presents these applications to the Treasury, is eligible for a grant from the Government towards the cost of scientific publications. It therefore hopes to obtain by one means what it is losing in another. The society is in that happy position and is not unduly worrying about the £500 a year revenue loss, because it hopes that it will get that back since it ranks as a scientific society within the ambit of the Treasury fund for supporting scientific publication.
    However, there are many other societies, especially the smaller and local ones, which have no such reinsurance arrangement with the Treasury. They will be hit very hard. There is the possibility, at which Lord Evershed more than hinted in his ruling on the National Book League case, that some of the societies could reorganise their subscriptions in such a way that they could covenant for part of the subscriptions and not for some other part. That is a lawyer's way out and no doubt fat fees will be earned by members of the legal profession for advising societies how best to do all this.
    Some of the societies which I have questioned have said that they dislike the idea of having to undertake something which they regard as something of a "wangle", feeling that that is something which bodies of their nature should not be asked to undertake. They feel

    1137
    that it is beneath the dignity of great learned societies to have to stoop to this kind of—it would not be a fiddle, of course—wangle. Possibly the Treasury has very little sympathy with that.
    I suggest in all earnestness that we should look again at the relations between the State and these societies which are charitable by nature—that is not in dispute at all—and which are pursuing learning in some shape or form. There are various anomalies. For example, as Lord Evershed pointed out, the National Art Collection Fund is apparently allowed to retain covenanted subscriptions, although it offers certain benefits to its members in that they may visit collections free of charge which would not be available to ordinary members of the public.
    The National Trust, I believe, although it allows its members free access to various houses and estates, has also managed somehow or other to get round the Inland Revenue. On the other hand, there are other bodies which provide publications and lectures which are available to the public, and libraries open to any bona fide students free of charge; in other words, amenities which seem to me to be no greater in degree than those offered by the two bodies I have mentioned, but which have not been allowed to keep their covenanted subscriptions. Therefore, there is a great deal of confusion in this matter.
    If we take as our main object that we should regard it as a matter of public policy to foster these bodies, we should look at this whole question in a different way. The new Clause which we have submitted is not intended to be a complete answer to this problem. We recognise that the problem is a complex one, and the aim of the new Clause is to secure to the societies the absolute minimum to which we think they should be entitled as a matter of public policy. We suggest that a body which issues an annual report or transactions free to its members should not, for that reason, lose the benefit of covenanted subscriptions.
    There may possibly be other considerations, such as there undoubtedly were in the case of the National Book League, which would lead the Inland Revenue to suggest that the benefits received in return for covenanted subscriptions were such that they could not be regarded as
    1138
    free income profit, which is the phrase used to cover these matters. We suggest that, at the very least, these societies should be assured that if all they give to their members is an annual report or transactions in return for subscriptions, those societies should feel that they at least were in the clear.
    Unless we give them this assurance, it means that these bodies have to have all the worry and anxiety of not knowing what income they have at their disposal. They have to prepare a case for submission to the Special Commissioners, brief counsel and so on. Why should they be put to all this trouble and worry if we really wish to support them and the objects for which they stand?
    It may be said that the word "transactions" may cover a wide variety of publications, and I am sure that a lawyer could make it mean that. I am happy to know that the Solicitor-General raises no objection on that score, and I think that the proposal we make is the minimum reasonable proposal that could be made to show that we wish to support the activities of these bodies.
    9.30 p.m.
    If we look at the wider question of the relationship between the State and these bodies—and I think the House ought to do so—we see that something more is needed than the Clause. The Minister of Housing and Local Government has set up the Pritchard Committee to deal with the cognate problem of the difficulties of rating societies of the kind that we have been discussing. The time has arrived when we might have a Treasury Committee to look into the whole relationship between the Exchequer and societies of the kind that we have been discussing.
    Mr. Speaker: I dislike interrupting the hon. Lady, but I do not think that rating is involved in the Clause.
    Mrs. White: I was not discussing rating, Mr. Speaker. I was merely mentioning, by way of analogy, that a Committee had been set up by another Minister to consider the question of rating, and I was suggesting that it might be desirable for the Treasury to set up a Committee to study the question of taxation, as opposed to rating, as it affects these societies.
    The Chancellor will remember that when Entertainments Duty applied to

    1139
    theatres and similar bodies, other than cinemas—to which it is now applied exclusively—there was an arrangement whereby the duty was remitted not according to the particular performance but according to the nature of the organisation which undertook it. Something similar to that ought to apply to our dealings with the learned societies and cultural bodies which experience this difficulty.
    I grant that that is too complex a matter to deal with in debate today, but there is a very strong case for dealing with these matters not according to the strict logic of Inland Revenue law but according to the aims of public policy. That case might very well be met better by looking at the nature of the body rather than too strictly and in too great detail at the precise benefits which its members receive. But at this stage, in order to sustain these societies, we suggest as a minimum that the issue of an annual report or transactions, of itself, should not debar them from the advantage upon which many of them depend for a large proportion of their revenue—the advantage of receiving subscriptions under a covenant and obtaining the benefit therefrom.
    Mr. E. Fletcher: I beg to second the Motion, which has been so admirably moved by my hon. Friend the Member for Flint, East (Mrs. White)—with all the eloquence of a Portia come to judgment.
    I must admit to a certain personal interest in this matter. I cannot conceal the fact that I am a member of one or two learned societies. I hope that that will not disentitle me from seconding the Motion with a complete sense of objectivity, impartiality and brevity—and with no lack of enthusiasm.
    The Clause deals with a very serious issue, which the Tory Government must face. In this day and age learned societies are faced with a very serious financial problem, largely as a result of the quite adventitious decision of the Court of Appeal in the case concerning the National Book League. I have no doubt that the Solicitor-General has read the article in the Observer entitled, "The Inland Revenue v. the Learned Societies," but what a tragedy it is that there should have to be such an article. Why should the Inland Revenue be against learned societies? Surely it is the duty of the Inland Revenue and of the Government
    1140
    to do what they can to succour and sustain learned societies, not to pillory and harass them at every stage.
    The learned societies, heaven knows, have frightful economic problems. They are fighting the cause of learning and scholarship. They are dependent upon their subscriptions, paid by heavily taxed taxpayers in order that those societies may maintain a certain level of scholarship for which this country has obtained a reputation in the years gone by. The plight of these learned societies has become very serious indeed, because, as the Observer said, of a decision, reluctantly taken, in favour of the Inland Revenue in the case of the National Book League.
    Shorn of all technicalities, the position is that for a long time many learned societies of various kinds have published transactions of various kinds, historical, geographical, archæological or anthropological. They have depended upon covenanted subscriptions by people in different parts of the country. Because those people pay by covenant, the societies have been able to recover the tax.
    Some of these societies hold meetings in London, and some have premises while others have to hire premises. Because of the unfortunate decision in the case of the National Book League, the Inland Revenue now says, "Some of these members may get benefit from their subscriptions if they live in London because they can use the library or the rooms when they go to a meeting". That is perfectly true, but the vast majority of the people do not have these amenities. They pay their subscriptions by covenant and they receive a volume of transactions. They have been doing that for a number of years and, therefore, the societies have been able to get benefit.
    In the National Book League case, the Court of Appeal said, "These people choose to pay in that way. There may be some benefit. Therefore, this cannot be regarded as a purely voluntary subscription which entitles the society to relief of Income Tax". The Court came to that decision with very great reluctance. There is no doubt that learned societies are faced now either with resorting to subterfuge, which they do not want to do, such as splitting up the subscription into two parts, or with having a legislative

    1141
    remedy. The obvious remedy, as the Court pointed out, through Lord Evershed, Master of the Rolls—and as every other intelligent person has pointed out—is that of legislation. We have therefore put a quite simple new Clause on the Notice Paper and we hope that it will receive the support of the whole House.
    I cannot conceive of any argument against the proposed new Clause on its merits. Surely the Government, who pretend to have at heart the interests of learning and of scholarship, and make various subventions with that in view, should have the common sense to see that the right way to aid learned societies is to accept the proposed new Clause and so remedy the great injustice, anomaly and absurdity that has been caused by the National Book League decision.
    I realise that the Conservative Party is always regarded as the stupid party. I happen to think that this particular Conservative Party is the most stupid party we have ever had in this country. I do not think the present Solicitor-General is the most stupid Solicitor-General, but I do think that the whole of the Tory Party stands condemned of a great deal of stupidity and obscurantism. This Clause, the Second Reading of which my hon. Friend moved so eloquently, is the real acid test as to whether this stupid Conservative Party, which has always prided itself on its stupidity, has the intelligence, the decency and commonsense to realise and recognise the cost of learning and scholarship and the learned societies of this country or not. We shall hear the answer to that question when the Solicitor-General replies.
    The Solicitor-General: With regard to the customary speech of the hon. Member for Islington, East (Mr. E. Fletcher), I do not know how the matter lies. I am grateful to the Opposition for raising the basic question of public policy here, and I am not going to run away from it for a moment. I am going to invite the consideration of hon. Members opposite to points I have to raise, but as to the test of which is the stupid party I am bound to take the point that on the best advice I can get and in my own view the effect of this Clause which is to be the saving grace of the learned societies would be absolutely nil.
    Mr. E. Fletcher: Quite wrong.
    The Solicitor-General: I am told I am quite wrong, and before I move to public policy I must explain the point because that is essential to an understanding of what we are here concerned with.
    The Clause makes an assumption. It assumes that the charity or learned society could lose an exemption, with which the Clause is concerned, by reason of rendering services by publishing literature, or whatever it may be; but that is not so. The assumption is wrong. The exemption under Section 447 is an exemption related to "annual payments." Cases like that of the National Book League, where the charity was held not to be entitled to recover the tax purported to be deducted by the payer when he pays the subscription, proceed not on the basis that the charity or learned society loses its charitable status, not on the basis that it loses its exemption in relation to annual payments, but that the effect of what it has done is to make the payment not an annual payment for the purpose of these provisions. That is why the Clause would have no effect, and I am bound to say at the outset that it would not assist anybody in any way because it works on the basis of an assumed "annual payment."
    I do not seem to have made that very plain. Perhaps I may develop it so as to make it quite plain. Annual payments within Section 447 are payments which are not the subject matter of a condition or counter stipulation on the part of the charity. The phrase which the hon. Lady the Member for Flint, East (Mrs. White) quoted from Lord Greene is exactly right, in order to constitute annual payments they must be pure income profit in the hands of the charity or they are not annual payments for the purposes of the Section.
    That is the basis of all this argument, the reason why there have been cases like the National Book League case, where the charity has not been entitled to recover tax is just on that basis. The payer is not entitled to deduct tax when he pays unless the payment is an annual payment for the purposes of the law, and, therefore, the charity is not entitled to recover tax when it receives the money unless it be an annual payment for the purposes of the law.

    1143
    The reason in the case of the National Book League why the charity cannot get the benefit back is not that it ceases to be a charity for the purposes of the enactment. I hope that, having made it quite clear that it really would not be sensible in any way to accept this new Clause, because it would not have any effect at all, I may turn to the serious matter of public policy.
    9.45 p.m.
    Mrs. White: I am sorry, but those of us who are not learned in the law are still not clear. The Solicitor-General keeps using the technical phrases "annual payment" and "pure income profit." I think that the right hon. and learned Gentleman needs to explain it in a little more detail, and slightly more lucidly, for us to appreciate fully what he means and why the Clause that we propose falls on that ground.
    As I understand it, "pure income profit" means, among other things, that the recipient of the subscription—the organisation—does not have to enter into expense. That is one of the conditions, is it not? And after all, if it is issuing reports or transactions, there is some expense in doing that. I do not know whether I am on a point there which is acceptable; perhaps the Solicitor-General will explain further.
    The Solicitor-General: One of the strange matters about this is the hon. Lady's modesty in bandying law with Solicitors-General. I hope that when in a new incarnation she takes up one of her many natural and attractive rôles, as Portia, it will not be my misfortune to have to conduct cases against her.
    May I try from the beginning, as I desire to make this point quite plain so as to have the agreement of the House about it? The hon. Member's Clause says this:
    "No body of persons or trust established for charitable purposes only shall be deprived of the exemption granted under paragraph (b) of subsection (1) of Section four hundred and forty-seven of the Income Tax Act, 1952, solely by reason of the fact that the body of persons or trust issues an annual report or any transactions free to members."
    The problem is, first of all, to see what is the exemption that they are not to lose, and I look at Section 447, paragraph (b), in order to see what it is. This is what the Section says:
    "Exemption shall be granted"—
    1144
    and then there is paragraph (a), which does not matter, and then paragraph (b) to which the new Clause refers. And paragraph (b) states:
    "from tax chargeable under Schedule B"—
    I am sorry, that cannot be right.
    Mr. E. Fletcher: It cannot be.
    The Solicitor-General: No, the whole Clause is wrong. It must be because the reference in (b) is to tax chargeable under Schedule B in respect of lands occupied by a charity which cannot on any conceivable grounds be what was intended.
    Mr. Fletcher: Does this have any effect on the reason why the Government are not able to accept the Clause?
    The Solicitor-General: No effect whatsoever.
    Here it is at (b)—
    "from tax chargeable under Schedule C in respect of any interest, annuities, dividends or shares of annuities, and from tax chargeable under Schedule D in respect of any yearly interest or other annual payment…"
    We are here concerned with another annual payment charged under Case III of Schedule D—
    Mr. Roy Jenkins: I am a little confused about this. Perhaps the Solicitor-General can tell us whether he now thinks the Clause means what he originally thought it meant, which he thought did not achieve the purpose we had in mind, or whether he thinks it means something different from what he originally thought it meant.
    The Solicitor-General: I am obliged to the hon. Member, but I know that he will let me convince even him that the Clause is quite worthless for the purpose for which it was put down. I answer very firmly that I have so far read the Section, and I have told him what is true, that what we have to find in order to confer the exemption is an annual payment for the purpose of Case III of Schedule D.
    By well-established principles of law, one does not get such an annual payment unless one has something that is received by the recipient charity as pure income profit. That is not a phrase to be found in the Statute, but it is well established in many of the cases, and the difficulty about a wide range of these cases where services are rendered or literature is issued by the charitable body is that the

    1145
    charity may be incurring expenditure which inures to the benefit of the subscriber and, in that sense, what the charity receives from the subscriber is not pure income profit.
    Those are my reasons for saying that the Clause will have no effect, and then we get on to the main issue of public policy—[Interruption.] I am not sure that the hon. Member is assisting me, but if he is I am glad to have his assistance if only in regard to the point made about stupid parties.
    Aye or no, the question is: is the service rendered by the charity or the literature put forward a matter of sufficient substance as to mean that the charity is incurring some expense which inures to the benefit of the subscriber? If it is, the payment ceases to be an annual payment, and this Clause has nothing to do with it, because it would not, in any circumstances, lose the exemption appropriate to the annual payment. It is just that the payment would not be an annual payment.
    May I turn now to the question of policy, which is rather more important, perhaps, in its consequences. The hon. Lady, in courteous terms, was complaining that my hon. and learned Friend the Financial Secretary had, in his answer, referred to the judgment of the Court of Appeal in the National Book League case. I would be the first to concede that, of course, the National Book League case is one decided on very special facts; and that we lawyers are advised, as I venture to think is quite reasonable in the circumstances, to look not so much at the facts of the case as at the principle embodied in the judgment applied to them.
    I am sure that what my hon. and learned Friend was asking the hon. Lady to do was to look at the judgment and to look at the principle, and I must say that I think it is a little harsh that the Revenue should be attacked here by the hon. Member for Islington, East, and by the article in the Press, which I read—
    Mr. E. Fletcher: And the Court of Appeal.
    The Solicitor-General: I will only deal with two tigers at once, please—a little harsh that the Revenue should be attacked as though it had some discretion
    1146
    over policy in the matter. It has to apply the law, and if the law is wrong it is up to this House to alter it. That is why I am grateful to hon. Members for raising the policy matter here. That is quite right and sensible, but it is very different from launching an attack on the Revenue, which cannot defend itself. It gives me the opportunity of speaking of the principles on which the Revenue acts in applying the law. It does seem that justice in this field is quite well secured. Of course, if the benefits which the charitable body confers on its subscribers are just trifling, they may be quite properly ignored, and are ignored, and it will be the object of the Inland Revenue to ignore them.
    I suggest that the right test is that contained, for instance, in Lord Justice Morris's judgment. I will quote from page 475. The learned Lord Justice was stating the question as he thought it should be stated, and said:
    "The question arises whether the payments can be said to be pure gifts to the charity. In the terms of a phrase which has been used, can the payments be said to be pure income profit in the hands of the charity? If the payments were made in such circumstances that the League was obliged to afford to the covenantors such amenities and such benefits of membership as would at any particular time be offered to all members, and if those amenities and benefits were appreciable and not negligible, then I do not think that the payments were pure income profit in the hands of the charity."
    That is the principle on which the Revenue in this field would seek to apply its test. It can be wrong like any other mortals. The question is for the Revenue in the first instance, but there is, after all, an appeal to the Special Commissioners and from the Special Commissioners to the courts; so it seems that if the Revenue was going wrong in its application of the principle it would very soon be put right.
    I am grateful to the hon. Lady for making the point for me, and to the hon. Gentleman, too, that one has here an enormous range of cases and it would be very difficult to legislate in specific terms in this field. I would seek to adopt the hon. Lady's phrase, but I have forgotten what it was. She said something in substance about the difficulty of legislating over a wide range.
    The question of literature, which the Clause raises, does cover a wide field.

