Clause 61.—(INCREASE OF RATE OF PROFITS TAX.)

HC Deb 31 May 1960 vol 624 cc1302-40

Mr. Mitchison

I beg to move, in page 50, line 7, at the end to add: Provided that this section shall not have effect in relation to any trade or business carried on by a local authority as defined in section twenty-one of the Finance (No. 2) Act, 1945.

The Deputy-Chairman

I think it would be convenient to discuss with this Amendment the following four Amendments, namely,

In line 7, at end add: Provided that this section shall not have effect in relation to any trade or business carried on by any body corporate, unincorporated society or other body, which by the nature, form or terms of its constitution cannot lawfully make any relevant distribution. In line 7, at end add: Provided that, if at any time in any year the scale applicable to loans advanced to local authorities, as defined in section ten of the Local Authorities Loans Act, 1945, from the local loans fund includes any rate of interest in excess of three per cent. this section shall not have effect in relation to any trade or business carried on by such a local authority. In line 7, at end add: Provided that this section shall not have effect in relation to any trade or business carried on by a society registered under the Industrial and Provident Societies Acts, 1893 to 1954, or under the Industrial and Provident Societies Acts (Northern Ireland), 1893 to 1955 In line 7, at end add: Provided that this section shall not have effect in relation to any sports association carried on as a non-profit making body. The last two of those Amendments have been selected for a Division if required.

Mr. Mitchison

The first thing to get clear is that Profits Tax has changed its character considerably. It can no longer be regarded as a tax on profits. It is a tax, but, unlike Income Tax, there are few concessions to undertakings of any particular kind—there is nothing corresponding to investment allowances and the like—and one requires to see the effect it is having in one or two particular cases.

These Amendments relate first of all to trades or businesses carried on by local authorities. The first of the Amendments to be discussed with the Amendment I have moved is a rather broad Amendment which would include trades or businesses of that type and other trades or businesses carried on in most cases for public purposes by nonprofit-making bodies.

9.30 p.m.

When the Profits Tax first appeared in 1937 statutory undertakings were exempt. In effect, they were local authorities or others carrying on certain essential businesses, such as the supplying of water, gas, electricity, and transport undertakings. I will not go through the list at length, because the point is clear enough. In 1951 these same local authorities and other statutory undertakers were brought into the ambit of Profits Tax under a system which then prevailed. They were brought in on the footing that they made no relevant distribution and were taxed only on the lower rate.

Hon. Members will remember that in 1959 there was a change to a general rate of 10 per cent. and at that time, without going any earlier, the rate of Profits Tax was 30 per cent. and non-distribution relief was 27½ per cent.; so in fact, the taxation on the basis of no relevant distribution relieved local authorities and other statutory undertakers in that position of most of the Profits Tax burden. While this had been going on, in 1947 there were brought into the scope of Profits Tax Industrial and Provident Societies which are mentioned in the third of the Amendments which we are discussing with the Amendment I have moved. They were also taxed at the lower rate, that is to say at the time when the change was made they would have paid only 2½ per cent.

Lastly, there is mentioned, in the last Amendment which we are also discussing, a particular type of the bodies which have been mentioned in the second of these Amendments — the non-profit making bodies—that is to say, sports associations, many of which are carried on in that way for non-profitable purposes and yet attract what is now miscalled Profits Tax. Also, there is the Amendment which is the second of those to be discussed with the one I have moved about which I will say a word in a minute.

It is true—let us face it at once—that the Royal Commission, considering this subject at a time when there were two rates of Profits Tax, recommended that these bodies should all be treated like other profit makers. It is a fair recommendation in some ways, because there is an essential difference between all these bodies and ordinary profit-making bodies, with which the Royal Commission was principally concerned.

I want to call the Committee's attention to the effect of some of these things. There is no doubt that local authorities at present are meeting very serious financial difficulties. They are meeting those difficulties because of matters which I cannot go into at any length tonight. One obvious one is the general grant and the effect it has on the finances of local authorities. Another is the complete stoppage of housing subsidies for ordinary needs.

Yet a third, and the one which dominates everything and which is the most relevant to what we are considering tonight, is that it is Government policy that rates of interest should be high. Since local authorities have to borrow for practically every service they perform for the public and which they alone can perform, they have to pay, and therefore ultimately the public and the ratepayer or the rent payer have to pay a good deal more than they would under the comparatively low rates of interest which prevailed when the Labour Government were in power. I have taken 3 per cent., which is about right, as the figure which then ruled.

My hon. Friends have suggested in the Amendment in line 7 relating to local authorities that, so long as they have to pay these rates, which are so much higher than they had to pay when the Labour Government were in power, they at any rate should not be bidden to carry the increased rate of Profits Tax brought into being by the Clause.

Our plea on their behalf and on behalf of the other bodies is simply this. If in order to hold back the economy, to summarise what I think is the right hon. Gentleman's policy in these matters, Profits Tax is increased for the time being, what one must be thinking of are the profits which have increased so enormously in recent years in the case of limited companies and others carrying on profit-making transactions. It is that kind of profit with which the Profits Tax is normally concerned. There has been no corresponding increase—very much the contrary—in the activities of local authorities and in one or two other cases which I shall mention shortly.

I understand that right hon. and hon. Gentlemen opposite are great devotees of sport. The Chancellor of the Exchequer, when he is not watching the pigeon laying an egg outside his room is actively occupied in sailing, and we wish him well in doing so. He sails in company, and others play games in company. I ought not to have to stand here and urge the Conservative Party not to treat as profit-making bodies a number of sports associations and the like which are nothing of the sort and which are not making exorbitant or indeed any profits and are not contributing to inflation or however one describes the economic condition which the Chancellor at the moment is desirous to check a little. They are no sinners in this respect.

Local authorities are sufferers in this respect, because the result of inflation is that, when they are bidden to go on to the market to borrow or when they are driven to the Public Works Loans Board, they have to pay a rate which tends to rise and has in fact risen with the increasing profits, some of which are profits of other bodies which are caught by Profits Tax. They are the very lase people to be made to pay an increase of this kind.

I have not said much about co-operative societies. They are not able to make profits as a limited company does. [Laughter.] They certainly are not. Their dividends are discounts and are treated as such for taxation purposes. Their position is entirely different from a profit-making limited company or a profit-making individual or partnership. It has always been so recognised for tax purposes. Hon. Gentlemen opposite should go back to the hard times of the early nineteenth century when the Rochdale pioneers started the Co-operative movement as it now is, not in order to make profits but to get their goods cheaply by co-operative buying and selling.

That is still the foundation of the Co-operative movement. It is not right that co-operative societies should have to pay this increase, too, but I must leave it to my hon. Friend the Member for Sheffield, Hillsborough (Mr. Darling), if he is fortunate enough to catch your eye, Sir William, to develop something which has been said in this Chamber before in previous debates on Finance Bills and certainly merits saying constantly, because the noises which I heard from hon. Gentlemen opposite a minute or two ago indicate that some hon. Gentlemen opposite have not yet realised the nature of the Co-operative movement. It is high time that they did so.

