§ The Chairman
I think that it would be convenient if the Committee discussed, at the same time, the Amendments in page 21, line 19, leave out "or dealing broker", and in page 21, leave out lines 30 to 35.
§ Mr. Diamond
It would certainly be convenient to discuss them together, Sir Gordon, although I had not expected that it would be convenient to do so at this hour. Having arrived at half-past twelve o'clock, and having made enormous progress with the Bill, I would have expected that the last thing the Committee would wish to do would be to hear me once more speaking on the Finance Bill. But if the Government insist, I shall do so.
The Clause deals with a mechanism for creating an unreal entitlement to the repayment of Income Tax as a result of artificial operations on the Stock Exchange. I had never heard about this, and my brokers had never heard of it when I spoke to them about it. It is extraordinary that it has been allowed to exist without being criminal. As far 399 as I understand the explanation given by the Chancellor, the mischief which the Clause seeks to prevent is one in which a man may sell gilt-edged shares on the Stock Exchange the day before they go ex-dividend, everybody knowing they are going ex-dividend the following day. He will sell these shares cum-dividend, but he will not have the shares to sell, and, therefore, he must protect himself by buying other shares. He will arrange with his broker for the purchase the following day of shares ex-dividend. This is a conspiracy between the broker and, in this case, the taxpayer, which I understand is against the rules of the London Stock Exchange. I do not know whether it applies in other stock exchanges.
As a result of these transactions, when the two days have been completed, he will have bought shares ex-dividend and sold shares cum-dividend, and he will, therefore, have to hand over the dividend to the person to whom he has sold. Instead of handing over the dividend, gross, he will hand over the net amount of the dividend and a voucher, and he will in this way create a tax repayment voucher which the broker will receive and which will merge with the broker's other vouchers. In due course the broker will make a repayment claim from the Inland Revenue, and in this way an entirely unreal tax repayment will have been effected through this conspiracy between the broker and his client.
I find it difficult to believe, and on reading carefully what the Chancellor said, I see that he finds it difficult to believe, that there can be an occasion on which a transaction of this kind can take place without the broker being aware of what is going on. It is true that the jobber may be, and for all I know is—I have no knowledge of this—wholly unaware of what is going on. Whether that is so or not, it is difficult to imagine a case in which a broker is unaware of what is going on.
The Amendment, which is intended to strengthen the Clause, seeks to remove from the exceptions to the Clause transactions with a dealing broker. I take it that a dealing broker is an authorised broker. I do not know the precise meaning of the term, and my inquiries on the London Stock Exchange have been 400 answered by confirmation that the term is unknown in the London Stock Exchange. Perhaps it is known in Statutes or some other stock exchange. Alternatively, a dealing broker is a broker who on some other stock exchange has a right both to transact business on behalf of a client on commission and to hold stocks and to deal on his own account.
Whichever it is, the matter is entirely suspect. If he is an authorised broker and is, therefore, one of the category who, by virtue of conspiring with their clients, have enabled this false repayment of tax to take place, then we ought not to be happy about exempting him from the provisions of the Clause.
For one reason or another, whichever is the appropriate definition of a dealing broker, we are not satisfied with the provisions and think that he ought to be excluded from the exceptions. The three Amendments merely have the effect of leaving out of the Clause "dealing broker" and leaving out the definition of "dealing broker" which, consequentially, would not be required in subsection (5).
§ Sir E. Boyle
The hour is rather late, and I think that I can answer the query of the hon. Member for Gloucester (Mr. Diamond), and the Amendments he has moved, fairly briefly. I shall not go into the whole object of Clause 25—which we can, perhaps, discuss on the Question, "That the Clause stand part of the Bill" —but it is part and parcel of the Stock Exchange tax arrangements. I think that the hon. Gentleman is aware that all through the market the amounts paid to and received by jobbers in satisfaction of net dividends on stocks bought cum-dividend rank as genuine dividends for tax purposes, even though in particular cases the jobber who sells a security cum-dividend might not have the security cum-dividend in his possession or be able to find a person prepared to sell it to him cum-dividend and thus has to complete the deal by purchasing and delivering the security ex-dividend, plus an amount equal to the net dividend.
Jobbers are required to keep what is called a "separate interest account," and if during the year the amount of "dividends" paid by them exceeds the amount of "dividends" they receive they have to account to the Inland Revenue for Income Tax at the standard rate 401 on the excess. The operators against whom Clause 25 is directed take advantage of this by selling a net, manufactured, "dividend" to the jobber, but do not have to account to the Revenue for tax on the "dividend" as they are not themselves jobbers.
The Clause similarly exempts any brokers on the provincial stock exchanges—the dealing brokers—who are specially authorised to deal in specified securities; for example, those quoted locally, but not elsewhere—if they operate under an arrangement with the Revenue for accounting for tax on dividends similar to that for stock exchange jobbers. The arrangement I have just described to the Committee is a protection to the Revenue with regard to both stock exchange jobbers and dealing brokers on the provincial stock exchanges provided they keep to the arrangement laid down in the Clause. Subsection (3) makes it quite clear that exemption from the requirements of the Clause is dependent on the adoption of the special arrangement. In fact, it is seldom made for dealing brokers on the provincial exchanges but, where it is adopted, exactly the same principle applies as in the case of jobbers on the London Stock Exchange. I therefore suggest that this group of Amendments is not really needed.
§ Mr. Mitchison
I understand what a jobber is. I have always understood that jobbers and brokers were not in partnership together—and I see that I am right. What about a dealing broker? Does he only partner with other dealing brokers? If so, why does he not call himself a jobber. Or does he partner with brokers in the ordinary sense of the word? If he does, is there not a possibility such as that dealt with by my hon. Friend the Member for Gloucester (Mr. Diamond)? Is it not rather undesirable that there should be a partnership or association between dealing brokers and other brokers on the provincial exchanges?