    1147
    We have everything from the bald annual report, which is nothing more than an account of the stewardship by a charity to its subscribers to show that the money has been applied for the purposes for which it was subscribed and no more, to the other kind of publication, which we all know, the expensively produced volume with fancy pictures and specialised articles by acknowledged experts in certain subjects, which is usually sold to non-members at rather enhanced prices. We have everything in that range to deal with, and it is difficult to legislate. It seems easier to apply the test which the law now applies, and which I read from Lord Justice Morris's judgment: Aye or no, the question is: is what is done by the charity for the subscriber a negligible factor, or does it run into substantial amenities representing substantial expenditure by the charity to the benefit of the subscriber? The Revenue seek in this matter, and they have no other policy, not to be too rigorous in applying the law as it was in principle stated in that case.
    There is another statement which the House might like to hear in the judgment of the Master of the Rolls. It begins in the report which the hon. Lady cited at the bottom of page 473, but in view of the desire of the House to get on with the matter I do not propose to read it all. The Master of the Rolls concluded at the top of page 474 by saying:
    "If the test be, as I venture to think it is, whether in all the circumstances, and looking once more at the substance and reality of the matter, these covenantors can be treated as donors of the covenanted sums to the charity, I have come to the conclusion that the answer must be in the negative…"
    That is on the special factors in that case, and that is the test he applied.
    Mr. E. Fletcher: The right hon. and learned Gentleman is being highly technical. He is seeking to justify the view of the Court of Appeal, which is not the real issue here. Are the Government oblivious to the fact that a great many of these learned societies will be literally driven out of existence unless the law is changed?
    The Solicitor-General: For the present, I am dealing with the subject of what is the test which the Revenue applies and
    1148
    submitting to the House that it is a satisfactory test, if rightly applied, in a field where it is very difficult to legislate for a wide range of cases. For that reason, I was stating the test as stated by the Court of Appeal and saying that that is all the Revenue tries to apply and tries to apply without undue rigour. Indeed, it is the duty of the Revenue to apply it.
    I realise that there may be an impression abroad that some kind of campaign is being launched against these societies by the Revenue. I am very anxious to disabuse the House and the public outside of any such impression. It is quite true that a number of cases awaited the decision in the National Book League case, and, to that extent, there has been some piling up of cases awaiting decision. Since then, there have been other decisions, by no means all in favour of the Revenue in this matter. They went one way or the other. I mean, of course, decisions by the Revenue. As the hon. Lady said, there are certain cases where it is desired to test the decision of the Revenue in a court of law, and the matter is still virtually sub judice. I should have thought, with respect, that that was a good reason, since there are cases still to be heard, for saying that no alteration should be made in the law now. I have no doubt that there is an accumulation built up as a result of the holding up of decisions by the Revenue until it had the judgment of the Court of Appeal in the National Book League case. There is, in fact, no new campaign.
    Of course, the practice of covenanting subscriptions, if I may use that general phrase, has been growing very much lately. I venture to submit to the House the view that it might not be wise to try to legislate in some form which specified the literature which should not constitute a substantial benefit for this purpose. I do not know whether the hon. Lady, when suggesting the idea of having some committee or body to look into this question, had overlooked that the Royal Commission itself looked at it. I think it would be helpful to refer to what the Commission's conclusion was. I know the game of saying that people rely on the Royal Commission when they want to and do not rely on it when they do not want to, but in this respect it seems to me that the House would wish to accept

    1149
    the Commission's view. It is in paragraph 185. I shall not read it all, but at one point the Commission said:
    "We envisage therefore that charitable institutions will continue to enjoy the benefit of a return of income tax on sums paid under covenants that cover the prescribed period. We ought to add, however, that we expect care to be taken to ensure that a special concession of this kind is not compromised by doubtful practices which may easily become abuses. For instance, cases have occurred of institutions which offer subscribing members appreciable amenities so that the covenanted sum is in part a purchase of personal benefits."
    I do not for a moment present to the House that a naked annual report by a charity would be the provision of substantial amenities for that purpose, nor do I say that the Revenue would ever seek to assert that it was or that any court or Commissioners would uphold that view if it did proceed on that basis, but I urge that it is, perhaps, rather better, in this wide range of cases, to leave each case to be decided on its own facts and not to seek to define by law, which would have to be cumbrous and perhaps rather ineffective, what was the character of the literature which should not be regarded as a substantial amenity for this purpose. I submit that view to the House as a sensible one, worthy of consideration and in no way a departure from an appreciation of the needs of the learned bodies to which hon. Members have referred.
    10.0 p.m.
    Mr. Roy Jenkins: The speech of the right hon. and learned Gentleman the Solicitor-General has left a few things clear and a number of things confused. One of the few things which emerged clearly from his speech is that, on his own assumptions, he could have accepted this new Clause without doing any possible harm to anybody and might thereby have saved a good deal of time, if not, perhaps, doing a great deal of benefit.
    The Solicitor-General kept on saying that he would turn from the rather narrow legal grounds with which he thought it necessary to deal in the earlier part of his speech to wider grounds of public policy, but I am bound to say that we never got very near to these wider grounds of public policy in the course of his speech. I am reminded of the days when the Attorney-General used to be the Law Officer in charge of Finance Bills and his presence on the Treasury Bench used to be at once a symbol that
    1150
    we were approaching a very complicated part of the Bill and a guarantee that nothing would be done from the Treasury Bench to clear up the complication. I thought that there was a distinction between the Solicitor-General and the Attorney-General in the sense that I felt that the Solicitor-General understood what he was saying, but that he erected an impenetrable barrier between himself and almost every other hon. Member. So he was almost unique in that respect.
    I certainly did not feel that in the course of his remarks the Solicitor-General made clear the difficulties with which he was faced. He read, which was extremely relevant, part of paragraph 185 of the majority Report of the Royal Commission. It seems to me that paragraph 185 sums up almost exactly what we are trying to achieve by the proposed new Clause. We do not wish to create a position whereby a body, which might or might not be a learned society, could give all sorts of benefits to its members amounting to what are normally benefits accruing from membership of a club, such as applied to some extent in the National Book League case, and be able to claim that it was giving no such benefits.
    We simply wish to break down what seems to us to be the barrier between unreasonable and reasonable benefits. What we suggest are reasonable benefits are the publication of annual reports or transactions, even if that goes a little beyond a bare statement of the stewardship of the managing, body for the year concerned. That seems to be a perfectly simple and tenable proposal. The extremely complicated explanation by the Solicitor-General about what the proposed new Clause would or would not do did nothing to make clear why this point of view was not accepted.
    Suppose that the Solicitor-General is right in saying that the Clause would not accomplish what we have in mind. After all, it was put down for debate in Committee. My hon. Friend the Member for Flint, East (Mrs. White), my hon. and learned Friend the Member for Kettering (Mr. Mitchison) and myself and others who put our names to it withdrew the Clause in Committee entirely because we wished to expedite the progress of the Bill. I think that the Chancellor was grateful to us for doing that. However, the Clause was on the Notice Paper. It

    1151
    was legitimate for the Solicitor-General or the Chancellor's other legal advisers, if they were concerned, as the Solicitor-General would have us believe, about the problems in learned societies, to apply themselves to it, and, if they wished to achieve the objects that we had in mind without running up against these difficulties, surely, in the interests of learned societies, they could have brought forward a Clause of their own at this stage. After all, the Notice Paper is littered with new Clauses and Amendments from the Chancellor today. Why could not he have done something to deal with the difficulty?
    The attitude taken by the Solicitor-General, speaking, presumably, on behalf of the Chancellor, has done nothing to counteract the Government's record in this sphere. I agree very much with my hon. Friend the Member for Islington, East (Mr. E. Fletcher)—who has, no doubt, gone to refresh his memory on an important legal point—that the record of the Government in learning and the arts is thoroughly bad. This was a small opportunity for the Government to do something to counteract this position. There was plenty of opportunity. All that we had in reply was the extremely complicated, unconvincing legal jargon from the Solicitor-General.
    I hope very much that the House will not accept this. The right hon. and learned Gentleman is not even apparently prepared to consider the extremely moderate compromise proposal of my hon. Friend the Member for Flint, East that a committee might be set up to look into these difficulties and to explain, for instance, what is certainly not clear to me, although I would not wish the National Trust to be treated in any other way, why the National Trust, which seems to me to confer benefits on its members substantially in excess of those which are involved in the receipt of an annual report, should secure exemption but why the position of the Society of Antiquaries and various other bodies should still be in considerable doubt.
    I hope very much that in view of the extremely unsatisfactory and uncompromising answer of the Solicitor-General, my right hon. and hon. Friends will divide on the Clause.
    Mr. Ede: If I were a member of a learned society—and I am not; I have no qualification for any such distinction—I should be more perturbed by the Solicitor-General's answer this evening than I was before the debate began. What the right hon. and learned Gentleman has said is that each case be decided on its merits. That is the inevitable lawyer's answer, because it means that a good many cases will get into the courts.
    Surely it ought to be possible to put at rest the minds of people like the committees of county archaeological societies, bodies which do a considerable amount of good work, which hear addresses generally from their own members, not from people outside to whom they pay big fees, and at the end of the year merely publish the papers, or sometimes only a resumé of the papers, that have been read to them. How big does that volume have to be before it becomes such a return to the subscription as to rule out the society from being a charity under the terms of the law? That is the kind of thing that people are now asking themselves. It ought to be possible to give a general definition that will enable people to know on which side of the line their society fell.
    I have a great admiration for the National Art Collections Fund, but it so happened that for the first time this morning I met a person who was a member and not an officer of the Fund. This person gave me a description of an outing arranged by that society last Saturday, which seemed to me, on the definition we have had this evening, to take that society well out of the range of bodies that should secure exemption. I hope that it will escape, but we should not neglect the feelings of the small societies which do good work in the counties and in even smaller districts in keeping alive interests in various forms of culture, which is to the general advantage as well as to the advantage of the members of the society. I would hope that something more reassuring could be said to them tonight.
    Sir L. Ungoed-Thomas: I should like to put two short points to the Solicitor-General. It is rather shocking to hear that, apparently, the National Book

    1153
    League case has been taken by the Inland Revenue as a precedent for dealing with learned societies generally. I hear from the Solicitor-General that a considerable number of cases were waiting upon the decision in that case. Presumably, the Inland Revenue chose this as a test case for the purpose of covering all these other societies. It is a little alarming that, despite what the Master of the Rolls said and the treatment which this case received in the Court of Appeal as a special case, nevertheless the Inland Revenue should be seeking to press out of this case a principle of general application.
    The principle on which the Solicitor-General relied was contained in the judgment of Lord Justice Morris, where, in the passage which the right hon. and learned Gentleman quoted, the test was made of a case where the benefits were appreciable and not negligible. The Solicitor-General seemed to think that that would cover a case where transactions issued by a society happened to have some coloured photographs, or some photographs, in them or be anything more than a thin annual report.
    I am sure that the Solicitor-General would be the first to agree that when a principle of that kind is laid down in a judgment, the principle must be read in the light of the facts of that particular case.
    10.15 p.m.
    The Solicitor-General: I know that the hon. and learned Gentleman does not want to misrepresent me. I tried to describe a wide range of publications by taking the two ends of the matter. The end which I chose as the minimum end was the bare annual report. I did not express any view about the intervening cases, or how they would come out.
    Sir L. Ungoed-Thomas: I do not know how the right hon. and learned Gentleman is treating the intervening cases. It has been left to the discretion of the Revenue. What he is seeking to do is to read out of this judgment a principle of general application. What I am putting to him is that there is no justification for any such course of action. I am sure he will agree that the principle which is laid down here in Lord Justice Morris's judgment must be read in the light of the facts of that case.
    1154
    When we turn to the facts of that case, considered as my hon. Friend the Member for Flint, East (Mrs. White) mentioned in her speech, when we have it considered by the Master of the Rolls, the one thing which he emphasises most clearly is the peculiar nature of the facts in that case.
    My hon. Friend referred to the passage where the Master of the Rolls said that the facts in the case were special in a marked degree. He later said:
    "I have said that the facts as it seems to me are in many respects special."
    He then went on to enumerate what the facts were. Among these facts were that in the Book League case there was the provision of a club. He then referred to the club premises and said that it was observed in the publication issued by the club that during certain hours use might be made of a reading room, a drawing room, a licensed bar and restaurant. That is more or less removed from the kind of case which the Solicitor-General now seeks to justify as being a case within the principle of that judgment. It is a little alarming to find the Inland Revenue apparently bringing forward for decision a case like a National Book League case to cover cases which are more or less removed from it and merely deal with transactions and with no amenities like club amenities at all. It is an unjustifiable line for the Inland Revenue to take.
    There is one other point, if the Solicitor-General finds difficulty on the purely technical point. The Solicitor-General referred to the provision in Section 447 to annual payments. His point, as I understand, is that an annual payment must be, in the jargon of these Revenue cases, pure income profit. Therefore, if a case is not pure income profit by reason of transactions being issued, it is not annual payment.
    I have followed the right hon. and learned Gentleman so far. But now, if he will return to this proposed new Clause, what it does is to say:
    "No body of persons or trust established for charitable purposes only shall be deprived of the exemption granted under paragraph (b) of subsection (1)"—
    which is the relevant one—
    "…solely by reason of the fact that the body of persons or trust issues an annual report or any transactions free to members."

    1155
    Surely that is a comprehensive provision which would have the effect of preventing a transaction or annual report issued by any body of members being deemed to be an annual payment within paragraph (b) This is a pure technicality. There is nothing in it.
    As to the principle, it would be perfectly simple for the right hon. and
    learned Gentleman to accept the principle of this Clause and to acknowledge that the National Book League case cannot justify it to be stretched to cover cases of transactions and annual reports, however elaborate their nature may be.
    Question put, That the Clause be read a Second time:—
    The House divided: Ayes 180, Noes 221.

    Division No. 200.]

    AYES

    [10.20 p.m.

    Ainsley, J. W.

    Griffiths, Rt. Hon. James (Llanelly)

    Paget, R. T.

    Allaun, Frank (Salford, E.)

    Griffiths, William (Exchange)

    Palmer, A. M. F.

    Allen, Arthur (Bosworth)

    Hall, Rt. Hn. Glenvil (Colne Valley)

    Pargiter, G. A.

    Allen, Scholefield (Crewe)

    Hannan, W.