For all those reasons, while recognising that this is an adaptation of Profits Tax to some extent for particular purposes, the increase being made for one national purpose now ought not on the merits of the case to be extended to these cases.

Mr. Michael Stewart (Fulham)

I think it has been agreed that in discussing this Amendment we may, at the same time, discuss those immediately following it. I wish, therefore, to direct the Chancellor's attention to—and, I hope, get his favourable consideration of—the Amendment in page 50, line 7. That Amendment links the proposed increase of Profits Tax as it affects local authorities to the interest rates that local authorities have to pay. It suggests that while those interest rates remain at their present high level this Clause should not apply to local authorities.

Nobody now disputes the severity of the pressure that interest rates exert on local authorities in carrying out work that they cannot avoid, even if they would. Perhaps I may be allowed to give just one illustration of that burden. The rent one would have to charge for an average council dwelling is today 15s. higher than it was in 1951, but of those 15s. only 1s. is the result of the building costing more to erect. The other 14s. are all due to the increase in interest rates between 1951 and today. When it is suggested, as it sometimes is, that dwellers in council dwellings enjoy a large subsidy at the expense of the community we should remember how large a part of that subsidy goes to the payment of these high rates of interest. It is the persons who receive that interest who are the real beneficiaries of the subsidy.

It is not, of course, only housing that is concerned, although I have quoted it as an example. Other examples may be mentioned by my hon. Friends. In other kinds of local authority work—the building of schools, the erection of buildings concerned with those parts of the health and welfare services for which the local authorities are responsible—the same heavy burden of increased interest rates has to be borne, and recent legislation is obliging local authorities to carry out building works for new purposes. There are, for example, the new duties imposed on local authorities by the Mental Health Act.

It might be urged that we should not, by passing this Amendment, show a special favour to local authorities. My answer would be that enterprises that take profits and pay tax are of a great variety. They produce various commodities and services. We might all have our own opinions as to the usefulness to human welfare or civilisation of the whole range of goods and services produced by industry, private and public. We may each consider that some make our civilisation richer and nobler while others degrade it. But the special feature of local authority work is that everything those authorities do is something that needs to be done for the maintenance of the kind of civilisation in which we want to live. Therefore, they are bodies that can claim tax treatment rather different from that of the general run of those that produce goods and services and have to pay excess Profits Tax.

When, in other debates, we have urged that local authorities ought to be helped by being charged a lower rate of interest than that which other operators have to pay, the stock reply given to us is that we cannot insulate local authorities from whatever economic storms may rage. There is an answer to that argument, but I shall not develop it now. I say only that if the Government stick to the view that they cannot come to the help of local authorities by reducing interest rates they should surely concede that this is not the moment actually to add to the burdens of local authorities, which is what the Clause would do if it became law without our Amendment. We are not asking for very much. We are not asking on this occasion that the burden should actually be lightened. We are asking merely that it should not be increased, in view of its present weight

. 9.45 p.m.

The burdens on local authorities arise not only from the interest rates but from Government policy in regard to grants and rates. At Question Time this afternoon, I tried to find out whether the Government still stick to the policy with regard to grants and rates which they announced a few years ago, before the Local Government Act was passed. The policy then announced in a Government White Paper was that out of all expenditure that local authorities had to meet the proportion met by Exchequer grants ought to be reduced. That, in effect, was what the White Paper said.

The Minister of Housing and Local Government has since prided himself on the fact that the general grants so far made have been such that he could plead that the Government had not yet carried out the policy in the White Paper. When I questioned him today, as hon. Members who were present at the time will recall, it was quite impossible for me to elicit a straight answer to my question. Government policy, therefore, with regard to Exchequer assistance by way of grant to local authorities remains obscure but menacing.

In words in the White Paper, local authorities are told that the Government intend to reduce that portion of their expenditure which is met by grants, putting a heavier burden on the rates. The Minister for the moment prides himself on the fact that he has not done it yet. But while it is there as a statement of Government intention, not repudiated, it is bound to add to the anxieties of local authorities. I pray that in aid as an additional reason, apart from the burden of interest rates, for saying that the Chancellor should take this opportunity to avoid actually adding to the burdens of local authorities at this time.

Mr. Mitchison

On a point of order, Sir Gordon. I apologise to you for forgetting to ask whether new Clause No. 47, "Reduction of rate of Profits Tax in certain cases", could be considered with this group of Amendments. It is designed to introduce a reduction of the rate of Profits Tax in the case of co-operative societies, and I think it might go conveniently with the Amendment designed to provide that, at any rate, it should not be increased

The Chairman

I am much obliged to the hon. and learned Gentleman. I think that that would be for the convenience of the Committee.

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

I desire to support the three Amendments, the one to which my hon. Friend the Member for Fulham (Mr. M. Stewart) has spoken, the one dealing with the Co-operative movement, and the one dealing with sports associations which are non-profit making concerns.

Hon. Members who have read the latest publication issued by the National Institute of Economic and Social Research will, from the analysis made there, understand the Government's policy in this matter. I accept that that is so. I do not agree with it, but, from a reading of publications of that kind, one can readily understand what the policy is. What I cannot understand, however, is the Chancellor being a party to the financial strangulation of local democracy. There are thousands of public-spirited men and women who have served our country as loyally as most of us. Many of them have a very great record in war. They have not talked as some people have done about selectivity in conscription; they have also played their part in war. The same applies to the sacrifices that they have made in the concrete application of local democracy. At the present time they are simply broken-hearted. They can do nothing at all worth talking about, such is the financial strangulation of the Chancellor's policy with regard to local democracy.

Let me give one example. This applies to other places. It is only a matter of degree, but I am speaking only of the city I know most about. It equally applies to Salford and other places. In the City of Stoke-on-Trent we have, relatively speaking in regard to the population, the finest housing record of any area in this country. I admit that there was a great need for that record owing to the past neglect of those who had governed and owned the city in the past. But I am not raising that. I am dealing with the fact that since the end of the war Stoke-on-Trent has the finest housing record relative to the population of any area in this country. That has aroused great pride locally. Large numbers of people used to come to the city and look at the estates. They still do so. Unfortunately, they cannot see any new estates that have been built within the last twelve months because of the financial strangulation policy of the Chancellor.

The result is that men and women, like my hon. Friend the Member for Stoke-on-Trent, North (Mrs. Slater), on that city council, who have devoted their lives to that area and who want to carry on this kind of work, cannot build any number of houses worth talking about. It is true that there is a certain amount of slum demolition and replacement taking place, but, compared with the past, very few houses are being built now, owing to this financial strangulation. What makes me smart is that we have been involved in two world wars which we have won, yet Germany has adopted the policy of cheap land and cheap money in order to provide the maximum—

The Chairman (Sir Gordon Touche)

I am sorry to interrupt the hon. Gentleman. I think that he is getting rather wide of the Amendment.