§ Sir E. Boyle
I can only say that I do not think that there is a case such as the hon. and learned Gentleman has suggested. The whole point is that the dealing broker, as defined by subsection (5) on the provincial exchange is equivalent to the jobber on the London 402 Stock Exchange and the same arguments apply to both.
§ Mr. Mitchison
By what perversity of nomenclature does he call himself a dealing broker? Why does he not call himself a jobber? Those of us who know anything about the Stock Exchange have not heard of this strange beast called the dealing broker, and the Economic Secretary does not seem to know whether that broker can partner an ordinary broker.
§ Mr. Denzil Freeth
Before my hon. Friend replies, will he not agree that it is only the London Stock Exchange that has the jobber system, and that every other stock exchange has brokers —who call themselves brokers pur et simple—but that in the case of this Bill it is necessary to differentiate the provincial broker who fulfils the obligations or activities of both jobber and broker, a distinction which, in the Bill, would separate him from his brother on the London Stock Exchange, who is only a broker, and not a jobber?
§ Sir E. Boyle
I do not think that I should enter upon a history of the Stock Exchange at this hour of the morning, but I am grateful to my hon. Friend the Member for Basingstoke (Mr. Denzil Freeth) for his observation.
I have put up with being called the Economic Secretary by the hon. and learned Member for Kettering during the sittings of the Committee so far, and I hope that he will allow us to have the "dealing broker" before we pass from this Clause.
§ Amendment negatived.
Mr. H. Wilson
I beg to move, That the Chairman do report Progress and ask leave to sit again.
We have had several comments from the Financial Secretary about how late the hour is and that he could not enter into a full discussion of some of the important points raised by his hon. Friends and by my hon. Friends on that account. I had the impression during the very learned piece to which he has just treated the Committee that even he was not taking it in as fully as he would normally do if the hour were earlier, and I suspect that if he had turned his notes face downwards he would not have been able to repeat what he then said to us.
403 We have some very elaborate and difficult questions ahead of us which, no doubt, will be debated tomorrow. I have been looking at an Amendment tabled by the Chancellor at rather short notice. I do not want to read it all—there is a lot of it—but if I just read one sentence, it will, I think, give the Committee the best possible reason for adjourning now. The last sentence reads:Provided that such a determination shall not affect the operation of this section in respect of transactions which include that transaction or some or all of those transactions and also include another transaction or other transactions".That, I am sure, will be crystal clear to the Committee at a reasonable hour tomorrow. I doubt that it is crystal clear to me, at any rate, and perhaps it is not clear even to the Chancellor at this time of the morning. For that, and for several other reasons, I hope that the right hon. Gentleman will agree that we should stop now.
I know that it was the hope of the Patronage Secretary—he must have a very unhappy time on these Finance Bills—that we should go as far as the beginning of Clause 26 tonight. It was our hope, also. I hope that the Patronage Secretary will agree that we have been very co-operative, not only today, but throughout the proceedings on the Bill so far. If I point out that of the 26 Amendments we have debated during this sitting, that is to say, since 3.30 yesterday afternoon, only seven were moved from this side of the Committee and 19 were moved from the benches opposite, no one, I think, will accuse the Opposition of hogging the time spent on the Bill. Probably, we have addressed the Committee for a good deal less than half the time that hon. Members opposite have taken on some of the very important Questions that various Clauses should stand part of the Bill, particularly Clause 18 and certain others.
The debate on whether Clause 25 should stand part of the Bill is quite important. It raises the whole subject of cum- and ex-dividend dealing, which some of us have been pressing on successive Chancellors for years, without very much success. We are glad that the Chancellor has tabled the Clause, so far as it goes, but, like my hon. Friend the Member for Sowerby (Mr. Houghton), we are a little doubtful about 404 how effective some of the Clauses will be. It will be recalled that the first attempt to deal with cum- and ex-dividend dealing was made—I speak from memory—in Section 12 of the Finance Act, 1937, twenty-three years ago. No doubt, it was thought then—I expect the Chancellor said so at the time —that the whole tribe of bond-washers, and so on, would be exterminated. Yet these problems are still with us.
The Committee will feel, I imagine, that, instead of debating this very important Clause now, we ought to return to it tomorrow when, I hope, all of us will feel a good deal fresher than we are now. I am sure that the Chancellor will agree that I make this suggestion without any desire to hold up the passage of the Bill. I do so simply in order that we may go to bed at a reasonable hour now. Of course, the Chancellor knows that, if we had wanted to hold up the Bill, it would have been possible to move 100, or perhaps 1,000, Amendments. There could be no easier Finance Bill for that purpose. We have, indeed, been very abstemious. [An HON. MEMBER: "Oh."] If any hon. Member wants to encourage me, I can go on for a couple of hours more.
We have been extremely restrained in the time we have spent on the Bill. Had we wanted to delay its passage, it would have been easy to move a large number of Amendments. Hon. Members opposite have moved a large number of Amendments. In every case, it could be felt that there was an important point to be raised from one point of view or another. We have not done so. Therefore, in moving to report Progress, I hope that the Chancellor will take it from me that this is in no way a dilatory proceeding but is so that we can come fresh to our further discussions.
It would have been nice if we could have finished the Clause. On the other hand, I cannot disagree with the right hon. Member for Huyton (Mr. H. Wilson) that, bearing in mind the extreme complexity of the business we have been dealing with, the Committee has been most co-operative. In all the circumstances, therefore, we can feel that the progress we have made is not unreasonable. I support the Motion.
§ Question put and agreed to.
§ Committee report Progress; to sit again this day.