    Parker, J.

    Awbery, S. S.

    Harrison, J. (Nottingham, N.)

    Parkin, B. T.

    Bacon, Miss Alice

    Hayman, F. H.

    Paton, John

    Baird, J.

    Herbison, Miss M.

    Pearson, A.

    Bence, C. R. (Dunbartonshire, E.)

    Hobson, C. R. (Keighley)

    Pentland, N.

    Benn, Hn. Wedgwood (Bristol, S. E.)

    Holman, P.

    Popplewell, E.

    Benson, Sir George

    Houghton, Douglas

    Prentice, R. E.

    Beswick, Frank

    Howell, Denis (All Saints)

    Price, J. T. (Westhoughton)

    Bevan, Rt. Hon. A. (Ebbw Vale)

    Hoy, J. H.

    Pursey, Cmdr. H.

    Blackburn, F.

    Hubbard, T. F.

    Redhead, E. C.

    Blenkinsop, A.

    Hughes, Emrys (S. Ayrshire)

    Reynolds, G. W.

    Blyton, W. R.

    Hunter, A. E.

    Rhodes, H.

    Boardman, H.

    Irvine, A. J. (Edge Hill)

    Roberts, Albert (Normanton)

    Bottomley, Rt. Hon. A. G.

    Irving, Sydney (Dartford)

    Rogers, George (Kensington, N.)

    Bowden, H. W. (Leicester, S. W.)

    Jay, Rt. Hon. D. P. T.

    Ross, William

    Boyd, T. C.

    Jeger, Mrs. Lena (Holbn & St. Pncs, S.)

    Short, E. W.

    Braddock, Mrs. Elizabeth

    Jenkins, Roy (Stechford)

    Shurmer, P. L. E.

    Brockway, A. F.

    Johnson, James (Rugby)

    Silverman, Julius (Aston)

    Broughton, Dr. A. D. D.

    Jones, Rt. Hon. A. Creech (Wakefield)

    Silverman, Sydney (Nelson)

    Brown, Rt. Hon. George (Belper)

    Jones, David (The Hartlepools)

    Simmons, C. J. (Brierley Hill)

    Brown, Thomas (Ince)

    Jones, J. Idwal (Wrexham)

    Skeffington, A. M.

    Burke, W. A.

    Jones, T. W. (Merioneth)

    Slater, Mrs. H. (Stoke, N.)

    Castle, Mrs. B. A.

    Kenyon, C.

    Slater, J. (Sedgefield)

    Champion, A. J.

    Key, Rt. Hon. C. W.

    Smith, Ellis (Stoke, S.)

    Chapman, W. D.

    King, Dr. H. M.

    Sorensen, R. W.

    Chetwynd, G. R.

    Lawson, G. M.

    Soskice, Rt. Hon. Sir Frank

    Clunie, J.

    Lee, Frederick (Newton)

    Sparks, J. A.

    Coldrick, W.

    Lee, Miss Jennie (Cannock)

    Spriggs, Leslie

    Collick, P. H. (Birkenhead)

    Lever, Harold (Cheetham)

    Steele, T.

    Cove, W. G.

    Lever, Leslie (Ardwick)

    Stonehouse, John

    Craddock, George (Bradford, S.)

    Cronin, J. D.

    Lindgren, G. S.

    Stones, W. (Consett)

    Cullen, Mrs. A.

    Logan, D. G.

    Strachey, Rt. Hon. J.

    Davies, Stephen (Merthyr)

    Mabon, Dr. J. Dickson

    Summerskill, Rt. Hon. E.

    Deer, G.

    McAlister, Mrs. Mary

    Sylvester, G. O.

    de Freitas, Geoffrey

    McCann, J.

    Taylor, Bernard (Mansfield)

    Delargy, H. J.

    MacColl, J. E.

    Taylor, John (West Lothian)

    Diamond, John

    MacDermot, Niall

    Thomas, Iorwerth (Rhondda, W.)

    Dodds, N. N.

    McInnes, J.

    Thomson, George (Dundee, E.)

    Dugdale, Rt. Hn. John (W. Brmwch)

    McKay, John (Wallsend)

    Thornton, E.

    Dye, S.

    MacPherson, Malcolm (Stirling)

    Ungoed-Thomas, Sir Lynn

    Ede, Rt. Hon. J. C.

    Mahon, Simon

    Warbey, W. N.

    Edwards, Rt. Hon. John (Brighouse)

    Mallalieu, E. L. (Brigg)

    Watkins, T. E.

    Edwards, Rt. Hon. Ness (Caerphilly)

    Mallalieu, J. P. W. (Huddersfd, E.)

    Weitzman, D.

    Edwards, W. J. (Stepney)

    Mann, Mrs. Jean

    Wheeldon, W. E.

    Evans, Albert (Islington, S. W.)

    Marquand, Rt. Hon. H. A.

    White, Mrs. Eirene (E. Flint)

    Fernyhough, E.

    Mason, Roy

    Willey, Frederick

    Finch, H. J.

    Mayhew, C. P.

    Williams, David (Neath)

    Fitch, Alan

    Mellish, R. J.

    Williams, Rev. Llywelyn (Ab'tillery)

    Fletcher, Eric

    Mitchison, G. R.

    Williams, W. R. (Openshaw)

    Fraser, Thomas (Hamilton)

    Morris, Percy (Swansea, W.)

    Willis, Eustace (Edinburgh, E.)

    Gaitskell, Rt. Hon. H. T. N.

    Moss, R. L.

    Wilson, Rt. Hon. Harold (Huyton)

    George, Lady Megan Lloyd (Car'then)

    Moyle, A.

    Winterbottom, Richard

    Gibson, C. W.

    Mulley, F. W.

    Woof, R. E.

    Gordon Walker, Rt. Hon. P. C.

    Neal, Harold (Bolsover)

    Yates, V. (Ladywood)

    Greenwood, Anthony

    Noel-Baker, Francis (Swindon)

    Grenfell, Rt. Hon. D. R.

    Oswald, T.

    TELLERS FOR THE AYES:

    Grey, C. F.

    Owen, W. J.

    Mr. Wilkins and Mr. Holmes.

    Griffiths, David (Rother Valley)

    Padley, W. E.

    NOES

    Agnew, Sir peter

    Gresham Cooke, R.

    Milligan, Rt. Hon. W. R.

    Aitken, W. T.

    Grimond, J.

    Morrison, John (Salisbury)

    Allan, R. A. (Paddington, S.)

    Grimston, Hon. John (St. Albans)

    Mott-Radclyffe, Sir Charles

    Alport, C. J. M.

    Grimston, Sir Robert (Westbury)

    Neave, Airey

    Amory, Rt. Hn. Heathcoat (Tiverton)

    Gurden, Harold

    Nicholson, Sir Godfrey (Farnham)

    Arbuthnot, John

    Hall, John (Wycombe)

    Nicolson, N. (B'n'm'th, E. & Chr'ch)

    Armstrong, C. W.

    Harris, Frederic (Croydon, N. W.)

    Noble, Comdr. Rt. Hon. Allan

    Ashton, H.

    Harris, Reader (Heston)

    Noble, Michael (Argyll)

    Atkins, H. E.

    Harrison, A. B. C. (Maldon)

    Oakshott, H. D.

    Baldock, Lt.-Cmdr. J. M.

    Harrison, Col. J. H. (Eye)

    O'Neill, Hn. Phelim (Co. Antrim, N.)

    Baldwin, Sir Archer

    Harvey, John (Walthamstow, E.)

    Orr, Capt. L. P. S.

    Balniel, Lord

    Head, Rt. Hon. A. H.

    Orr-Ewing, Charles Ian (Hendon, N.)

    Barber, Anthony

    Heald, Rt. Hon. Sir Lionel

    Page, R. G.

    Barlow, Sir John

    Heath, Rt. Hon. E. R. G.

    Pannell, N. A. (Kirkdale)

    Barter, John

    Henderson-Stewart, Sir James

    Partridge, E.

    Batsford, Brian

    Hesketh, R. F.

    Peel, W. J.

    Baxter, Sir Beverley

    Hill, Mrs. E. (Wythenshawe)

    Peyton, J. W. W.

    Beamish, Col. Tufton

    Hill, John (S. Norfolk)

    Pike, Miss Mervyn

    Bell, Philip (Bolton, E.)

    Hinchingbrooke, Viscount

    Pilkington, Capt. R. A.

    Bell, Ronald (Bucks, S.)

    Hobson, John (Warwick & Leam'gt'n)

    Pitt, Miss E. M.

    Bennett, F. M. (Torquay)

    Holland-Martin, C. J.

    Powell, J. Enoch

    Bennett, Dr. Reginald

    Bevins, J. R. (Toxteth)

    Holt, A. F.

    Price, David (Eastleigh)

    Biggs-Davison, J. A.

    Hope, Lord John

    Prior-Palmer, Brig. O. L.

    Birch, Rt. Hon. Nigel

    Hornby, R. P.

    Ramsden, J. E.

    Bishop, F. P.

    Hornsby-Smith, Miss M. P.

    Redmayne, M.

    Black, C. W.

    Horsbrugh, Rt. Hon. Dame Florence

    Rees-Davies, W. R.

    Body, R. F.

    Howard, Gerald (Cambridgeshire)

    Renton, D. L. M.

    Bonham Carter, Mark

    Howard, Hon. Greville (St. Ives)

    Ridsdale, J. E.

    Boothby, Sir Robert

    Howard, John (Test)

    Roberts, Sir Peter (Heeley)

    Braine, B. R.

    Hughes Hallett, Vice-Admiral J.

    Rodgers, John (Sevenoaks)

    Brooman-White, R. C.

    Hurd, A. R.

    Roper, Sir Harold

    Bryan, P.

    Hutchison, Michael Clark (E'b'gh, S.)

    Ropner, Col. Sir Leonard

    Burden, F. F. A.

    Hyde, Montgomery

    Scott-Miller, Cmdr. R.

    Carr, Robert

    Hylton-Foster, Rt. Hon. Sir Harry

    Sharples, R. C.

    Chichester-Clark, R.

    Iremonger, T. L.

    Simon, J. E. S. (Middlesbrough, W.)

    Clarke, Brig. Terence (Portsmth, W.)

    Irvine, Bryant Godman (Rye)

    Spearman, Sir Alexander

    Cole, Norman

    Jenkins, Robert (Dulwich)

    Speir, R. M.

    Conant, Maj. Sir Roger

    Jennings, J. C. (Burton)

    Stanley, Capt. Hon. Richard

    Cooper-Key, E. M.

    Jennings, Sir Roland (Hallam)

    Stevens, Geoffrey

    Cordeaux, Lt.-Col. J. K.

    Johnson, Dr. Donald (Carlisle)

    Steward, Harold (Stockport, S.)

    Craddock, Beresford (Spelthorne)

    Johnson, Eric (Blackley)

    Steward, Sir William (Woolwich, W.)

    Crosthwaite-Eyre, Col. O. E.

    Jones, Rt. Hon. Aubrey (Hall Green)

    Storey, S.

    Cunningham, Knox

    Joseph, Sir Keith

    Stuart, Rt. Hon. James (Moray)

    Currie, G. B. H.

    Keegan, D.

    Studholme, Sir Henry

    Dance, J. C. G.

    Kerr, Sir Hamilton

    Summers, Sir Spencer

    Davidson, Viscountess

    Kershaw, J. A.

    Sumner, W. D. M. (Orpington)

    Deedes, W. F.

    Kimball, M.

    Taylor, William (Bradford, N.)

    Digby, Simon Wingfield

    Kirk, P. M.

    Teeling, W.

    Donaldson, Cmdr. C. E. McA.

    Lagden, G. W.

    Temple, John M.

    Doughty, C. J. A.

    Lambton, Viscount

    Thomas, P. J. M. (Conway)

    Drayson, G. B.

    Lancaster, Col. C. G.

    Thompson, Kenneth (Walton)

    du Cann, E. D. L.

    Leather, E. H. C.

    Thornton-Kemsley, Sir Colin

    Duncan, Sir James

    Legge-Bourke, Maj. E. A. H.

    Tiley, A. (Bradford, W.)

    Elliott, R. W. (Ne'castle upon Tyne, N.)

    Legh, Hon. Peter (Petersfield)

    Tilney, John (Wavertree)

    Emmet, Hon. Mrs. Evelyn

    Lindsay, Hon. James (Devon, N.)

    Turton, Rt. Hon. R. H.

    Errington, Sir Eric

    Linstead, Sir H. N.

    Vaughan-Morgan, J. K.

    Farey-Jones, F. W.

    Lloyd, Maj. Sir Guy (Renfrew, E.)

    Vickers, Miss Joan

    Fell, A.

    Longden, Gilbert

    Vosper, Rt. Hon. D. F.

    Finlay, Graeme

    Low, Rt. Hon. Sir Toby

    Wade, D. W.

    Fisher, Nigel

    Lucas, Sir Jocelyn (Portsmouth, S.)

    Wakefield, Edward (Derbyshire, W.)

    Fort, R.

    Lucas-Tooth, Sir Hugh

    Wall, Patrick

    Fraser, Hon. Hugh (Stone)

    Macdonald, Sir Peter

    Ward, Dame Irene (Tynemouth)

    Fraser, Sir Ian (M'cmbe & Lonsdale)

    Mackeson, Brig. Sir Harry

    Webster, David

    Gammans, Lady

    Mackie, J. H. (Galloway)

    Whitelaw, W. S. I.

    Garner-Evans, E. H.

    McLaughlin, Mrs. P.

    Williams, Paul (Sunderland, S.)

    George, J. C. (Pollok)

    Maclean, Sir Fitzroy (Lancaster)

    Williams, R. Dudley (Exeter)

    Gibson-Watt, D.

    Maddan, Martin

    Wilson, Geoffrey (Truro)

    Glover, D.

    Maitland, Hon. Patrick (Lanark)

    Wood, Hon. R.

    Glyn, Col. Richard H.

    Manningham-Buller, Rt. Hn. Sir R.

    Woollam, John Victor

    Godber, J. B.

    Markham, Major Sir Frank

    Yates, William (The Wrekin)

    Goodhart, Philip

    Marlowe, A. A. H.

    Gower, H. R.

    Mathew, R.

    TELLERS FOR THE NOES:

    Graham, Sir Fergus

    Maudling, Rt. Hon. R.

    Sir G. Wills and

    Grant-Ferris, Wg Cdr. R. (Nantwich)

    Mawby, R. L.

    Mr. Hughes-Young.

    Green, A.

    Maydon, Lt.-Cmdr. S. L. C.