Mr. Mitchison

On a point of order. Is not my hon. Friend quite right, if not on cheap land, at any rate on cheap money? It is a point in one of the Amendments. I would suggest that, while one cannot go far into conditions in Germany, reference to the rates of interest for the local authorities there may be relevant.

The Chairman

It was not particularly in regard to the reference to Germany, it was the general background which was rather wide.

Mr. Ellis Smith

I am being very careful, Sir Gordon, to speak only within the limits of these Amendments. I am not making a Second Reading speech. I am being very careful, having had some experience in Committee on Finance Bills. If you would be good enough to look at the Amendment in page 50, line 7, I am sure that you will see the case I am building on with regard to this matter. The point that I was making was that, whereas what I am advocating is being done in Germany, although we won the war it is not being done here.

I think that the time has come when the Chancellor should make a statement on this matter. Everyone knows what I think of the Minister responsible for this state of affairs and the least said about that the better. Local democracy is expecting a reasoned statement from the Chancellor as to why this policy which is preventing local democracy functioning is being applied.

My hon. Friends will be speaking about the co-operative societies. I shall be satisfied if they do justice to them because, although I am not a direct representative of the Co-operative movement, I take second place to no one with regard to the time that I have spent being cradled in the Co-operative movement.

Previous Chancellors of the Exchequer, particularly the present Leader of the House, have always been very sympathetic when we have raised points about sport. It is generally accepted that here we are dependent upon voluntary associations, and up to now it has enabled us to play our part and largely to hold our own in world competition in sport. However, many sporting activities are finding it increasingly difficult to keep going. Now that concessions have been made in certain parts of the world of entertainment and sport, we believe that they should be applied to all voluntary organisations of the kind that come within the terms of the Amendment.

I therefore hope that the Chancellor will make a reasoned statement on these points. Even if he cannot accept them, it is right that we should make our position clear and put it on record.

Mr. Frank Allaun (Salford, East)

I am one of those who believe that these three types of organisation—co-operative societies, local authorities and nonprofit-making sports organisations—should not pay any Profits Tax. Local authorities provide a service for the whole population within their areas. Why should they be subject to Profits Tax? In my opinion, it is as daft as suggesting that the Army, Navy and Royal Air Force should pay Income Tax. The same principle applies. It is very unfair that the Chancellor should go further and suggest that it should be increased.

Many of my hon. Friends, I think, would be prepared to say to the Chancellor, "By all means increase the Profits Tax if you are prepared to reduce the interest rate to 3 per cent." That would be some compensation for the injury that has been done. I maintain that the Chancellor, who seems to be a very nice, kindly man, has done a terrible injury to millions of families by the policies which he has inaugurated. His financial policies are causing tremendous suffering, and this does not go with his character. We should protest on every possible occasion against what the right hon. Gentleman is doing.

The figure mentioned in the Amendment is 3 per cent. That was the interest rate which operated up to 1951. As the Chancellor knows, it is now 5⅞ per cent. This has had a colossal effect. As the Chancellor knows, a £1,500 house—these figures are engraved on my heart as Calais was engraved on the heart of Mary Queen of scots—[Laughter.] I have got the wrong Mary. By the time that a local authority has paid interest at 5¾ per cent. over sixty years on a £1,500 house, it will have paid £5,350. Subsequently, there has been an additional one-eighth of 1 per cent. Last week, the Chancellor refused to give a guarantee that there would not be a further increase.

10.0 p.m.

The result of this is simply that in 1954 we were building 240,000 houses a year, but last year we built exactly half this number. That is the result of the Chancellor's financial policy. We are asking him to return to the 3 per cent. rate which at one time was applicable.

I do net know whether the Chancellor realises what effect his policy is having. Does he know that at this moment, at ten o'clock in the evening, large numbers of children in our big cities are having to leave their parents' homes to go and sleep in other people's houses because there is no room for them in their own houses, which are so overcrowded? They have little hope of any improvement as long as this high interest rate applies.

That is the result of the Chancellor's policy. It is breaking up homes and it means that families who have been on the waiting list for fifteen years are still without houses and without a chance of getting them as a result of this policy. Therefore, in our Amendment we say that so great an injustice has been done by the Chancellor's financial policies that this additional injustice should not be done.

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

I should like to say a few words in support of the Amendment and the new Clause dealing particularly with industrial and provident societies. This is the third year that we have discussed this issue. It is not the first time that we have urged that the Chancellor should put right the injustice which he did two years ago to the Co-operative movement. It arose from his Budget in 1958, when he decided to combine the existing two rates of Profits Tax at 3 per cent. and 30 per cent. and to make one rate of 10 per cent. On each occasion when he has argued the case on behalf of the Co-operative movement, the Chancellor has come back with the reply, which, I have no doubt, we shall hear again tonight, that it is a simple case of competing trade organisations and that his method applies the tax equally to all trading organisations.

The financial structure of an industrial and provident society is very different from that of a public company. In our judgment, that difference in financial structure justifies a different approach from the viewpoint of the Profits Tax. The Chancellor himself has admitted that there is a vital difference in the nature of a co-operative society by comparison with a company. The difference was recog- nised as long ago as 1947, when the Profits Tax was first introduced. It was recognised by the Royal Commission on the Taxation of Profits and Income, and it was recognised by the Chancellor himself in the 1958 Budget, when he made what he called a concession in allowing co-operative societies to deduct for purposes of assessment to Profits Tax interest paid on their share capital.

In doing that, the Chancellor recognised that the two things were fundamentally different. He said that he was making a concession to the Co-operative movement by allowing that deduction. In fact, he was doing no more than justice—indeed, belated justice—to the Co-operative movement, because, as the Royal Commission pointed out, the share capital of a co-operative society is almost the exact equivalent of loan capital in a company. The concession was no more than giving equality of treatment to the loan capital of companies which they had enjoyed ever since 1947. Therefore, it was no concession but was merely belated justice.

Our argument is that we want justice in respect of the Profits Tax on the reserves of co-operative societies. We objected, and I think rightly, to the fact that the rate was raised from 3 per cent. to 10 per cent. in one fell swoop, and we equally protest now when it is proposed to raise it from 10 per cent. to 12½ per cent. I ask the Chancellor, who in other connections has often made sympathetic noises about co-operative societies, to consider who it is that makes up the Co-operative movement.

It is about 13 million people at the lower end of the income scale, and they are people who are not able to produce large sums of capital for their co-operative societies but on average about £20 per head. For that reason, a co-operative society in seeking capital for carrying on its business is at a considerable disadvantage in comparison with ordinary companies. Its people who are shareholders or members are not in a position to subscribe, as shareholders of companies are able to subscribe, large quantities of capital for the running of their trading organisation.

Even if they were rich enough so to do, the Industrial and Provident Societies Acts set a limit of £500 on capital of that kind. We therefore say that the two organisations are completely different and that they should be differently treated in respect of Profits Tax. Since the collection of capital from the members is so much more difficult than is the getting of shares from the shareholders of a company, the collective provision of capital, that is the ploughing back of profits into the organisation, is much more im-important to and much more difficult for a co-operative society to do.

It has been admitted by the Chancellor and by those who have investigated these matters that the distributions which co-operative societies make are completely different in kind from the distribution of profits made by companies. The so-called "divi" of the co-operative society, it is agreed, is not a distribution of profit. It is a reduction in price, a deferred rebate, and the interest on the shares of a co-operative society, it is also agreed, is the equivalent of interest on the loan capital of an ordinary company. Therefore, in a co-operative society the Profits Tax falls entirely on the amount of money put to reserve. It follows that an increase in Profits Tax and indeed the whole imposition of Profits Tax on the reserves of co-operative societies give a positive incentive to management committees to distribute their surpluses rather than plough them back, and I am sure that the Chancellor at no point wished to encourage distributions in that way.

In the case of companies, under the old system when there were differential rates as between the ploughing back and the distribution of profits there was a positive disincentive to distribute and an incentive to retain profits within the organisation. But two years ago, when the Chancellor decided to combine the rates, it made no difference to a company whether it ploughed back or distributed its profits, because the same rate of taxation was applicable in either case. It was left to the company to decide, and there was no incentive either way. But the way in which that has worked with the co-operative societies, because for them the Profits Tax is entirely on their reserves, it is to give a positive incentive to distribute rather than to retain, and I cannot imagine that the Chancellor ever intended that his combining of the Profits Tax rates should have that effect.

I have been speaking very much with consumer retailer co-operative societies in mind, but, as I have argued on previous occasions, they are not the only organisations which are hampered and handicapped in the way we have suggested. Agricultural co-operatives, which on other occasions the Chancellor has pretended to befriend, find the Profits Tax a particular handicap. Only a few months ago, the House passed the Horticulture Act, specifically designed to encourage the setting up of horticultural co-operatives. In discussions on that Measure it was brought to the attention of the Minister of Agriculture that horticultural co-operatives found it difficult to get capital together. We were given to understand that the Government were sympathetic to the idea of amending the Industrial and Provident Societies Acts so as to raise the share limit of £500 to £1,000 in order to help agricultural co-operatives. That is a very desirable Amendment of the law, and we hope that it will come about.

However, if that is the Government's attitude to co-operative societies in that case, surely it is the opposite of common sense and the opposite of justice to have a tax law which acts in precisely the other way. Therefore, on behalf of the 13 million strong consumer Co-operative movement and on behalf of the smaller but growing and important agricultural Co-operative movement, I hope that the Chancellor will have different thoughts this third time from those which he has expressed previously.

Mr. John Stonehouse (Wednesbury)

My hon. Friend the Member for East Ham, South (Mr. Oram) has already made the case in favour of the Amendment, but I want to underline some of the things he has said. My hon. Friend the Member for Stoke-on-Trent, South (Mr. Ellis Smith), speaking on a previous Amendment, said that local authorities were local democracies. The same could be said of co-operative societies. They are local democracies in that they are run and operated by consumers on the basis of "one shareholder, one vote", and there cannot be any exploitation through or by a co-operative society. They are quite unlike commercial companies to which the word "profits" usually applies. There are no profits in co-operative societies. They make surpluses—[Laughter.]—verysubstantial surpluses. According to any business standards, they are very successful enterprises. They have built themselves up from very small beginnings and now have a trade of more than £1,000 million a year. They have made outstanding progress in some matters. With milk, for instance, they have made tremendous headway. In 1935, about 20 per cent. of milk sold through retail distribution was sold by co-operative societies, but that figure has now increased to 35 per cent., showing how efficient they are and how much they appeal to consumers. However, with co-operative societies there is no exploitation in the sense that there is exploitation by business enterprises and ordinary commercial companies. Co-operative societies, therefore, warrant treatment different from that given to ordinary commercial undertakings.

10.15 p.m.

We rest the case for the Amendment on the quite fundamental and simple point that there are no profits in the orthodox sense within co-operative societies. The surpluses are distributed to consumers and encourage thrift by millions of householders. Unlike private concerns, there are no capital gains, and any ploughing back does not favour just a few shareholders but is for the benefit of all the consumers. The investors in shares in co-operative societies cannot make capital gains at the expense of the rest of their fellow co-operative members. On those grounds, we urge the Chancellor to reconsider his attitude towards industrial and provident societies.

Mr. Crosland

I rise for one minute only in view of the slightly ribald laughter from hon. Members opposite which greeted my hon. Friend the Member for Wednesbury (Mr. Stonehouse) when he drew a distinction between profits and surpluses. In his Budget speech, the Chancellor said that the object of the increase in Profits Tax was to curb not investment but consumption. He had it in mind that the increase in the Profits Tax would primarily restrain the increase in capital values on the Stock Exchange. No such increase can take place with the shares of co-operative societies and, therefore, it is wholly illogical from the point of view of the purpose which the right hon. Gentleman said that he had in mind that this higher impost should fall on co-operative societies.

Mr. Amory

We have before us a group of Amendments which seek to protect certain classes of trading concerns against the increase in the rate of Profits Tax from 10 per cent. to 12½ per cent., and a new Clause designed to reduce the rate on co-operative societies to 3 per cent. The Amendments apply to trades or businesses carried on by local authorities, by bodies which cannot make what are called relevant distributions, by co-operative societies, and sports associations. If the Amendments were adopted, all those concerns would continue to be charged to Profits Tax at 10 per cent.

In considering the arguments, we must keep before us the nature of the Profits Tax. This is a tax on the profits of trades or businesses carried on by corporate bodies or unincorporated societies, and those seeking special treatment for the profits of particular bodies within this class must make out their case against that background.

I would make a few preliminary comments. First, there is no doubt that the bodies referred to in the Amendments are carrying on trades or businesses. If they are not, they are not within the charge to Profits Tax. Secondly, there is no doubt that they make profits. If they do not, they do not have to pay Profits Tax. Thirdly, if the profits of the trade or business are small the Profits Tax law already provides relief from the tax. Broadly speaking, if the profits in any year are less than £2,000 they are exempt from Profits Tax, and if they are between £2,000 and £12,000 they are abated by one-fifth of the amount by which they fall short of £12,000. These exemption and abatement provisions apply to the bodies referred to in the Amendments, as they do to all others. I mention this in order to stress that some relief is already available where the profits of the trade or business are small.

In the course of the debate reference has been made to the history of Profits Tax. Between 1947 and 1958 the rates were heavier on profits that were distributed as dividends, and special provisions applied to the bodies mentioned in the Amendments. Building societies, for instance, then paid a special rate, and nationalised industries, local authorities co-operative societies and sports associations paid at the lower rate. But in 1958 that scheme of Profits Tax was abolished, in accordance with the recommendations of the Royal Commission, and was replaced by a flat-rate tax. Accordingly, all these special provisions as to rates became obsolete and, as the Commission again recommended, were swept away.