    Clause 15.—(INCREASE OF CERTAIN INITIAL ALLOWANCES.)
    Mr. Amory: I beg to move, in page 8, line 20, to leave out "one-eighth" and to insert "three-twentieths".
    The object of this Amendment and of the four which immediately follow it, and also the Amendments to page 8, line 43, and page 9, line 3, is simply to give effect to the proposal I announced on 17th June to increase the rates of initial allowances for capital expenditure incurred on or after the Budget day to 30 per cent. for plant and machinery and 15 per cent. for industrial buildings instead of to 25 per cent. and to 12½ per cent. respectively, as I proposed originally in my Budget statement.
    I do not think that there is any need for me to repeat the reasons which I then gave for this change; I think that they were generally accepted as sound by both sides of the Chamber. I know that different views are held as to the precise value of initial allowances as compared with investment allowances, but for the reasons I gave I feel that an increase in initial allowances this year was the appropriate step to take, and I hope that the proposal to increase the rates by more than I originally proposed will be acceptable to the House.
    10.30 p.m.
    Mr. Roy Jenkins: The Chancellor knows that we do not in any way oppose the Amendments, even though we are slightly sceptical about the adequacy of the stimulus contained within them, but there is one point that I want to put to the Chancellor, in the hope that he might give the House a little more information by way of a further brief intervention.
    In the sphere of investment there are obviously two sectors which might be stimulated—the private and the public—and the Chancellor will recall that he and I had an exchange at Question Time today on this matter. I understand that his view is that there is no likelihood of investment in the private sector rising above the level which it attained last year and that this, in effect, is a measure taken to counteract what appears to him to be a declining level of private investment. This is an attempt to hold it near the present level.
    On this basis he considers that there is no discrimination against the public sector, because that is also being held level.
    1160
    He sees the problem in the private sector to be one of holding investment at the level at which it stood last year, if that is possible. Could he possibly clear up that point?
    Mr. Amory: Yes. The hon. Member has set out the position quite accurately. The level of private investment last year was an all-time record. I would be sorry to see it go down; I would like to see it go up, even above that all-time level, and I hope that that will be possible in due course, because we want a high investment economy.
    As for the public sector, again the level being maintained this year is an all-time record. But there the control is much more direct, and there is no need to provide an incentive for an increase. At any moment the Government consider it appropriate they can bring about an increase directly. But we can influence the private sector in a far less direct way, and it is because I think that there is a risk that private investment may be falling somewhat at present that I am anxious to provide a further incentive.
    Mr. Roy Jenkins: I am very grateful to the Chancellor for that intervention, and for clearing up the point to some extent, but I hope that we can be assured—and this did not emerge clearly from what the Chancellor said—that if we got into a position when it was possible to stimulate private investment above the level of last year the Chancellor would immediately remove the ceiling on investment in the nationalised industries. We think that this should be done earlier, but it should certainly be done in those circumstances.
    It seems much more likely, however, that the ceiling on the nationalised industries is to be maintained, and that in the private sector the struggle will be to prevent a fall in the level of investment and not to create a rise, because it is very difficult to see any other factor in the economy at present which will lead to an increased level of demand. Exports are falling, Government expenditure is steady, and there is no reason for consumption expenditure to rise. If this is so, then surely the Chancellor will agree that, looking towards the autumn, there is no factor making for a stimulus to demand generally and a number of factors which may well operate in the opposite direction.

    1161
    One of the things about which we are afraid in these circumstances is this. Investment expenditure takes rather longer to stimulate than does consumption expenditure. We believe that a stimulus is necessary. We would rather it were applied to the investment sector than to the consumption sector. What we think is the danger in the Chancellor's rather tardy steps is that he is taking them too late and that they are too short.
    A situation will arise in the autumn in which the right hon. Gentleman will be desperately anxious to step up demand and then he will turn, because it will be a more sensitive mechanism, to relaxing hire-purchase control when it would have been better in the summer on the investment sector. I hope that the right hon. Gentleman will keep these points in mind.
    Amendment agreed to.
    Further Amendments made: In page 8, line 23, leave out "one-eighth" and insert "three-twentieths".
    In line 26, leave out "one-fourth" and insert "three-tenths".
    In line 34, leave out "one-fourth" and insert "three-tenths".
    In line 39, leave out "three-fourths" and insert "seven-tenths".—[Mr. Amory.]
    Mr. Amory: I beg to move, in page 8, line 40, at the end to insert:
    (3) Notwithstanding subsection (3) of section fifteen of the Finance Act, 1956 (which exempted certain fuel economy expenditure from the suspension of investment allowances) an initial allowance under Chapter I or Chapter II of the said Part X shall, if the person entitled so elects, be made instead of an investment allowance in respect of any such expenditure as is mentioned in paragraph (a) or paragraph (b) of that subsection, being expenditure to which this section applies.
    The purpose of this Amendment and of the consequential Amendment in page 9, line 23, is to give the taxpayer an option to choose the new rates of initial allowance instead of the investment allowance in respect of certain fuel economy expenditure which qualifies for investment allowances. As the law stands, there is no general option to take an initial allowance instead of an investment allowance. Indeed, there has been no need for such an option since, in general, rates of investment allowance have been equal to the current rate of initial allowances.
    1162
    The House will remember that under the Finance Act, 1956, certain types of expenditure were exempted from the general suspension of investment allowances—expenditure on ships, on scientific research and prescribed fuel economy plant. Ships attract an investment allowance of 40 per cent., so I do not think that there is need of an option there. Nor does it arise in connection with scientific research expenditure, since there it is not a question of an initial allowance in the normal sense; it gets a specially rapid rate of annual write off instead.
    Expenditure on fuel economy plant which attracts the investment allowance of 20 per cent. now qualifies for 30 per cent. initial allowance. Although probably the investment allowance is usually the more attractive, still there may be cases in which the taxpayer may prefer to have the more immediate effect of the 30 per cent. initial allowance. I think it is right, therefore, that the trader should have the option to judge which best suits his circumstances. I think it likely that this Amendment will receive general support, and I commend it to the House accordingly.
    Amendment agreed to.
    Further Amendments made: In page 8, line 43, leave out "one-eighth" and insert "three-twentieths".
    In page 9, line 3, leave out "one-eighth" and insert "three-twentieths".
    In line 23, leave out from "made" to "by" in line 27.—[Mr. Amory.]

    Clause 16.— [FEES AND SUBSCRIPTIONS TO PROFESSIONAL BODIES, LEARNED SOCIETIES, ETC.)
    Mr. E. Fletcher: I beg to move, in page 9, line 40, to leave out from "persons" to "whose".
    This Amendment has been put down to enable us to hear the result of the Chancellor's consideration of the discussion which took place in Committee. I do not think that the Chancellor was present during the Committee stage when this matter was discussed, but the Financial Secretary was present and, as a result of representations made to him from both sides of the Committee, he undertook to bring those representations to the attention of the Chancellor. I hope that as a result we shall hear that

    1163
    the Chancellor is prepared to accept this Amendment.
    In view of the lateness of the hour, I do not want to deploy all the reasons which we adduced in Committee. I shall summarise the matter shortly by saying that Clause 16 is designed to enable fees and subscriptions paid by Schedule E taxpayers to professional bodies and learned societies to be able to make such payments free of tax. The Clause is hedged around with a variety of safeguards to the Revenue. For example, every payment to any such professional body or learned society has to be to a body approved by the Commissioners of Inland Revenue. Various other conditions have to be observed and the provision ensures that the payments have either to be made as a condition of the individual's employment, or are in some way relevant to his office or employment.
    The object of the Amendment is to ensure that learned societies which would become eligible for this benefit shall not be debarred by being mainly of a local character. Many professional bodies and learned societies whose continued existence is in the national desiderata are, as was pointed out from both sides of the Committee, essentially of a local character. We felt that their claims to the benefit of this concession should be considered by the Commissioners of Inland Revenue together with those which were national in character. Their claims are just as meritorious. The only argument of the Financial Secretary was that it would be administratively inconvenient, which we did not think a very cogent or satisfactory answer. I hope that the Chancellor will now be able to tell us he will accept the Amendment.
    Mr. Cronin: I beg to second the Amendment.
    10.45 p.m.
    Mr. Simon: This matter has been reviewed since Committee stage. As I indicated in Committee, in theory the local society has the same case for consideration as the national society. The great difference between them is that in the case of the local society the administrative difficulties would be very great, so great at present as to jeopardise the chances of dealing expeditiously with
    1164
    the national societies. That is the first difference. The second is that the reliefs that would be enjoyed by the local societies are likely to be very small indeed.
    If I may summarise the difficulties with regard to local societies, there will be the extreme difficulty, in many cases, of deciding their true nature. I will not repeat the sort of examples that I gave at considerable length to the Committee. The second is that only a very small number of members will be employed in occupations that will entitle them to claim relief, and only for small amounts. I mentioned to the Committee the local museum curator or his assistant; the local photographer in the case of the local photographic society. The other members are largely brought together in admirable societies but, for them, it is really for the enjoyment of a hobby; a thoroughly enjoyable hobby but, nevertheless, not one that will rank for relief under the Clause.
    The third point is that, in many cases, owing to the smallness of the subscription, the relief will be lost in the rounding-up of the P.A.Y.E. system. I did not go into that with the Committee, but it has come to my notice in the review of this matter.
    Fourthly, there is the large number of societies that might possibly claim approval, and the impossibility, at the present stage, of delegating examination of their claims to the local districts. We desire, if possible, to deal with the national societies before October, so that, in the case of their members, the exemption can pass into their next year's code. It would be quite impossible to do that if we now had to deal with the local societies.
    The hon. Member for Islington, East (Mr. E. Fletcher) made the valuable suggestion in Committee that it might be possible to delegate the work to the districts. I have looked into that. We do not feel that it would be possible this year, or until a code has been built up nationally on which the districts could work.
    It really comes to this. To deal with the local societies this year, however good a case they have in logic, which I recognise, is not possible administratively except at the cost of the national scheme, which I do not think the House would want. What I ask is that the hon.

    1165
    Gentleman should withdraw the Amendment, and we will look at it again next year. I do not enter into any commitment to deal with it, but we will look at it again by then. It may be that by the time a body of central doctrine has been built up it will be possible to delegate, in a year or so, power to the districts to deal with the work.
    Mr. Cronin: The Financial Secretary's remarks are disappointing. I was rather surprised that he did not accept the Amendment, so ably moved by my hon. Friend the Member for Islington, East (Mr. E. Fletcher), as I feel that some of his arguments lack serious validity. He said that the relief involved is small, but when it is a question of doing justice, which is eminently the case here, I do not think that the sum involved is very important. We in this House are concerned that everybody should get a fair deal.
    The hon. and learned Gentleman said that the true nature of a society is often difficult to elicit, but surely that is the whole purpose of having district inspectors of taxes. They are familiar with local conditions, and would, naturally, know the societies in their districts. He also pointed out that a very small number of members in any society would be entitled to the relief, but I feel that that is to argue in favour of the Amendment.
    Again, the hon. and learned Gentleman pointed out that some of these societies are recreational in their nature, but that aspect of the Amendment is dealt with by subsection (3), which gives the Commissioners full powers to see that the recreational side is not taken into consideration. Lastly, he pointed out the very large number of societies. There may well be several thousand and, at first glance, the Financial Secretary's argument does appear to be valid. I think that during the Committee stage he suggested that there should be a "breakdown" of these societies. I would ask him to recollect that there are 650 district inspectors of taxes and that, if one divides them among several thousand societies, it means that each inspector merely has to deal with just a few.
    Therefore, that cannot be a valid point of view for him to adopt and I do ask him to see whether he cannot meet us in some way.
    Mr. Douglas Jay: May I ask the Financial Secretary to relieve us of some anxiety which is felt on this side of the House? He says that it is really only practicable, administratively, to deal in the initial year with the national societies; and that he could then go on and deal with the local societies. That is the logic, but is not a matter of equity involved as well? If he proceeds in this fashion, does it not mean that in the initial period one type of taxpayer will gain the relief while the other type does not, merely for reasons of administrative convenience and not on grounds of equity at all?
    Does not the hon. and learned Gentleman think that there are some objections to that? Cannot he assure us that it is the intention of the Government to overcome that difficulty at the earliest possible moment?
    Mr. Simon: If I may speak again by leave of the House, I should like to answer that question. When I say that the case has been made out in logic for extending the relief to the eligible members of the local societies, that, of itself, does imply that, if the extension is not made, the eligible members have a complaint. What I emphasise is that the relief to them is likely to be very much smaller than in the case of the national societies. I do not say that for that reason they must be disregarded entirely; but this must be considered in the light of the amount of work involved this year which might prevent us from dealing expeditiously with the national societies. But I have in mind what has been said, and I undertake to keep this matter under review.
    Mr. E. Fletcher: I must say that the Financial Secretary has gone a long way towards meeting us. He has conceded the merits of this claim, he has conceded the justice of it, and has pointed out that there are administrative difficulties in dealing this year with both the national and the local societies. He has indicated that the administrative difficulties, which he foresaw during the Committee stage of the Bill, can be overcome next year by hearing from delegations of local societies, and that a year's experience will enable a body of case law to be built up.
    Mr. Simon: I did not specifically commit myself to next year, but otherwise, what the hon. and learned Gentleman is saying fairly summarises my remarks.
    Mr. Fletcher: We are not binding the hon. and learned Gentleman to anything for next year, but he has gone a long way towards saying that the case will be almost irrefutable at an early date and, in those circumstances, I beg to ask leave to withdraw the Amendment.
    Amendment, by leave, withdrawn.

    Clause 25.—(PURCHASES OF INTERESTS IN EXPECTANCY.)
    Mr. Maudling: I beg to move, in page 20, line 45, at the end to insert:
    (10) In relation to a purchase from a body of persons established for public or charitable purposes only, or from the trustees of a trust so established, references to one year before the death shall be substituted for the references in subsections (1) and (8) of this section to five years before the death.
    Clause 25 charges Estate Duty where the life tenant of settled funds purchases an interest in expectancy therein and dies within five years of the purchase. The Amendment reduces the period within which liability can arise from five years to one year, where the interest is purchased from a body established for public or charitable purposes only.
    The Amendment is in satisfaction of an undertaking given by my right hon. Friend the Solicitor-General in Committee. There was an Amendment moved at that time by my hon. and learned Friend the Member for Darwen (Mr. Fletcher-Cooke), which he withdrew on the promise by my right hon. and learned Friend of a suitably worded Amendment to be put down on Report. This Amendment, therefore, is in pursuance of that undertaking given during the Committee stage.
    Sir T. Low: As I understand, in accepting the proposal put forward by my hon. and learned Friend the Member for Darwen (Mr. Fletcher-Cooke), the Government mean one of the effects to be the shortening from five years to one year of the liability of trustees of settlements which has been placed upon them for the first time in this Bill. It does not relieve them of the liability, but it shortens the period. That is a very good thing, but it does not go the whole way. I hope that my right hon. Friend will look at the whole problem of trustees' liability again and refer it to my noble Friend the Lord Chancellor, who gave eight reasons, in 1950, why trustees in these cases should never be saddled with this liability.
    Amendment agreed to.