It would be outside the scope of the Amendments to go into the arguments for and against the flat rate, and I will not do that. The question was fully debated by this Committee in 1958. The question we are now asked to consider is whether certain bodies should be subject to Profits Tax at a special rate of tax on their trading profits.

As I have said, the present scheme is based on the recommendations of the Royal Commission. I would not wish to give the impression that a quotation from the Royal Commission's Report can be quoted ex cathedra as finally disposing of the question, but when it expresses a view with which I wholly agree I cannot do better than quote what it says. In paragraph 562 of its Final Report it says: The main principle that we wish to see adopted is that a tax on the profits of corporations should apply to all profits without distinction between corporations the ownership of which is vested in the State and other corporations, or between corporations formed to serve public purposes and those formed to serve private purposes. It seems to us that only by an impartial distribution of the tax whenever and wherever profits are found can there be a fair balancing of costs and prices between the public and private sectors of industry and commerce. And if these factors are not balanced fairly the true relationship between these different activities in respect of their development is itself disturbed. That is the basis on which the present scheme of Profits Tax operates. That is the reason why I cannot commend the Amendments to the Committee.

It has been argued in relation to bodies covered by the Amendments that special treatment is justified because they have no equity shares and it is impossible to make a capital profit out of them. I am by no means convinced that factors of this kind have any bearing on the question of the rate at which a body ought to be taxed on its current trading profits, but let us consider the position of a body which cannot make dividend distributions. Such a body is presumably financed by loan capital. Interest on loan capital is a deduction in computing profits for Profits Tax purposes, and such a body therefore pays the tax on its retained profits only. On the other hand, a body which can pay dividends pays tax not only on its retained profits but, also on its dividends.

It seems to me, therefore, that the special features of bodies which cannot make dividend distributions are fairly met by the present law. If we discriminate in, their favour any more it would not be fair to the other bodies with whom they compete.

Again, it has been suggested that we should have regard to the nature of the service provided by the body carrying on the trade or business, and that if it is providing a necessary public service it should be charged at a lower rate. On this point I would only say that if the nature of the service provided is to be taken into account, that would lead us into a very wide field, and many other concerns than those mentioned in the Amendments would have to be considered. What would be the position of companies engaged in the manufacture of necessary foodstuffs, medical supplies, chemical fertilisers and so on? Where would companies heavily engaged in the export trade stand among such priorities? I am sure that in a matter of taxation we cannot distinguish between the profits of different organisations according to somebody's estimate of the value of their activities to the community. It is far too difficult an assessment to make.

As regards co-operative societies, the point I have made about bodies which cannot make distributions applies here. In computing their profits for Profits Tax purposes they are allowed to deduct the interest paid on shares so that they pay the tax only on their retained profits. They are in direct competition with companies in the same line of business, and it would be impossible to justify charging them to Profits Tax at any rate—whether it be 10 per cent. or 3 per cent.—other than the rate imposed on their competitors.

Though I know that most of us have a regard for our national games, there would be very grave difficulties in drawing a line which would fairly discriminate in their favour on any trading profits they made. The same sentiment could led us into giving an enormous number of other exemptions for equally desirable reasons.

I am sure that we all must try to keep our taxation basis on clear principles, and the principle of Profits Tax is perfectly clear. It is charged on the profits of trades or businesses carried on by bodies corporate and similar bodies. It is not charged on the trading results of individuals, but they are liable to Surtax on their profits. If we now get away from that clear principle and start modifying the rate of tax according to the nature of the trade or the business which is carried on, or the nature of the body that carries it on, we shall be led into a very deep bog indeed.

I should like to refer to the remarks made by the hon. Member for Fulham (Mr. M. Stewart) on interest rates. There again, we have to remember that he was speaking of local authorities. Profits Tax will arise on the profits they make, and in many of their trading activities they may find themselves in competition with other industries, and it would not be fair to isolate the trading activities of local authorities from the competitive rates, both in interest and in Profits Tax, that their competitors have to carry.

Mr. Mitchison

The right hon. Gentleman will remember that when they were exempted originally it was for statutory undertakings, when there was no question of competition, and it included, for instance, the supply of water and transport.

Mr. Amory

Yes, but the Amendment seems to go wider than that, and the Royal Commission again considered that with the flat rate of Profits Tax it was recommending there would be no justification for exempting even statutory undertakings.

The hon. Member for Stoke-on-Trent, Central (Mr. Ellis Smith) went a little wide of the Amendment, and again I would remind him that here we are dealing with trading activities and not neces- sarily with housing in general. But on housing in general I would again remind him that currently the total number of houses being built—and that is surely the important thing—is running at a rate of upwards of 300,000 a year, and of course at a very much higher rate than in the days when hon. Gentlemen opposite were in power. It is clear that at the present time the house building industry is working at full capacity.

Mrs. Harriet Slater (Stoke-on-Trent, North)

Is it not also fair to make the comment that, although the number of houses being built now is higher than before, that does not apply to houses being built by local authorities, because of Government policy?

Mr. Amory

I should have thought that from the national point of view the important thing was to get good quality houses built and to house as many families as possible, but there I think there may be disagreement between hon. Gentlemen opposite and ourselves, and I am sure, Sir William, that you would not wish us to discuss that this evening.

Finally, may I say a word about a remark made by the hon. Member for Salford, East (Mr. Frank Allaun), who very politely alleged that by my economic policies I was doing great damage to millions of families. I would remind him that the object of my economic policies is, above everything else, to avoid a return to inflation. They have helped to ensure that we have over the past two years enjoyed complete stability in prices, and I would have thought that that was not of great damage to millions of families but of very great benefit to them.

For the reasons that I have given, I think it would be a very great mistake if the Committee decided to adopt the Amendment, and I hope hon. Members will allow the Clause to stand as it is.

10.30 p.m.

Mr. Charles Loughlin (Gloucestershire, West)

Would the right hon. Gentleman explain what is the difference in relation to inflation if council house rents rise by 15s. a week or prices of goods rise by the same extent? Is it not equally inflationary if council house rents are increased?

Mr. Amory

There has been complete stability in the cost of living and rents are taken into consideration in the price index. As long as we can maintain complete price stability, we are doing the best we can to avoid the risk of a return to inflation.

Mr. George Darling (Sheffield, Hillsborough)

I think that all of my right hon. and hon. Friends would agree that the Chancellor has not only made a disappointing speech, but in repeating the arguments which we demolished last year and the year before he is not treating the points that we have brought forward in the way in which we think they should be treated. He suggests, for instance, that the principle of Profits Tax is that it is a tax that must be levied on all trades and businesses which make profits, that no distinction must be made as to the character, the legal status on the purpose of the business, and how the profits are made or distributed.

There are great differences in the way that profits are made. There are great differences in the effects of the profits upon businesses and the people associated with the businesses, and, what is most important of all, there are great differences in the legal status of the enterprises with which we are dealing. To dispose of all these differences as if they did not exist is to look at the problem without the proper care that the issue requires.

We deeply regret that he offers no help to local authorities. When the right hon. Gentleman suggests that local authorities' trading activities have got to be treated in the same way as trading activities of other businesses because they are in competition with each other, again he is surely making a mistake in the legal character of the operations and in the purpose and the results of the operations. Many of these local trading operations are public services in which the local authority has a statutory monopoly and is not engaged in competition at all. Therefore, to suggest that they have got to be taxed in the same way seems to us to be flying in the face of the facts.

As my hon. Friend the Member for Grimsby (Mr. Crosland) said, one of the fundamental issues here is the purpose for the increase in the tax that the Chancellor is proposing this year. He pro- poses to raise the Profits Tax because, as we see it, as a result of his previous financial measures, company profits have been rising substantially and the proposed tax is offered as a check to this inflationary trend. We are not opposed to his putting a check on inflationary trends, though we think that the better way to do it in this case would have been a higher tax on distributed profits and a lower tax on profits put to reserve.

I regret to say that we cannot debate that point now, but we protest at the fact that the Chancellor is putting this check on inflation on trading organisations which have not contributed to the inflationary trend. We have been debating this matter for three years, and I regret that we have to go over the same ground again, but we must continue until we have succeeded in getting our point of view over to the Chancellor, as I am sure we shall in time. He is pretending that he can see no difference between the trading profits, for instance, of co-operative societies which are put to reserve by those societies, and similar bodies, on the one hand, and the profits of private and public companies, on the other hand. He thinks that the provisions of the Industrial and Provident Societies Act and the Companies Acts are precisely the same.

The Statutes can be called in aid to prove that he is quite wrong. There is a great deal of difference—he mentioned it in passing tonight, without going deeply into it—between the equity shares of a joint stock company and the nontransferable fixed value shares of a co-operative society. My hon. Friends have pointed out an important factor—the capital gains element in equity shares which cannot be earned by shareholders in co-operative societies.

We must point out, because this is fundamental, that it does not matter how much a co-operative society puts to reserve; its reserves make no difference either to the value of its shares or to the rate of interest paid upon them. The Chancellor admitted that the amount put to reserve makes no difference to the value of the shares, but he did not mention the very important point that it does not affect the rate of interest paid on the shares, either. A £1 share is worth £1 whether the co-operative society is flourishing and putting a lot of money to reserve or whether it is just ticking over. That is a fundamental difference from the position of share capital in a company registered under the Companies Acts.

In spite of these manifest differences between equity shares and co-operative society shares, the Chancellor insists that they are similar in law and in purpose and in the returns which they bring to the shareholders and therefore persists in saying, in spite of all the facts to the contrary, that those profits are similar and must be treated in a similar fashion.

Mr. Amory

They are not similar in the return which they bring to the shareholder.

Mr. Darling

We can deal with that argument then, because if he admits that there is a great deal of difference in the return which they bring to the shareholders, surely we can build up the case that they should be differently treated in regard to taxation.

Mr. Amory

The fact that they do not bring the same return to the shareholders is the reason why the Royal Commission recommended, and we are giving them, different treatment for Profits Tax purposes. The interest on the shares is allowed as a charge instead of being treated as a dividend. That is the point I tried to make.

Mr. Darling

We do not agree with the Royal Commission's conclusions in the few paragraphs which it devoted to Profits Tax on co-operative societies. I think the Chancellor would agree, if he were not discussing this in a partisan spirit, that the Commission's Report is not very clear in the paragraphs which deal with the matter. He goes on saying, as he said last year and this year, that only the balance of the profits put to reserve are charged to tax and that it would be unreasonable for one class of trader to be charged on such profits at 3 per cent. while another is charged at 10 per cent. when the two may be in competition. That is the argument he is putting forward.

We want to know why differential taxes would be unreasonable. Last year he admitted that the effect of his higher uniform rates increased the liability of co-operative socities to taxation by £1,300,000 while other traders, as a result of his tax arrangements, received tax reductions. The 2½ per cent. that he is proposing this year will make the liability of co-operative societies, as against the position as it was before, equal to a tax increase of £1¾ million a year. That is a tax increase which is discriminatory. It applies only to co-operative societies as compared with the situation before the rearrangement of the Profits Tax was made a year ago.

The Chancellor said then, and he has said tonight, that he introduced the uniform 10 per cent. tax on distributed and undistributed profits to make the tax simpler. He said that he brought the co-operative societies' undistributed profits into the 10 per cent. imposition in order to be fair all round. But what the right hon. Gentleman fails to understand is that in our view it is unfair to treat two dissimilar things as if they were precisely the same.

We are not asking for special favours for co-operative societies. All that we want it fair treatment. We believe that to be fair the treatment must take into account all the facts and circumstances. It is because we think that the Chancellor has ignored these facts and circumstances that we are going to carry our protest against this provision and his refusal to accept our Amendment into the Division Lobby.

The right hon. Gentleman has not taken into account the fact that the shareholding in co-operative societies is limited to £500. He ignores the small saver element in this and he has not taken into account the fact that undistributed profits make no addition to the value of the member's shareholding, and he ignores, too, the interest question. As long as the right hon. Gentleman goes on ignoring these matters he is not being fair in imposing this uniform tax on undistributed profits. We do not think that one can achieve fairness by trying to apply uniformity to things which are not uniform.

Question put, That those words be there added:—

The Committee divided: Ayes 129, Noes 199.