    Clause 27.—(QUICK SUCCESSIONS.)
    Mr. Diamond: I beg to move, in page 22, line 12, at the end to insert:
    "and
    (c) that the two deceased were related as husband and wife or as grandparent or parent and child".
    I formally move this Amendment, so that the matter can be discussed.
    Mr. Deputy-Speaker (Sir Gordon Touche): I think that this Amendment may be discussed with the Amendment in page 22, line 27, at the end to insert:
    Provided that, if the Commissioners of Inland Revenue are satisfied of the matters mentioned in paragraphs (a) and (b) of this subsection but not of the relationship mentioned in paragraph (c), the amount of the estate duty payable on the property on the later death shall be reduced by one half of the amount by which it would have been reduced if the Commissioners had been satisfied of the said relationship; so, however, that in any case where the reduction allowed by section fifteen of the Finance Act, 1914 (which provides for reductions of estate duty in respect of quick successions to land or certain businesses or interests therein), is greater than the reduction, which would be allowed under this subsection, the greater (and not the lesser) reduction shall be made.
    Mr. Jay: I beg to second the Amendment.
    Mr. Simon: This Amendment, as I understand it, restricts the highest rate of quick succession relief, the rate which was inserted in Committee, of 75 per cent. where the second death follows the first within three months, to cases where the two deceased were related as husband and wife or as grandparent or parent and child. However, by the Amendment in page 22, line 27, the old, pre-Committee stage rate in the scale of quick succession relief, which was established by the 1914 Finance Act, would be saved. I imagine that the latter Amendment was put down only to prevent the main Amendment being out of order. It does result in very anomalous situations.
    From what the hon. and learned Member for Kettering (Mr. Mitchison) said in Committee, I imagine that this Amendment is moved because it is desired to limit quick succession relief, or, at any rate, the new quick succession relief, to cases where the deceased are closely related, because it is felt that those are the real cases of hardship.
    11.0 p.m.
    The Amendment limits altogether too strictly, for the problem does not really

    1169
    admit of a precise answer. For example, the relationship may equally arise where two deceased are not close relatives. The House has only to think of the case of an invalid or a child dependent upon brothers or sisters or uncles or aunts. It is not covered by the Amendment. Equally, the case of two spinsters who have lived a lifetime with each other is not covered by the Amendment.
    There is another more serious consideration. The Amendment does not confine the full relief to cases where the beneficiaries are close relatives of the deceased. It is the dependence of the ultimate beneficiary on the two people who die which determines, even in the sense in which it was used by the hon. and learned Gentleman the Member for Kettering, whether there is hardship. It is not the relationship of the two deceased persons. What the Amendment does is to limit the full relief to cases where the two deceased were closely related and takes no account of the relationship of the beneficiary.
    For example, the House will remember that in the Beare case, which was what really led to this Clause being put down, a husband and wife died in a common accident and the four children, as a result, before they got the estate, had to see the estate suffer Estate Duty twice over. Take a similar case. A husband and wife die childless in a common disaster and the estate passes to a distant cousin. Under this Amendment there would be full relief at the rate of 75 per cent.
    But take the case of a husband and his brother dying in a common disaster, and the estate passing to the four children of the father. There we have the same hardship as we have in the Beare case, but there is restricted relief. For that reason only I suggest that this Amendment really does not make good sense and does not really meet the sort of case which the hon. and learned Gentleman had in mind.
    In addition, the Amendment establishes two different systems of quick succession relief, one according to the relationship of the deceased persons and another according to the nature of the property, because it superimposes on the old quick succession relief, which, for reasons of order, is left intact. As a result, we get curious cross-relationships between the
    1170
    two, and the law becomes extremely complicated and anomalous, and so unacceptable.
    Mr. Diamond: By leave of the House, since I moved the Amendment so briefly, I would point out that one of the problems about quick succession is that we have been succeeding so fast from one Clause to another that my hon. and learned Friend the Member for Kettering (Mr. Mitchison), who is more capable than anyone else at dealing with this matter and at picking holes in the argument of the Financial Secretary, is not at the moment here to help us with his knowledge and wide learning in the matter.
    The Financial Secretary pointed out that even if the Amendment were more happily drawn it would still be too narrow. The answer to that is that the Clause we are seeking to amend is too wide; the relief given by the Clause is far too wide. It is all very well for the Financial Secretary to say certain people are not helped by this Amendment. The Clause helps everybody whether he be related in this way, or in the odd ways which the Financial Secretary instanced for examples, or if he is not related at all, and whether there is an accident or whether there is not an accident.
    However, we appreciate that perhaps the Amendment does not entirely serve the purpose which it was intended to serve, and I beg to ask leave to withdraw the Amendment.
    Amendment, by leave, withdrawn.
    Amendment made: In page 22, line 16, after "months", insert "before the later,".—[Mr. Simon.]
    Mr. Deputy-Speaker: The next Amendment will have to be moved in an amended form. After "months", the first three words come out.
    Mr. Diamond: I follow perfectly, and wish to move the Amendment in the form which you have suggested, Mr. Deputy-Speaker.
    I beg to move, in page 22, line 16, after the words last inserted, to insert:
    "and both deaths arose out of one accident".
    I would thank the Financial Secretary for accepting half the Amendment. The second part refers to the question of an accident, and the following Amendment defines the accident. I take it that it would not be out of order to refer to

    1171
    that at the same time. The point is very clear. We are back on the same argument that the Clause as drafted provides far too wide a relief. It does not refer to hardship cases only, but to all sorts of cases and it was sought to restrict the relief given in cases where real hardship was suffered. That was likely to be in the case of two deaths arising out of one accident.
    Mr. Houghton: I beg to second the Amendment.
    Mr. Simon: This Amendment restricts the 75 per cent. Estate Duty quick succession relief to cases where the deaths occurred as the result of one accident. But although the hon. Member for Gloucester (Mr. Diamond) has made it clear that he desires to see this part of the relief made more restrictive, and particularly to cases of real hardship, I suggest that this Amendment does not do that.
    For example, the hardship is just the same if the two deaths occur within the same period from different accidents—he has not covered that—or even if they occur from natural causes. For example, taking the Beare case, supposing Mr. and Mrs. Beare died one after the other, or even simultaneously, in a cholera epidemic, there is exactly the same hardship to the children, and that is not covered. In fact, the relief is restricted by this Amendment.
    It was the feeling of the whole House, when we discussed this matter on Second Reading of the Double Death Duties Bill—and it was expressed by my hon. Friend the Member for Brighton, Pavilion (Mr. Teeling)—that that type of case ought to be safe. The best way of putting it is the way that it was put by the hon. and learned Member for Leicester, North-East (Sir L. Ungoed-Thomas), when he was criticising the similar words, "common calamity". He said:
    "The injustice does not arise because there is a calamity—let us be perfectly clear about that—in which two people die. The injustice arises because…there is such a short interval of time for the enjoyment of the property which passes from one to the other."—[OFFICIAL REPORT, 24th January, 1958; c. 1461, Vol. 580.]
    It is on that basis that, to my mind, this Clause can be justified, and for that reason this Amendment is unacceptable.
    Amendment negatived.

    Clause 30.—(CONVEYANCES ON SALE, ETC.)
    Mr. Houghton: I beg to move, in page 26, line 3, leave out subsection (9).
    I, too, am the victim of the emergency arrangements that are being made in the exceptional circumstances of the moment. I wish it were otherwise, because two of my right hon. Friends would have subjected the Financial Secretary to very close examination on this Amendment.
    Mr. Deputy-Speaker: I think we could also discuss the Amendment in line 4, to leave out "beginning of August" and to insert "fifteenth day of April". I think that would be for the convenience of the House.
    Mr. Houghton: Yes, Mr. Deputy-Speaker, and it would certainly be for mine.
    These two Amendments would have the advantage of offering the right hon. and learned Gentleman the choice of two alternatives. The first one, in page 26, line 3, proposes to leave out subsection (9), which reads:
    "The foregoing subsections shall have effect as from the beginning of August, nineteen hundred and fifty-eight"
    That date governs the concessions, which the Chancellor announced in his Budget statement and are in the Bill, on Stamp Duty.
    The asociated Amendment in page 26, line 4, proposes to leave out the words "beginning of August" and to insert "fifteenth day of April." So it appears that if subsection (9) is taken out altogether the Stamp Duty concessions apply as from the date that this Bill becomes an Act. If the second alternative were adopted, the Stamp Duty concessions would be effective from Budget Day, which is 15th April last.
    I have no very strong views on which of the two would provide the least difficulty, because I understand that there are bound to be problems of retrospective adjustment of Stamp Duty where that has already been paid under the old arrangement, but what has puzzled everybody is why a formal date at the beginnng of August this year was put in the Bill as the effective date for the operation of these Stamp Duty concessions.
    I believe I remember some discussion in Committee when the right hon. and learned Gentleman or some other of his right hon. Friends said that there would

    1173
    be little difference in fact between the date fixed, 1st August, 1958, and the date of the passing of this Bill into law, because although the Bill would become law sometime before the end of this month, the normal arrangements for stamping conveyances would enable all solicitors and others concerned to get the advantage of the concession by deferring stamping until after 1st August, which they were legally entitled to do because there is a time margin from the date of execution of a document and the date upon which it must be stamped.
    I am sure that the right hon. Gentleman the Paymaster-General, who appears to be taking an interest in this matter, will not mind explaining yet again, if that is what it entails, why the date 1st August has been taken, whether there is any insuperable difficulty in back-dating the concessions to Budget Day, and whether there is, as I have suggested, little difference between the first proposal of leaving out subsection (9) altogether and the second proposal to leave out "beginning of August" and to insert "fifteenth day of April."
    It is now 15th July. If the Bill becomes law in two weeks time, then between then and 1st August is well within the range of time that solicitors will have to stamp conveyances. I think the House would welcome a brief explanation of the position, and the right hon. Gentleman can be sure that I will not make unnecessary difficulties when I have heard his answer.
    Mr. Diamond: I beg to second the Amendment.
    11.15 p.m.
    Mr. Maudling: As the hon. Member for Sowerby (Mr. Houghton) said, this matter has been discussed already during the passage of the Bill. The effective date for the Stamp Duty, which is provided in Clause 30, is, as the hon. Member said, 1st August. That is in accordance with precedent.
    The proposition put by the hon. Member is twofold. First, he suggested back-dating to the date of the Budget, and secondly, that it might be made the date of the passing into law of the Bill. The first alternative is one which we have discussed before. The Government have considered it on more than one occasion
    1174
    following representations. To make the date retrospective has been in practice so difficult as to be practically impossible. The administrative difficulties are such as to lead us to think that we should not adopt retrospection in this case, as it has not been adopted, I understand, on previous occasions. That is why we could not accept the suggestion of back-dating to the date of the Budget.
    The second suggestion is the date of coming into law of the Bill. That is a smaller point, because the interval between the coming into operation of the Bill and 1st August is a very small one, probably only a matter of a few days. Therefore, it would have no practical effect. We felt that on the whole 1st August is a good date. It is an easy one for the practitioners to remember. It is not a bad thing to have a date which they can remember without too much difficulty.
    There is also the point that under Clause 31 there is another change in the Stamp Duty on credit sales arrangements, which comes into effect on 1st August. It might be confusing to have two Stamp Duty changes in the same Bill coming into effect on different dates. Therefore, although I do not say that this is an overwhelming case, there is a definite case for holding to 1st August. As the interval of time between 1st August and the coming into law of the Bill is now such a small one, I cannot feel that to make the change suggested would have any practical effect. For these reasons, I suggest to the hon. Member for Sowerby that it would probably be wiser at this stage to leave the matter as it is.
    Mr. Page: Can my right hon. Friend clear up one point? If a conveyance is dated any time between 5th July and 1st August and advantage is taken of the twenty-eight days in which to stamp it and it is stamped on 1st August or later, does it get the benefit of the reduced Stamp Duty or, where there are no Stamp Duties now, does it escape them altogether?
    Mr. Maudling: My hon. Friend seems to be taking leave to doubt a statement he made himself at an earlier stage. I would never dream of doubting any such statement.
    Amendment negatived.

    First Schedule.—(SUBSTANTIVE CHANGES IN PURCHASE TAX RATES, ETC.)
    Mr. Maudling: I beg to move, in page 31, line 27, at the end, to insert:
    (a) in the case of helmets designed to protect the head from injury, where the rate under Group 3 would be reduced under sub-paragraph (1) above to 5 per cent., tax shall not be chargeable under that Group after the sixteenth day of July, nineteen hundred and fifty-eight.
    I suggest, Mr. Deputy-Speaker, that it might be convenient to take at the same time the associated Amendment, in the Second Schedule, in page 34, line 42, at end insert:
    Not chargeable under this Group
    Helmets designed to protect the head from injury.
    This proposal is intended to exempt from Purchase Tax helmets designed to protect the heads of firemen—broadly speaking, crash helmets, of which we have had much discussion. I said in Committee that I would discuss this matter with by right hon. Friend the Chancellor. He has decided to agree that crash helmets should be exempted from Purchase Tax. He has fixed on a former definition which includes all helmets designed to protect the heads of firemen. It would not include sports requisities, such as scrum hats and fencing helmets, which are taxed under a different group. The intention is to deal with crash helmets—for example, firemen's helmets, which the House has had in mind on previous occasions when discussing the matter.
    The position is anomalous. It is certainly creating a new anomaly, but my right hon. Friend felt that in all the circumstances, weighing up the difficult matters to decide, it was probably sensible not to try to define by a general category but to say that helmets designed to protect the head are in future to be free from tax. He hopes to be able to leave it at that.
    Mrs. White: Even at this late hour we should express our gratification that at least one of the constructive suggestions put forward by the Opposition has been accepted by the Chancellor. We had a very good debate on protective clothing in general in Committee. We are only sorry that the Chancellor did not on that occasion feel able to accept our proposals that protective clothing of any kind, and that used in industry especially, should be exempt from Purchase Tax.
    1176
    He had already decided that he could not face the outcry that arose when miners' protective helmets were made subject to Purchase Tax. Although this may lead to anomalies, we are glad that on this occasion the Chancellor has allowed himself to be moved by common sense.
    I am sure that such hon. Members as are still with us will be extremely grateful that the right hon. Gentleman has decided to give way, not merely on industrial helmets and firemen's helmets, which were mentioned in previous stages of the debate, but on that important matter of crash helmets for motor-cyclists, because I think that all of us are very anxious that the maximum encouragement should be given to them to wear these helmets. Serious and fatal injuries occur to many people through not wearing them. Although I grant that the Purchase Tax on these articles is not very large, we hope that the fact that they are now to be entirely exempt will be widely publicised and that encouragement will be given to those who engage in the very dangerous occupation of motor-cycling to buy protective helmets. We welcome this concession. We are glad that in this small but important respect the Chancellor has paid attention to representations made from this side of the House.
    Amendment agreed to.
    Mr. Maudling: I beg to move, in page 32, line 45, at the end to insert:
    (3) As from the seventeenth day of July, nineteen hundred and fifty-eight, the following gas burning furnaces for central heating systems, whether or not incorporating electric fans or electric pumps or both, but not otherwise electrically operated, shall be exempt from tax, that is to say—
    It would be convenient to consider also the Amendment in page 40, line 36, at end insert:
    (5) Gas burning furnaces for central heating systems, whether or not incorporating electric fans or electric pumps or both, but not otherwise electrically operated, the following—

    (a) water boilers, but not including appliances of an output less than 30,000 British thermal units per hour;

    (b) appliances supplied with a system of ducting and designed only for the transmission of heated air through such ducting to two or more rooms simultaneously.

    The Amendments have the simple purpose to exempt from Purchase Tax gas fire appliances or domestic central heating of the kinds described. Oil-fired and solid fuel central heating furnaces are free of Purchase Tax. Therefore, it

    1177
    seems wrong that gas-fired furnaces performing exactly the same purpose should remain taxed. This is clearly an anomaly and my right hon. Friend puts forward the Amendments to remove it.
    Amendment agreed to.
    Mr. John Dugdale: I beg to move, in page 33, line 30, at the end to insert:
    (4) Asbestos leggings of a kind used by foundry workers shall be exempt from tax.
    Mr. Deputy-Speaker: It will be convenient also to discuss the three other Amendments in the name of the right hon. Member for West Bromwich (Mr. Dugdale)—
    In page 33, line 30, at end insert:
    (4) Asbestos spats of a kind used by foundry workers shall be exempt from tax.
    In page 35, line 8, at end insert:
    (4) Asbestos leggings of a kind used by foundry workers.
    In page 35, line 8, at end insert:
    (4) Asbestos spats of a kind used by foundry workers.
    Mr. Dugdale: The Paymaster-General said that he had created an anomaly and removed another. He created the anomaly in removing Purchase Tax on protective headgear for motor-cyclists and others. We ask him to create a very much smaller anomaly which will cause him much less difficulty by removing this irksome tax on protective clothing for foundry workers.
    I would mention the points that the Chancellor may have against us. He may say that it would introduce a new principle. I do not think that that argument could be accepted. Foundrymen's boots are already exempt, and it would therefore seem reasonable that their spats and leggings, which are almost extensions of the boots, should also be exempt. It may be said that the concession would be open to abuse, but people are unlikely to buy asbestos leggings to use otherwise than for protection.
    I would say, in conclusion, that this tax is paid for by the foundry workers themselves. It falls directly upon them. They are a deserving section of the community, and they work exceedingly hard in producing a commodity of very great value to this country. Under all those circumstances I think we can expect the Paymaster-General to look kindly upon the Amendments and agree to them.
    Mr. Malcolm MacPherson: I beg to second the Amendment.
    I do not want to break the tradition that we have been building up, of seconding without making speeches, but I would remind the right hon. Gentleman that for a very long time the foundry industry has been one of the high accident rate industries. I would also remind him that in industry generally the reduction of the accident rate has usually gone hand in hand with the increased wearing of protective clothing, and that itself has usually gone hand in hand with the remission of tax. My right hon. Friend has pointed out the logical basis for extending the remission to cover these leggings and spats, and I hope that the right hon. Gentleman will favourably consider the matter.
    Mr. Maudling: The right hon. Gentleman has great knowledge of these matters. He was good enough to come with one of his colleagues to explain the situation to me, and I regret that I shall not be able to meet him in the matter.
    The position in regard to the various forms of protective clothing worn by foundry workers is that their boots are exempt—I understand that they are the same type as are worn by miners—and other articles, like goggles, are either not taxable or are normally provided by the employer. There remains only the question of asbestos spats and leggings, which are provided mainly by the men themselves. They are subject to Purchase Tax. In the case of spats the tax is unlikely to exceed 6d., and for a pair of leggings it is unlikely to exceed 2s. Therefore, the money involved is not large.
    The right hon. Gentleman will no doubt say that a principle is involved. This illustrates the terribly difficult position we get into on this question of protective clothing. I ventured to say earlier that it is impossible to exempt protective clothing entirely because we do not know where the definition ends. We would have to consider things like mackintoshes and sou'westers, which one hon. Member opposite mentioned earlier. Equally, it is very difficult, if not impossible, to define clothing which is solely protective in its character. If, on the other hand, we start picking and choosing, where do we end? If we took asbestos leggings out, what should we do about other forms of asbestos protective clothing? And if