Division No. 104.]	AYES	19.14 p.m.
Aitken, W. T.	Gibson-Watt, David	Marten, Neil
Allason, James	Glyn, Dr. Alan (Clapham)	Matthews, Gordon (Meriden)
Amory, Rt. Hn. D. Heathcoat (Tiv'tn)	Glyn, Sir Richard (Dorset, N.)	Mawby, Ray
Ashton, Sir Hubert	Goodhew, Victor	Molson, Rt. Hon. Hugh
Atkins, Humphrey	Gower, Raymond	Montgomery, Fergus
Barber, Anthony	Grant-Ferris, Wg Cdr. R. (Nantwich)	Morgan, William
Barlow, Sir John	Green, Alan	Nabarro, Gerald
Barter, John	Grimond, J.	Neave, Airey
Batsford, Brian	Grimston, Sir Robert	Nicholson, Sir Godfrey
Baxter, Sir Beverley (Southgate)	Hall, John (Wycombe)	Noble, Michael
Bell, Philip (Bolton, E.)	Hamilton, Michael (Wellingborough)	Osborn, John (Hallam)
Bell, Ronald (S. Bucks)	Harrison, Brian (Maldon)	Osborne, Cyril (Louth)
Berkeley, Humphry	Harrison, Col. J. H. (Eye)	Page, A. J. (Harrow, West)
Bevins, Rt. Hon. Reginald (Toxteth)	Henderson, John (Cathcart)	Page, Graham
Bidgood, John C.	Hendry, Forbes	Partridge, E.
Biggs-Davison, John	Hicks Beach, Maj. W.	Pearson, Frank (Clitheroe)
Birch, Rt. Hon. Nigel	Hiley, Joseph	Percival, Ian
Bishop, F. P.	Hill, Mrs. Eveline (Wythenshawe)	Peyton, John
Black, Sir Cyril	Hill, J. E. B. (S. Norfolk)	Pickthorn, Sir Kenneth
Bossom, Cilve	Hinchingbrooke, Viscount	Pike, Miss Mervyn
Bourne-Arton, A.	Hirst, Geoffrey	Pilkington, Capt. Richard
Bowen, Roderic (Cardigan)	Hooking, Philip N.	Pitman, I. J.
Box, Donald	Holland, Philip	Pitt, Miss Edith
Boyle, Sir Edward	Hollingworth, John	Pott, Percivall
Brewis John	Hopkins, Alan	Powell, J. Enoch
Bromley-Davenport, Lt.-Col. W. H.	Hornby, R. P.	Price, H. A. (Lewisham, W.)
Brooman-White, R.	Hornsby-Smith, Rt. Hon. Patricia	Prior, J. M. L.
Browne, Percy (Torrington)	Howard, Gerald (Cambridgeshire)	Prior-Palmer, Brig. Sir Otho
Builard, Denys	Howard, John (Southampton, Test)	Proudfoot, Wilfred
Bullus, Wing Commander Eric	Hughes-Young, Michael	Ramsden, James
Carr, Compton (Barons Court)	Hutohison, Michael Clark	Rawlinson, Peter
Carr, Robert (Mitcham)	Irvine, Bryant Godman (Rye)	Redmayne, Rt. Hon. Martin
Chataway, Christopher	Jackson, John	Rees, Hugh
Clark, Henry (Antrim, N.)	James, David	Rees-Davies, W. R.
Clark, William (Nottingham, S.)	Jenkins, Robert (Dulwich)	Ridley, Hon. Nicholas
Cleaver, Leonard	Johnson, Dr. Donald (Carlisle)	Ridsdale, Julian
Collard, Richard	Johnson, Eric (Blackley)	Roberts, Sir Peter (Heeley)
Cordeaux, Lt.-Col. J. K.	Joseph, Sir Keith	Roots, William
Corfield, F. V.	Kerens, Cdr. J. S.	Ropner, Col. Sir Leonard
Costain, A. P.	Kerby, Capt. Henry	Scott-Hopkins, James
Coulson, J. M.	Kerr, Sir Hamilton	Seymour, Leslie
Courtney, Cdr. Anthony	Kimball, Marcus	Sharples, Richard
Critchley, Julian	Kitson, Timothy	Shaw, M.
Curran, Charles	Lambton, Viscount	Shepherd, William
Currie, G. B. H.	Langford-Holt, J.	Simon, Sir Jocelyn
Dalkeith, Earl of	Leavey, J. A.	Smith, Dudley (Br'ntf'rd & Chiswick)
d'Avigdor-Goldsmid, Sir Henry	Legge-Bourke, Maj. H.	Smyth, Brig. Sir John (Norwood)
Deedes, W. F.	Legh, Hon. Peter (Petersfield)	Speir, Rupert
de Ferranti, Basil	Lewis, Kenneth (Rutland)	Stevens, Geoffrey
Donaldson, Cmdr. C. E. M.	Lindsay, Martin	Steward, Harold (Stockport, S.)
Drayson, G. B.	Litohfield, Capt. John	Stodart, J. A.
du Cann, Edward	Longden, Gilbert	Stoddart-Scott, Col. Sir Malcolm
Emery, Peter	Loveys, Walter H.	Storey, Sir Samuel
Errington, Sir Eric	Lucas-Tooth, Sir Hugh	Studholme, Sir Henry
Farey-Jones, F. W.	MacArthur, Ian	Summers, Sir Spencer (Aylesbury)
Farr, John	McLaren, Martin	Sumner, Donald (Orpington)
Fell, Anthory	McLaughlin, Mrs. Patricia	Talbot, John E.
Fisher, Nigel	Maclay, Rt. Hon. John	Tapsell, Peter
Forrest, George	McMaster, Stanley R,	Teeling, William
Fraser. Ian (Plymouth, Sutton)	Maginnis, John E.	Temple, John M.
Freeth, Dentil	Manningham-Buller, Rt. Hn. Sir R.	Thomas, Leslie (Canterbury)
Gammans, Lady	Markham, Major Sir Frank	Thomas, Peter (Conway)
Gardner, Edward	Marlowe, Anthony	Thompson, Kenneth (Walton)
Thompson, Richard (Croydon, S.)	Wakefield, Edward (Derbyshire, W.)	Wise, A. R.
Thorneycroft, Rt. Hon. Peter	Wakefield, Sir Waveil (St. M'lebone)	Wolrige-Cordon, Patrick
Thornton-Kemsley, Sir Colin	Wall, Patrick	Woodhouse, C. M.
Tiley, Arthur (Bradford, W.)	Ward, Dame Irene (Tynemouth)	Woodnutt, Mark
Turner, Colin	Watts, James	Woollam, John
Turton, Rt. Hon. R. H.	Wells, John (Maidstone)	Worsley, Marcus
Tweedsmuir, Lady	Whitelaw, William	TELLERS FOR THE AYES:
van Straubenzee, W. R.	Williams, Dudley (Exeter)	Mr. Finlay and Mr. Peel.
Vickers, Miss Joan	Wills, Sir Gerald (Bridgwater)
Vosper, Rt. Hon. Dennis	Wilson, Geoffrey (Truro)
NOES
Ainsley, William	Hughes, Cledwyn (Anglesey)	Probert, Arthur
Allaun, Frank (Salford, E.)	Hughes, Emrys (S. Ayrshire)	Randall, Harry
Awbery, Stan	Hughes, Hector (Aberdeen, N.)	Redhead, E. C.
Bacon, Miss Alice	Hunter, A. E.	Rhodes, H.
Baxter, William (Stirlingshire, W.)	Hynd, H. (Accrington)	Roberts, Goronwy (Caernarvon)
Bence, Cyril (Dunbartonshire, E.)	Irving, Sydney (Dartford)	Rogers, G. H. R. (Kensington, N.)
Benson, Sir George	Janner, Barnett	Ross, William
Blyton, William	Jay, Rt. Hon. Douglas	Short, Edward
Bowden, Herbert W. (Leics, S. W.)	Jeger, George	Skeffington, Arthur
Boyden, James	Jenkins, Roy (Stechford)	Slater, Mrs. Harriet (Stoke, N.)
Braddock, Mrs. E. M.	Johnston, Douglas (Paisley)	Slater, Joseph (Sedgefield)
Broughton, Dr. A. D. D.	Jones, Rt. Hn. A. Creech (Wakefield)	Small, William
Brown, Alan (Tottenham)	Jones, Jack (Rotherham)	Smith, Ellis (Stoke, S.)
Brown, Rt. Hon. George (Belper)	Jones, J. Idwal (Wrexham)	Snow, Julian
Brown, Thomas (Ince)	Kenyon, Clifford	Soskice, Rt. Hon. Sir Frank
Butler, Mrs. Joyce (Wood Green)	Key, Rt. Hon. C. W.	Spriggs, Leslie
Callaghan, James	Lee, Frederick (Newton)	Steele, Thomas
Chetwynd, George	Lewis, Arthur (West Ham, N.)	Stewart, Michael (Fulham)
Cliffe Michael	Logan, David	Stonehouse, John
Corbet, Mrs. Freda	Loughlin, Charles	Stones, William
Craddock, George (Bradford, S.)	Mabon, Dr. J. Dickson	Strachey, Rt. Hon John
Crosland, Anthony	McCann, John	Sylvester, George
Cullen, Mrs. Alice	MacColl, James	Symonds, J. B.
Darling, George	McInnes, James	Taylor, Bernard (Mansfield)
Davies, G. Elfed (Rhondda, E.)	McKay, John (Wallsend)	Thomas, George (Cardiff, W.)
Davies, Harold (Leek)	Mackie, John	Thomas, Iorwarth (Rhondda, W.)
Davies, Ifor (Gower)	Manuel, A. C.	Thompson, Dr. Alan (Dunfermline)
Davies, S. O. (Merthyr)	Marquand, Rt. Hon. H. A.	Thornton, Ernest
Deer, George	Mason, Roy	Tomney, Frank
Dempsey, James	Mayhew, Christopher	Ungoed-Thomas, Sir Lynn
Diamond, John	Mendelson, J. J.	Wainwright, Edwin
Dodds, Norman	Millan, Bruce	Warbay, William
Dugdale, Rt. Hon. John	Mitchison, G. R.	Watkins, Tudor
Edwards, Robert (Bilston)	Monslow, Walter	Weitzman, David
Fenyhough, E.	Morris, John	Wheeldon, W. E.
Fitch, Alan	Mort, D. L.	White, Mrs. Eirene
Fletcher, Eric	Neal, Harold	Wilcock, Group Capt. C. A. B.
Forman, J. C.	Noel-Baker, Fransis (Swindon)	Willey, Frederick
Fraser, Thomas (Hamilton)	Noel-Baker. Rt. Hn. Philip (Derby, S.)	Williams, D. J. (Neath)
George. Lady Megan Lloyd	Oliver, C. H.	Williams, Rev. LI. (Abertillery)
Ginsburg, David	Owen, Will	Willams, W. R. (Openshaw)
Gordon-Walker, Rt. Hon. P. C.	Padley, W. E.	Willis, E. G. (Edinburgh, E.)
Greenwood, Anthony	Pargiter, G. A.	Wilson, Rt. Hon. Harold (Huyton)
Hamilton. William (West Fife)	Parker, John (Dagenham)	Winterbottom, R. E.
Hannan, William	Paton, John	Woodburn, Rt. Hon. A.
Hayman, F. H.	Pavitt, Laurence	Woof, Robert
Herbison, Miss Margaret	Pearson, Arthur (Pontypridd)	Yates, Victor (Ladywood)
Hilton, A. V.	Pentland, Norman	Zilliacus, K.
Holman, Percy	Prentice, R. E.
Houghton, Douglas	Price, J. T. (Westhoughton)	TELLERS FOR THE NOES:
		Mr. Mahon and Mr. Howell.