    1179
    we take out asbestos clothing, why should we not take out rubber or other forms of leggings which are equally protective? It is a terribly difficult thing to do, and once we start introducing these special exemptions it is almost impossible to stop.
    The right hon. Member may ask why we have done it in the case of helmets. The answer is that we have to make a choice in these matters. We must either be entirely logical, or sometimes depart a little from the rule of logic. My right hon. Friend thought that there was a good case, from a common sense point of view, for saying that helmets are a separate and specially distinguishable category, which he would treat as such, but he does not feel that he could extend the remission to leggings at present. It would not be possible to do that without going far into the field of protective clothing.
    I am sorry to have to say this to the right hon. Gentleman, because I know how much he and his colleagues feel about this matter, and on the face of it he has put forward a strong argument. I would ask him to bear in mind the difficulties which would attend my right hon. Friend if he agreed to move on this front. I admit that this is the only remaining article of foundry workers' protective clothing which bears Purchase Tax, and that the amount of tax involved is not substantial, but I regret that I cannot accept the Amendments.
    11.30 p.m.
    Mr. Jay: The Paymaster-General's reply is rather disappointing. Indeed, when he said that this was the only remaining article of protective clothing worn in foundries which does bear tax, I thought that emphasised the anomaly which the right hon. Gentleman is seeking to perpetuate. We have been told over the last seven years that it was impossible and impracticable to exempt the protective helmets which the Government have finally this year persuaded themselves to exempt. I suppose that we shall have to put forward this argument for another five years before the Government come to the same conclusion about the asbestos leggings and spats.
    Mr. Maudling: If that argument is extended too much we might have to extend it to gaiters.
    Mr. Jay: The Paymaster-General said that this concession, if granted, would have to be extended to other types of clothing such as sou'westers and mackintoshes. I should have thought that there was a clear difference here. These spats and leggings are, after all, made of asbestos, which is a substance nobody would wear for purposes other than protection against accident. I should have thought that there was a difference between clothing which was used as a protection against accidents at work and another type of clothing which is simply used for protection against the weather, at work or otherwise.
    I cannot help feeling that if the Government wished to do this they might have found a way. We hope that this Amendment will be returned to in other years with more profit than tonight.
    Amendment negatived.

    Second Schedule.—(PURCHASE TAX (NEW LIST OF CHARGEABLE GOODS, ETC.).)
    Amendment made: In page 34, line 42, at end insert:
    Not chargeable under this Group
    Helmets designed to protect the head from injury.—[Mr. Maudling.]
    Mr. Maudling: I beg to move, in page 35, line 21, at the end to insert:
    Not chargeable under this Group
    Tissues and fabrics, whether in the piece, shaped or partly made up.
    This Amendment is really a matter of drafting and is to ensure that tissues and fabrics shall continue to be exempted from any charge under Group 2. In the Schedule as drafted it is possible that it might have the alternative effect, but the clear intention is that these tissues and fabrics should be excluded from any charge under the new Group 2. The purpose of the Amendment, therefore, is to safeguard the taxpayer from what might be a technical error in the drafting of the Bill.
    The cost of the Amendment is nil, because if it were not made a certain amount of tax would be exacted from the taxpayer, which is not the intention of the Government or of the House.
    Amendment agreed to.
    Further Amendment made: In page 40, line 36, at end insert:
    (5) Gas burning furnaces for central heating systems, whether or not incorporating electric

    1181
    fans or electric pumps or both, but not otherwise electrically operated, the following—

    (a) water boilers, but not including appliances of an output less than 30,000 British thermal units per hour;

    (b) appliances supplied with a system of ducting and designed only for the transmission of heated air through such ducting to two or more rooms simultaneously.—[Mr. Maudling.]

    Seventh Schedule.—(PROFITS TAX (TRANSITIONAL PROVISIONS).)
    Mr. Maudling: I beg to move, in page 51, line 26, at the end to insert:
    (5) Where it is shown to the satisfaction of the Commissioners of Inland Revenue that for the standard period of a body or society the dividends included in the gross relevant distributions to proprietors comprised an amount of an exceptional nature, or the rate of dividend was for other special reasons (unrelated to the amount available for distribution) exceptionally high, and that in consequence that rate of dividend is inequitable as a measure of liability to tax under this paragraph, the Commissioners may direct that the rate of dividend of the body or society for the standard period shall be treated for the purposes of this paragraph as reduced to such extent as appears to the Commissioners to be just in the circumstances.
    A body or society aggrieved by the decision of the Commissioners of Inland Revenue on an application for a direction under this sub-paragraph may appeal to the Special Commissioners, and all the provisions of the enactments relating to appeals against assessments to the profits tax (including the provisions enabling the Commissioners of Inland Revenue to make regulations) shall have effect with respect to any appeal to the Special Commissioners under this sub-paragraph.
    This Amendment has been put down to meet an important point raised on the Committee stage by my right hon. Friend the Member for Blackpool, North (Sir T. Low) and other hon. Friends arising from
    1182
    the provisions for the transitional period in the new Profits Tax arrangements which are based on a comparison of dividends paid for a standard year. It was pointed out in the course of the Committee stage discussion that dividends for the standard year might be abnormally high for some special reason, and that in these circumstances it would be unfair if no appropriate arrangements were made to meet these special conditions.
    The new subsection provides that where it is shown to the satisfaction of the Commissioners of Inland Revenue that for the standard period the dividend included an amount of an exceptional nature or that the rate of dividend was for other reasons exceptionally high, then the Commissioners may direct that the rate of dividend for the standard period shall be treated as reduced to such an extent as appear to them just in the circumstances.
    This is a fairly rough and ready way of dealing with the matter, but I think it is the only satisfactory one in the circumstances. Clearly, if there were special circumstances leading to a high dividend it would be unfair to treat that dividend for purposes of the transitional period unless the Commissioners had power to make adjustments that are right and proper in the circumstances. This Amendment will give them that discretion and meet the point made by my hon. and right hon. Friends.
    Amendment agreed to.
    Bill to be read the Third lime Tomorrow and to be printed.—[Bill 148.]

  ARMY AND AIR EXPENDITURE, 1956–57
  Considered in Committee.
  [Sir GORDON TOUCHE in the Chair]

  I. Whereas it appears by the Army Appropriation Account for the year ended on the 31st day of March 1957 that the aggregate Expenditure on Army Services has not exceeded the aggregate sums appropriated for those Services and that, as shown in the Schedule hereto appended, the net surplus of the Exchequer Grants for Army Services over the net Expenditure is £8,355,653 17s. 8d., viz.:—

  £

  s.

  d.

  Total Surpluses

  …

  …

  …

  …

  …

  …

  …

  11,754,546

  17

  11

  Total Deficits

  …

  …

  …

  …

  …

  …

  …

  3,398,893

  0

  3

  Net Surplus

  …

  …

  …

  …

  £8,355,653

  17

  8

  And whereas the Lords Commissioners of Her Majesty's Treasury have temporarily authorised—

  (1) the application of so much of the realised surplus on Vote 8 for Army Services as is necessary to meet the net deficit of £727,322 8s. 5d. on Vote 11 that would otherwise have been met by issues out of the Consolidated Fund under the Armed Forces (Housing Loans) Acts, 1949 and 1953.

  (2) the application of so much of the remainder of the said total surpluses on certain Grants for Army Services as is necessary to make good the remainder of the said total deficits on other Grants for Army Services.

  SCHEDULE

  No. of Vote

  Army Services, 1956–57 Votes

  DEFICITS

  SURPLUSES

  Excesses of Actual over Estimated Gross Expenditure

  Deficiencies of Actual as compared with Estimated Receipts

  Surpluses of Estimated over Actual Gross Expenditure

  Surpluses of Actual as compared with Estimated Receipts

  £

  s.

  d.

  £

  s.

  d.

  £

  s.

  d.

  £

  s.

  d.

  1

  Pay, &c., of the Army

  181,013

  8

  10

  231,668

  4

  3

  —

  —

  2

  Reserve Forces, Territorial Army, Home Guard and Cadet Forces

  132,777

  18

  6

  66,338

  2

  10

  —

  —

  3

  War Office

  20,115

  3

  5

  —

  —

  2,678

  3

  4

  4

  Civilians

  —

  —

  1,614,744

  10

  2

  497,306

  0

  2

  5

  Movements

  —

  246,914

  17

  1

  3,253,007

  8

  0

  —

  6

  Supplies, &c.

  —

  1,072,740

  16

  10

  1,072,408

  9

  6

  —

  7

  Stores

  96,761

  15

  11

  —

  —

  2,894,015

  4

  3

  8

  Works, Buildings and Lands

  —

  —

  1,174,037

  16

  4

  203,664

  19

  0

  9

  Miscellaneous Effective Services

  —

  —

  772,978

  8

  0

  166,796

  14

  0

  10

  Non-Effective Services

  198,189

  7

  2

  —

  —

  55,420

  0

  11

  11

  Additional Married Quarters

  —

  774,811

  12

  8

  47,489

  4

  3

  —

  —

  Balances Irrecoverable and Claims Abandoned

  377,561

  12

  9

  —

  —

  —

  1,006,419

  6

  7

  2,392,473

  13

  8

  7,934,665

  16

  3

  3,819,881

  1

  8

  Total Deficits:

  Total Surpluses:

  £3,398,893

  0s.

  3d.

  £11,754,546

  17s.

  11d.

  Net Surplus £8,355,653 17s. 8d.

  Resolved,

  That the application of such sums be sanctioned.—[Mr. Simon.]

  Mr. John Strachey: Ought we not to have some explanation of this question?

  II. Whereas it appears by the Air Appropriation Account for the year ended on the 31st day of March 1957 that the aggregate Expenditure on Air Services has not exceeded the aggregate sums appropriated for those Services and that, as shown in the Schedule hereto appended, the net surplus of the Exchequer Grants for Air Services over the net Expenditure is £7,415,590 11s. 7d., viz.:—

  £

  s.

  d.

  Total Surpluses

  …

  …

  …

  …

  …

  …

  …

  35,636,871

  16

  6

  Total Deficits

  …

  …

  …

  …

  …

  …

  …

  28,221,281

  4

  11

  Net Surplus

  …

  …

  …

  £7,415,590

  11

  7

  And whereas the Lords Commissioners of Her Majesty's Treasury have temporarily authorised the application of so much of the said total surpluses on certain Grants for Air Services as is necessary to make good the said total deficits on other Grants for Air Services.

  SCHEDULE

  No. of Vote

  Air Services, 1956–57 Votes

  DEFICITS

  SURPLUSES

  Excesses of Actual over Estimated Gross Expenditure

  Deficiencies of Actual as compared with Estimated Receipts

  Surpluses of Estimated over Actual Gross Expenditure

  Surpluses of Actual as compared with Estimated Receipts

  £

  s.

  d.

  £

  s.

  d.

  £

  s.

  d.

  £

  s.

  d.

  1

  Pay, &c, of the Air Force

  —

  —

  385,675

  13

  3

  818,400

  13

  8

  2

  Reserve and Auxiliary Services

  —

  17,246

  6

  9

  266,443

  1

  3

  —

  3

  Air Ministry

  378,389

  17

  4

  5,688

  2

  4

  —

  —

  4

  Civilians at Outstations

  3,019,748

  7

  6

  35,172

  13

  7

  —

  —

  5

  Movements

  1,298,495

  5

  1

  —

  —

  273,031

  12

  11

  6

  Supplies

  —

  —

  1,490,987

  2

  9

  1,960,986

  7

  9

  7

  Aircraft and Stores

  —

  18,015,871

  18

  7

  26,571,667

  17

  11

  —

  8

  Works and Lands

  3,804,722

  0

  5

  —

  —

  1,497,338

  15

  10

  9

  Miscellaneous Effective Services

  —

  329,765

  12

  8

  807,648

  1

  2

  —

  10

  Non-effective Services

  —

  —

  192,044

  7

  5

  66,519

  9

  0

  11

  Additional Married Quarters

  —

  1,306,128

  13

  7

  1,306,128

  13

  7

  —

  —

  Balances Irrecoverable and Claims Abandoned

  10,052

  7

  1

  —

  —

  —

  8,511,407

  17

  5

  19,709,873

  7

  6

  31,020,594

  17

  4

  4,616,276

  19

  2

  Total Deficits:

  Total Surpluses:

  £28,221,281

  4s.

  11d.

  £35,636,871

  16s.

  6d.

  Net Surplus £7,415,590 11s. 7d.

  11.38 p.m.
  The Financial Secretary to the Treasury (Mr. Simon): I beg to move, That the application of such sums be sanctioned.
  The purpose of these Motions is to give Parliamentary sanction to the virement which was temporarily authorised by the Treasury between the Votes of the Service Departments for 1956–57. The Treasury has exercised its temporary
  The Deputy-Chairman: I am afraid I have now put the Question, but there can be debate on the second Motion.
  virement powers in that year in relation to the War Office and the Air Ministry, the Admiralty having incurred an excess Vote. In previous years these Motions, which I think are known as "The Monk Resolutions," have frequently been moved only formally. It is true that this year the Public Accounts Committee has said that there is no reason why Parliament should not sanction the virement temporarily authorised by the Treasury

  1187
  —and I hope Parliament will do so this evening and, in due course, through the Appropriation Act—but the Public Accounts Committee also recommended that further consideration be given to certain matters. Any report of that nature from the Public Accounts Committee raises technical points of public accountancy which are also important because they affect the Parliamentary control over Government expenditure. I therefore feel that the Committee would probably expect me to say a few words on this occasion.
  There is, I think, another reason why the House would like the Government spokesman to say a few words of introduction. I am sure that hon. Members would like me to pay a tribute to the late Sir Frank Tribe, by whose passing the public service has suffered a very great loss. In his office of Comptroller and Auditor General, he earned the respect and gratitude of this House and, in particular, of the members of the Public Accounts Committee whom he served so directly.
  When he took office in 1946 he was confronted with the task of reintroducing standards of audit and accounting in keeping with normal peace-time arrangements after the relaxations that had necessarily been permitted during the war. Moreover, the expansion of the Health Services and the growth of support to industry by means of subsidies raised new accounting and audit problems. That he was able to deal with this new situation so smoothly and without creating any feeling of rancour is a great tribute to his judgment and impartiality. Sir Frank Tribe had a sense of responsibility and a devotion to duty in keeping with the high office that he held so ably, and I know that the House would wish on this, the first possible occasion, to pay tribute to his passing.
  Perhaps I may now deal, briefly, with the Resolutions that are before the Committee. The Civil and Revenue Estimates, as the Committee knows, are presented in separate units known as Votes, and those Votes are divided into Subheads. In the case of the Civil Estimates, there is power, with the consent of the Treasury, to use money which is under-spent on one Sub-head to discharge an excess of expenditure on another Subhead. I should emphasise that this power exists only in regard to the Sub-heads.
  In the case of the three Service Departments, the Estimates are presented in the same way—as a series of Votes for each Department, and the Vote is divided into Sub-heads. But, in the case of the Service Ministries, in addition to the transfer, with the consent of the Treasury, between one Sub-head and another, it is also permissible, where the conditions of Section 4 of the Appropriation Act are fulfilled, to utilise savings on individual Votes of these Departments to meet excesses on other Votes of the same Department. That power of switching—with the consent of the Treasury—between one Vote and another and between one Subhead and another is known as virement. The power, of course, is conditional on the aggregate provision in the Estimates for each Department not being exceeded.
  That power of virement is subject to two very important qualifications. In the first place, the Treasury's powers of authorising virement are only temporary and subject to the sanction of this House, which I am seeking on this occasion. Secondly, and even more important, Parliament is safeguarded against any misuse of Treasury powers by the vigilance of the Comptroller and Auditor General and the Public Accounts Committee. Over the years there has been built up a code of precedent and practice to which the Treasury earnestly endeavours to adhere in, I think it is right to say, the spirit as well as in the letter.
  As I have said, the Public Accounts Committee has, in its second Report in this Session, been critical of the exercise of the powers of virement by the Treasury on this occasion. I hope that the House will not press me on the details of the points raised by the Public Accounts Committee. There is a procedure laid down whereby these may be dealt with. The procedure is that, in due course, a Treasury Minute is prepared which replies in detail to the observations of the Public Accounts Committee. That goes before the Public Accounts Committee, when it is set up again in the next Session. The Public Accounts Committee has full power to call for witnesses and to examine them if it wishes for further evidence, and in the unlikely event—indeed, I think, the unprecedented event—of an unreconciled difference of opinion between the Treasury and the Public Accounts Committee there is an old undertaking, dating from 1884, that the Government will, in those circumstances, bring the matter

  1189
  before the House for decision. As I have said, such an irreconcilable difference of opinion has never yet occurred, and I trust will not now occur.
  I think the Committee is entitled to an explanation, even if not of the detailed matters which will, in due course, be reported to the Select Committee. A preliminary examination of the points which have been raised does not suggest that the Treasury has acted in any way not in accordance with past practice. The main criticism of the Public Accounts Committee is that it is undesirable to use virement to meet excesses on the works Vote, especially when new works services have been started without provision in the original estimate; and secondly, that virement between the ordinary works Votes and the special Votes for building married quarters by loans from the Consolidated Fund should not be exercised on any considerable scale.
  As to the first point, it would, if accepted, entail a fundamental restriction of the Treasury's powers of virement. The Committee will not want me to argue that case in detail, especially as the House has set up a Select Committee on Procedure, within whose jurisdiction such a problem might well lie. But virement has always been exercised—at least for a great many years—both to and from the Services' works Votes. It has been applied to meet excesses on the works Vote—as on the Admiralty's works Vote for 1954–55—even when new works services have been started which were not included in the original estimate. That, I should point out to hon. Members, has not excited the criticism of the Public Accounts Committee.
  On the second point, the Public Accounts Committee in 1950–51 gave approval to the use of virement from savings on the ordinary works Votes of the Service Departments to meet expenditure on the additional married quarters Vote which would otherwise have had to be met by loan. They placed no restriction on the amount of virement, although there was evidence before the Committee of the size of the sums likely to be involved in this arrangement.
  The Treasury will be submitting in very much greater detail to the Committee next session a Minute dealing with the criticism made and, in view of the fact that the general question of virement between Service Votes could be
  1190
  examined by the Select Committee on Procedure if necessary, I hope that I have satisfied hon. Members that the Treasury has acted in accordance with well established practice, and that it has done so even in the matter in which it has been criticised in the Report. Further, the Committee saw no reason why Parliament should not sanction the virement suggested. It made observations only so far as the future is concerned, and in all these circumstances I hope that the Committee will pass this Vote.
  11.50 p.m.
  Mr. John Strachey: I am glad that the Financial Secretary has said something this year on this subject, because it is a most appropriate place and time to pay a tribute to the late Sir Frank Tribe. I knew him very well at the Ministry of Food and recall that after that period in his career he did very great work as Comptroller and Auditor-General. It is fitting that the Committee has this opportunity to pay tribute to a very distinguished public servant, whose death was premature, was unexpected, and a very great shock to us all. I am very glad that both sides of the Committee have had this opportunity to say that.
  Coming to the issue of virement this year, I cannot quite agree with the Financial Secretary. I am bound to say that I was very struck by this Report of the Public Accounts Committee in which, after all, with a Government majority, it came out with some really searching criticism of the Government's procedure in this matter. The hon. and learned Gentleman says that he does not at this stage want to discuss the points in detail, but the fact remains that the Public Accounts Committee, which cannot very well be brushed off, is clearly of opinion that virement has been stretched this year beyond its natural function.
  There are two respects in which it has been stretched. In the matter of the Air Force Vote, the under-spending on works Votes and the switching of really quite important sums from that to the starting of a cookery school, which the Committee notes as an example, was really a very long way from the purpose for which the money was voted by Parliament. These things are all matters of degree. There is no doubt that it is a convenient and sensible practice that

  1191
  there should be a certain amount of elasticity here, but when the amounts go beyond a certain sum and when the objects diverge beyond a certain limit, I should have thought that the Public Accounts Committee was on sound ground in issuing some warning.
  The second point is, to my mind, a much more important one. We have here actually a case of virement or switching between moneys which, by the intention of Parliament, should have been borrowed moneys to voted moneys. This arises on the Army's housing programme. Hon. Members on both sides of the Committee, I think, regard the special provision by which the Army builds married quarters as a very sensible one. The Army has become, as the Committee knows, in effect a local authority for this purpose, and it builds houses on borrowed money just as a local authority does. I say that both sides of the Committee take that view, because the Army does this under an Act originally passed during the period of a Labour Government and under another Act passed during the period of a Conservative Government. There is, surely, no party difference in the matter. It is a sensible and appropriate method by which the Services meet their housing needs just as a local authority does, not out of current revenue, which is inappropriate for housing, but out of borrowed moneys.
  We now find that, by a wide stretching of virement, those Acts have really, as regards the Army at any rate, been rendered nugatory, and large sums which were voted by Parliament for quite different purposes have been used for housing. The Public Accounts Committee recognises the serious objections to the use of virement to vary the allocation between voted and borrowed moneys which had been approved by Parliament in the Estimates. The sums involved are quite considerable. The Committee further says
  "Expenditure by the three Service Departments charged to special Married Quarters Votes up to 31st March, 1957, amounted to £53 million. Of that sum about £23 million or almost a half was met by the application of savings on ordinary Works Votes under the virement procedure mentioned above. Indeed, over the years 1953 to 1957, the whole of the War Office expenditure on additional married quarters, which amounted to some £9 million, was met by virement out of moneys voted for ordinary works services."
  1192
  That really does seem to me an abuse of virement. I should have thought it much more sensible to have gone on working the Acts which were intended to give—the War Office in this case—the power to borrow money for its housing programme. I just do not understand why that was not done. I should have thought it was more sensible. So I would have hoped that the Financial Secretary would have at any rate indicated to us whether the Government consider that the War Office should continue to do this and, if so, why.
  Why should it not use the Acts as Parliament unquestionably intended it should to run its housing programme, borrow moneys and return to the Treasury in effect the surpluses on its works Votes as they arise? That would seem to me to be carrying out the intentions of Parliament much more clearly. That is the view of the Public Accounts Committee with a Government majority. I should like the Financial Secretary to tell us why he disagrees with us, if he does, before we let this Vote go through.
  11.57 p.m.
  Mr. Simon: I do not think I can refuse to respond to an appeal to justify the accountancy which has been carried out—I mean the use by the Treasury of its power of virement between a works Vote and a housing loan Vote. The right hon. Gentleman said the Public Accounts Committee cannot be brushed off in this way. I hope I did make it perfectly clear that we shall be submitting to the Public Accounts Committee in due course a detailed Treasury Minute in which we shall be replying to the criticisms made and submitting the matter once again to the judgment of the Public Accounts Committee. Nothing I have said is intended in any way to be derogatory of the Public Accounts Committee, which is a Select Committee of the House and which, I should add, has shown an understanding of the problems of the Treasury and, as the right hon. Gentleman indicated, of the Service Departments in respect of which virement has to be exercised.
  As to virement, the purpose of which is to allow surplus sums on the works Vote to be used to meet expenditure on married quarters housing which would would otherwise have to be met by borrowing and for which there is power to borrow, I do not want to go into great

  1193
  detail now. I do not think this is the occasion to do so. However, I would just point this out. In the first place, the power given to the Government, to the Air Ministry and to the other Service Departments to borrow in respect of their married quarters housing, their married officers' and other ranks' housing, is not a mandatory power; it is a discretionary power. They are not bound to borrow for that purpose. Secondly, the total of the building for married quarters in the year in question and over the years has not exceeded the amount voted by Parliament, that is the amount sanctioned by Parliament in the Estimates. The only question is how it should be financed.
  The third thing is, as I said, that the Act is permissive, and all that has been done in effect is to use the current surplus in order to build the married quarters rather than throw the burden on future Defence budgets. I could go into the matter in greater detail. It is a question of proper accountancy practice. Obviously, it is an important matter because it relates to Parliamentary control over Government expenditure. I would emphasise this. In the services which were sanctioned by Parliament and which were voted in the Estimates, the Estimates have not been exceeded. All that we have done is to use money which was available in order not to mortgage the future. As I indicated in my opening remarks, what the Treasury has done on this occasion in the way of virement in this particular respect is sanctioned by the authority of the Public Accounts Committee on a previous occasion. If the House passes this Resolution, the matter is still not finally disposed of, because it goes back to the Public Accounts Committee. I hope that with that explanation the Committee will pass this Resolution.
  12.1 a.m.
  Mr. Glenvil Hall: I have listened carefully to what the Financial Secretary has said, and although I stood in his shoes for five or six years, I cannot remember any occasion during the whole of the Labour Government's period of office from 1945 to 1951 when this kind of situation arose. He is correct in saying that the money has been voted by Parliament, but that money was voted for a particular purpose and, like all other Estimates, it has to be devoted to the purpose for which it was voted and
  1194
  no other. Only when one comes to the Defence Departments is a certain amount of latitude allowed, and moneys which have been voted for one purpose may be utilised, provided Parliament sanctions it later, for another. The reason is obvious, because defence is something which should not, in certain circumstances, be kept short of the necessary money to provide all that is necessary for that purpose. But here we are dealing with something quite different, and it was the continual reiteration by the hon. and learned Gentleman of the fact that Parliament had voted the money that brings me to my feet, because that is not the essence of this at all.
  I should like to voice again the request made by my right hon. Friend the Member for Dundee, West (Mr. Strachey) that this is the last time this kind of thing should happen, and we should like an assurance from the Treasury that in future it will insist that the Monk Resolutions should be used for the purpose for which they were designed.
  May I also say how much I share the sentiments expressed by the hon. and learned Gentleman about the sad and regrettable death of Sir Frank Tribe. Like many other hon. Members of this House, I knew him well and worked with him over a period of years. He was extremely able and had other qualities which endeared him to many of us who worked with him and met him week by week. His death came as a great shock, for we looked forward to many more years of active service by him both to the House and the great Department he controlled. It is sad that he should be cut off as he was. Fortunately, the Treasury is always rich in men of ability, and today we will all have read in The Times that a worthy successor to Sir Frank has been found in the person of Sir Edmund Compton. We all wish him well in the post he now takes over.
  12.4 a.m.
  Mr. George Wigg: For only a few moments I would raise my voice in protest against this archaic nonsense, which goes on from year to year and which is a survival of the conflict between Parliament and King 300 years ago. Still it remains a major crime to spend twopence on pay which has been voted for rations. It is a lot of fun and a bit tough on the warrant officers and N.C.O.s who have to administer through the

  1195
  archaic system of regulations which flow from it. It may be an interesting and amusing survival even at this time of night, but it has an unfortunate effect upon Army administration.
  Mr. John Arbuthnot: Is the hon. Gentleman suggesting that Parliament votes money for one purpose and that it ought to be spent on another?
  Mr. Wigg: Not at all. I am suggesting that the modern and up-to-date way would be to vote to the Secretary of State for War or the Secretary of State for Air whatever sum the House thinks fit, as is done in other Departments, and to leave the Departments more or less free to spend it, instead of compartmentalising it in the way in which it is done now, with the whole system of Treasury watchdogs sitting in the War Office. I have no objection even to that, but the effect upon the efficiency of the Services is extremely profound.
  Whenever I look at the Monk Resolution and the principle of virement year by year and listen to the dirge—I say that with respect to the Financial Secretary—and I want an antidote I go back and read those amazingly able lectures given by Sir Charles Harris when he was Director of Finance at the War Office. He saw through the nonsense; he saw what it cost in terms of men and lives and raised his voice in protest and tried to do something about it, but he failed because the vested interests at the Treasury were too strong for him.
  It is about time that some long-term thinker, either in a Service Department or at the Treasury, looked at the actual cost in terms of efficiency. It is very great indeed. Every senior officer in the Service who comes up against this problem raises his voice against this nonsense. It is a little like Aladdin rubbing his lamp and the genii appearing. Nobody is clear what it is about.
  I am sure that I have transgressed the rules of order, but before I resume my seat may I express the hope that before another year is passed the Treasury, or the Service Departments, or perhaps even a new Minister of Defence, may start to do something about it.
  12.7 a.m.
  Mr. Simon: I wish to say only one word more, and that is in answer to the criticism that what was done on this
  1196
  occasion by way of virement between the works Vote and the married quarters Vote was something of which Parliament had absolutely no warning. I would with respect draw attention to page 179 of the Army Estimates for 1956–57 where, under the note on Vote 11 relating to additional married quarters, it was specifically stated and drawn to the attention of the House that:
  "Any surplus that may arise on Vote 2. subhead D, and Vote 8"—
  which is the Works votes—
  "may be applied to meet expenditure under subhead A of this Vote and reduce the sum which would otherwise be issued out of the Consolidated Fund."
  I realise that there is an important constitutional problem here which admits of argument, but what was done on this occasion was done to the knowledge of Parliament and in accordance with precedent.
  Question put and agreed to.
  Resolutions to be reported.
  Report to be received this day.

  FILM FINANCE CORPORATION (REPORT)
  Motion made, and Question proposed, That this House do now adjourn.—[Mr. E. Wakefield.]
  12.9 a.m.
  Mr. Harold Lever: I desire to call the attention of the House to certain aspects of the Report of the National Film Finance Corporation It is with some diffidence that I do so in view of the lateness of the hour and the fact that I have no startling novelty in the Report to mention or that it shows a return for the taxpayer's money.
  I appreciate that the Corporation has a difficult job and is struggling against the idleness of the Government in failing to produce any reasonable policy for the film producers. The Corporation may be said in general to be doing a competent job of work, doing it very intelligently, as far as one can make out, and as successfully as the absence of any Government policy on the subject makes it possible.
  One aspect, however, of the Report which, I feel, should be brought to the attention of the House is the sections dealing with the British Lion Film Company, which, it appears, was taken

  1197
  over by the Corporation—I shall use rather popular language—in satisfaction of a £3 million debt and interest which was lent to the British Lion Company by the Corporation. The Corporation therefore has, as part of its activities at the present time, the complete ownership of the British Lion Company. This is a company which owns, I believe, some of the finest studios in the country and also owns a good-sized cinema library, which is valuable in that it produces large sums of rent for old films. It is also one of the leading renting and financing organisations in the film industry.
  Although the cost was somewhat high, at least we had the satisfaction of knowing that after the storm in the House concerning the outrageous provisions in the Finance Act relating to the National Film Finance Corporation, against which I protested at the time and which would have enabled the Corporation to accept a settlement from British Lion, the President of the Board of Trade did not have the temerity to implement them and he ended up as the reluctant owner of British Lion Films Limited.
  It appears that this company, having run fairly successfully until last year, for various reasons, probably beyond the control of the company, lost £300,000 in the last twelve months. It is at this point that the matter with which I shall deal briefly arises: namely, the proposed sale of the company's shares. It is perfectly in order for the President of the Board of Trade to hold the view that this is not a suitable company to be publicly owned and that the sooner it is safely sold to private interests the better. That is perfectly within the right hon. Gentleman's political competence. In his anxiety to give effect to his views on the subject, however, he must have a care that he gets full value for every piece of public asset of which he disposes. In this respect, it would seem, on the face of it, that he has been guilty of a neglect of duty.
  I must preface my remarks by making it unmistakably clear that I am not casting any sort of slur, imputation or sneer at any of the private persons involved in these transactions. They are all men of considerable reputation and achievement in the cinema industry. I am told that the cinema industry is always in difficulties and that we must not say anything to hurt it. I am not in the least anxious
  1198
  to do hurt to this industry, which, we are always told, is on the borderline of poverty, although I confess that the representatives of the industry that I have the fortune to meet do not seem among the more spectacular victims of malnutrition. Nevertheless, I readily accept the assurances, which are freely given, that but for State intervention we would have great difficulty in producing the mass culture achievements like "Blood of the Vampire" and "Dracula" with which people are now happily sustained.
  However, that is far from the purpose of my Adjournment debate, which is to deal with the sale by the Corporation of part of its interest in British Lion. I repeat, so that it shall not be open to any sort of argument, that the only criticism I am making is directed exclusively at the President of the Board of Trade and the Minister who is responsible with him for these affairs and who is to reply to the debate tonight.
  It appears that on 1st January, 1958, or at about that time, the managing director of the National Film Finance Corporation was made managing director of British Lion. It appears that around that time a deal was done by the Corporation with its own ex-managing director and its own appointee and full-time servant, to sell him shares in the British Lion Company.
  Now, on the face of it, I would have supposed that this was a transaction not to be undertaken without at any rate some discussion in public about it, other than a report ex post facto. Without casting any reflection, except on the President of the Board of Trade who sanctioned it, it seems to me not conducive to the highest standards of public finance that full-time officers of a public Corporation should buy assets of that Corporation in the form of shares.
  I should be very comforted to be able to say to the House that the price paid for the shares was so outstandingly excellent that any fears on the subject must be regarded as of a purely technical character. In the limited time available I cannot enter into all the intricate calculations, but I assert as a fact, upon analysis of the articles of association of the Film Finance Corporation, that the deal which the Corporation did converted £600,000 ordinary shares into preferred ordinary, and, subject to £600,000 of preference interest, that is,

  1199
  £600,000 at 6 per cent. not cumulative until 1963 and cumulative thereafter, it sold half of the equity of the concern for a total sum of £10,000. It is a sum so ludicrously small in proportion to the kind of value to be attached to the whole of the assets of this undertaking that the deal amounts for the buyer to nothing less than "Heads I win, tails I do not lose."
  I ask the Minister to tell us whether he had the assets valued up to date before he did this deal. I do not know whether he is aware of it, but the deal results also in people having not only half the equity earnings of the company for £10,000 but half the capital surplus over £600,000. I hope that the Minister will not fob us off with talk about the book value of these assets, because that is completely meaningless. The book value of assets has no relation whatsoever to their possible real value. For all I know, these five experienced and very distinguished gentlemen in the film-producing world have made a bad bargain. On the other hand, subject to what the assets are worth, they may have made a most fabulous bargain.
  Examination of the balance-sheets of the subsidiary companies is most suggestive that the assets of this company are very substantially in excess in market value of £600,000 today. To buy for £10,000 half the interest in the equity and half the surplus earnings of the company seems to me quite out of proportion to anything one would expect in the commercial world.
  In fairness, I fully realise that these gentlemen are producers and might introduce business into the company, but it is a little worrying to read the complacent euphemisms of this Report. It is all very well to talk of strengthening the board of British Lion by bringing producers—these customers—on the board, but it is a very odd proceeding, because British Lion has to do business with these gentlemen. It may be very beneficial business, but in future there will be the chronic difficulty that the board of British Lion, now consisting overwhelmingly of producers, will have to drive bargains with producers. There will be a continuous, chronic conflict of interests. It causes me considerable anxiety.
  1200
  This is always said to have been done as a preliminary to resumption of negotiations for the sale on satisfactory terms of the whole share capital of the company. It seems an odd proceeding that as a preliminary to selling off the whole of the shares at the best price—which is perfectly right in accordance with the Minister's political views—the company should be shackled for a mere £10,000 with a change in its memorandum of association which gives half the equity away in return for this trumpery sum.
  There is another point. This company has sustained enormous loses, which have been largely financed from the public purse. These losses are carried forward for taxation purposes, as I understand, so that whoever owns the equity of the company will never pay tax in the foreseeable future. Until they have made millions of pounds in profits they will trade tax-free and Profits Tax-free. That is an enormous advantage. It is a special advantage in this case—I do not want to talk technicalities—because the equity is supposed to be subject to £600,000 in 6 per cent. preference or preferred ordinary shares. The company will be able to deduct tax on the interest on those shares. It will not have to pay it to the Revenue because of the losses it has already suffered. It therefore really holds, for £10,000, half the equity of the company, and it is 6 per cent. and not 3 per cent., because it will be paying only net tax on these shares.
  I give this example only because I feel a real sense of anxiety about this matter. If the company earns £61,000—as it did not so long ago—the preference shares will receive a net dividend of approximately £20,000. There would be £40,000 to share between these people and the Corporation. In other words, for a £10,000 investment they will get £20,000 tax-free in one year, if the company earns £60,000 in a year.
  In those circumstances, there is real ground for anxiety, and I very much hope that I can be given some assurance that the Minister had the assets valued before agreeing to this transaction. Secondly, I will not rest at peace until I am sure that the matter will go before the Public Accounts Committee for an impartial examination in order that that Committee may see that no further transactions are undertaken on such unfavourable terms.
  12.22 a.m.
  Mrs. Eirene White: I do not want to stand between the Minister and the House for more than a moment or two. We should be grateful to my hon. Friend the Member for Cheetham (Mr. H. Lever) for having drawn public attention to this matter. Although he has been fortunate in the Ballot and has thus been enabled to bring the matter before the House, he is by no means the only person who has made representations about the report on the British Lion transactions.
  We would not wish to say a word against the ability or integrity of Mr. Kingsley, but it must be recognised by the Government that this is something which requires a fuller explanation than can be Oven in the Report of the Film Finance Corporation—when a public servant suddenly changes from one body to another and does so upon terms which give him a share in the body to which he has moved, and which, as my hon. Friend has pointed out, may prove to be a very handsome bargain.
  We would also like to have some assurance from the Minister on the question of the true value of the assets of British Lion. I say this because, when the new company was formed in 1955, we had reason to believe that the assets were fairly substantially undervalued. We are fortified in this supposition by studying the later balance sheets, in which the assets, as far as they concern films and reissues, have been considerably revalued. The original assets in 1955 are therefore shown to have been undervalued. We would like to know the true position with regard to the physical assets, in the form of studios, and so on. An apparent loss might not be a real one.
  Finally, we do not accept the premise, on which the Government are working, that it is desirable to dispose of British Lion, in private hands, as soon as possible. On the other hand, following their philosophy, they of course wish to do that. They are, however, I think, obliged by the standards of public life which we observe in this country to make it perfectly clear that even though they may have that end in view they are, nevertheless, dealing with a matter which is a public asset and they should not dispose of an interest in it except on terms which can be fully explained and fully defended in this House.
  12.25 a.m.
  The Parliamentary Secretary to the Board of Trade (Mr. F. J. Erroll): If am to do full justice to the interesting speeches of the hon. Member for Cheetham (Mr. H. Lever) and of the hon. Lady the Member for Flint, East (Mrs. White) I must be rather general in my opening remarks, because I think this is, in fact, a most useful opportunity for reviewing the workings of the National Film Finance Corporation since it acquired its fresh obligations and opportunities under the Cinematograph Films Act, 1957.
  During the Third Reading of that Bill—perhaps I may remind him—the hon. Member for Cheetham said that he welcomed the improvements made to the Corporation's standing and its style of business. We were very much heartened to secure the hon. Gentleman's support as, for a number of years, he had taken a very close interest in the workings of the Corporation and of the film industry as a whole. I do not think anything that has happened since need cause the hon. Gentleman any regret.
  It is true that the Corporation has suffered a loss, but that is not inconsistent with its new obligation, which is to carry out its functions in such a manner as appears to it best calculated to avoid defaulting on any loan made to it—not actually by it—that is to say, it must try to avoid defaulting on any loan received from the Board of Trade. That is what it has to do and what we must see that it strives to do if it possibly can. It is not, however, obliged to make a profit every year.
  In looking at this matter, one must bear in mind the very severe fall in cinema attendances which has taken place over the last year. This has borne very hardly on the film industry, and it would be surprising indeed if the Corporation had escaped its share of the burden. Fears that the Corporation would restrict its activities to films which were certain winners were freely expressed last year by hon. Members opposite, but, in fact, we find the Corporation recording that it has approved during the year loans totalling more than £2,450,000. In fact, this is the largest sum since 1950, the year in which £3 million was advanced to the former British Lion Film Corporation.

  1203
  In any case, the loss incurred by the Corporation last year arose in the main from loans made in earlier financial periods, before the passing of the Cinematograph Films Act, 1957. This loss is unfortunate, but it is understandable in a year when cinema attendances dropped so sharply.
  The hon. Member for Cheetham has focussed attention on the recent changes on the board of British Lion Films Ltd., and I would like in the few minutes that remain—and if I can speak above the general noise on my right—to say a few words about this matter. The Corporation in its Report has made it plain that the Board of Trade was kept informed of these proposed changes and concurred in the arrangements made. The point of that item in its Report is to show that we were aware of what was proposed. I should like to underline the fact that it was for the National Film Finance Corporation to make the running in the matter.
  The Board of Trade accepted the general contention of the Corporation that the best way of maintaining British Lion distribution facilities for the benefit of British films seemed to be to tie to it the product of a number of the most successful independent producers. Thus, by giving them a share in the equity a real incentive would be provided for them to make the company profitable. The detailed arrangements to this end were an appropriate subject for the Corporation itself to work out with the producers concerned. The Board of Trade has no reason to think that this is other than satisfactory for the purpose intended.
  I wish to mention another matter which was raised by the hon. Member, namely, the question of the future of this distribution company.
  Mr. Douglas Jay: Before the hon. Gentleman goes on, will he come to the point, which I think is the real point, and answer my hon. Friend's questions? In particular, did the Board of Trade have a valuation made of the assets before approving this transaction? What was the value paid on the assets, and what was the price paid for those shares by the directors who received the new deferred ordinary shares?
  Mr. Erroll: The right hon. Member is the third hon. Member to refer to that point; I propose to come back to it, admittedly only briefly.
  Mr. Jay rose—
  Mr. Erroll: I am pressed for time. I want to refer to this next point and then to come back to that matter. The Government make no secret of the fact that they would like to see this distribution company sold back to private interests. We make no secret of that fact, but how soon that can be done is the question. In our view, the new arrangements should improve the chances of an early sale.
  Mr. H. Lever: Why?
  Mr. Erroll: Because we believe that the chances of this company operating profitably have been improved and, until it is operating profitably, it is unlikely to be possible to sell it back to private interests. We do not believe it is appropriate for the Government to be directly concerned in the business of film distribution. That is why we believe it ought to be sold back to private interests as soon as it can.
  The hon. Member who initiated the debate, the hon. Lady the Member for Flint, East and the right hon. Member for Battersea, North (Mr. Jay) raised a number of detailed points. I should like to make it plain that I do not think this is the appropriate forum to deal with those detailed points because they relate to matters between the Film Finance Corporation and British Lion Films Ltd.
  Mr. Jay rose—
  Mr. Erroll: I should like to finish this point and then I shall give way. The hon. Member for Cheetham wrote to the President of the Board of Trade on this matter only a few days ago. I suggest that he and other hon. Members, if they wish to accompany him, should follow up the suggestion he made and act on the offer of the chairman of British Lion to see him, which was conveyed to the hon. Member by by right hon. Friend. I suggest these are matters of detail on which the Corporation has rightly full jurisdiction and on which detailed explanations can properly be given.
  Mr. Jay: The Report of the National Films Finance Corporation says that the

  1205
  Board of Trade has been kept fully informed of and has concurred in all the arrangements. Surely we in this House have the right and the hon. Gentleman has an obligation to debate the arrangements in the House.
  Mr. Erroll: I beg to differ on that. The Board of Trade was certainly informed and did not disagree. That could be taken as concurring, but it could not be said that we concurred in or refused to concur in the arrangements because we were informed of them.
  Mr. Jay: Surely the hon. Gentleman is not denying that the Board of Trade concurred?
  Mr. Erroll: I would like to point out that it was their report and not ours, which surely makes a slight difference.
  Several Hon. Members rose—
  Mr. Speaker: Order.
  Mrs. White: Does one take that to mean that no matter what had been proposed the Board of Trade would have concurred and, therefore, that its concurrence is meaningless?
  Mr. Erroll: I would invite the hon. Lady to realise that I never attempt to answer such hypothetical questions. We are dealing with a particular situation, one in which the hon. Lady and hon. Gentlemen are quoting from the report of the company. It is quite correct to say that we concurred. There was no reason why we should not, because we thought it in the best interests of the Corporation and of British Lion to do so, but it was entirely within their discretion to do what they thought best in order to try to make this a profitable undertaking—
  Mr. H. Lever: As I now understand, what the hon. Gentleman now says is that the details of this transaction were not the concern of his Department, but that the Department just concurred in the general arrangements and the detailed checking of values and so forth was left solely to the Finance Corporation?
  Mr. Erroll: We are dealing with directors, and it is the fact that within the context of that report the N.F.F.C. are referring to changes in the board. It was with the changes in the board that we concurred—and with the share
  1206
  transactions—because we recognised that it was important to provide some worthwhile inducement to the people who were joining the board, who would, we believed, better be able to make this a profitable concern if they had a stake in the future prosperity of the concern itself—
  Mr. Glenvil Hall: I am obliged to the hon. Gentleman for giving way, as I know that he has been interrupted many times, but this is really a most astonishing discussion. Am I right in understanding that the hon. Gentleman is now saying that one or two Members on this side who have become interested in this can interview the chairman of British Lion and get all the facts privately from him. Surely, that is not good enough. Public money is involved here, and this House, and not just a few of us, are entitled to know the details.
  I should like to remind the hon. Gentleman that my hon. Friend the Member for Cheetham (Mr. H. Lever) sent the President of the Board of Trade full particulars of the points he intended to raise. Therefore, if I might say so, it was rather unfair for the hon. Gentleman to use a lot of his time for a general discussion, which was not really the point of the debate at all; and we are likely to be very frustrated by his answer.
  Mr. Erroll: I am very sorry if the right hon. Gentleman feels frustrated, but the letter which the hon. Member for Cheetham sent to my right hon. Friend asked for information as to the names of the directors. He said that he would be generally satisfied by a list of directors and the memorandum and articles of association of the company. A list of directors was supplied to him, together with a copy of the memorandum and articles of association.
  I thought that that met the case very well, particularly as in reply it was suggested that detailed matters would be provided gladly by the chairman of the company concerned. It was intended to be a helpful reply, and if it has not been a helpful reply I can only apologise and say that I nevertheless hope there will be a further opportunity when I can more adequately meet the wishes of hon. Gentlemen.
  Question put and agreed to.
  Adjourned accordingly at twenty-one minutes to One o'clock.