Division No. 105.	AYES	[10.42 p.m.
Ainsley, William	Hughes, Cledwyn (Anglesey)	Redhead, E. C.
Allaun, Frank (Salford, E.)	Hughes, Emrys (S. Ayrshire)	Rhodes, H.
Awbery, Stan	Hughes, Hector (Aberdeen, N.)	Roberts, Albert (Normanton)
Bacon, Miss Alice	Hunter, A. E.	Roberts, Goronwy (Caernarvon)
Baxter, William (Stirlingshire, W.)	Hynd, H. (Accrington)	Ross, William
Bence, Cyril (Dunbartonshire, E.)	Janner, Barnett	Skeffington, Arthur
Benson, Sir George	Jay, Rt. Hon. Douglas	Slater, Mrs. Harriet (Stoke, N.)
Blyton, William	Jeger, George	Slater, Joseph (Sedgefield)
Bowden, Herbert W. (Leics, S. W.)	Jenkins, Roy (Stechford)	Small, William
Boyden, dames	Jones, Rt. Hn. A. Creech (Wakefield)	Smith, Ellis (Stoke, S.)
Broughton, Dr. A. D. D.	Jones, Jack (Rotherham)	Snow, Julian
Brown, Allen (Tottenham)	Jones, J. Idwal (Wrexham)	Soskice, Rt. Hon. Sir Frank
Brown, Rt. Hon. George (Belper)	Lee, Frederick (Newton)	Spriggs, Leslie
Brown, Thomas (Ince)	Lewis, Arthur (West Ham, N.)	Steele, Thomas
Butler Mrs. Joyce (Wood Green)	Logan, David	Stewart, Michael (Fulham)
Callaghan, James	Loughlin, Charles	Stonehouse, John
Chetwynd George	Mabon, Dr. J. Dickson	Stones, William
Cliffe, Michael	McCann, John	Straohey, Rt. Hon. John
Corbet, Mrs. Freda	MacColl, James	Sylvester, George
Craddock, George (Bradford, 8.)	McInnes, James	Symonds, J. B.
Crosland, Anthony	McKay, John (Wallsend)	Taylor, Bernard (Mansfield)
Cullen, Mrs. Alice	Mackie, John	Thomas, George (Cardiff, W.)
Darling, George	Mahon, Simon	Thomas, Iorwerth (Rhondda, W.)
Davies, G. Elfed (Rhondda, E.)	Manuel, A. C.	Thompson, Dr. Alan (Dunfermline)
Davies, Ifor (Gower)	Marquand, Rt. Hon. H. A.	Thornton, Ernest
Deer, George	Mason, Roy	Ungoed-Thomas, Sir Lynn
Dempsey, James	Mayhew, Christopher	Wainwright, Edwin
Diamond, John	Mendelson, J. J.	Watkins, Tudor
Dodds, Norman	Millan, Bruce	Weitzman, David
Dugdale, Rt. Hon. John	Mitchison, G. R.	Wheeldon, W. E.
Edwards, Robert (Bilston)	Monslow, Walter	White, Mrs. Eirene
Fernyhough, E.	Morris, John	Willey, Frederick
Fitch, Alan	Neal, Harold	Williams, D. J. (Neath)
Forman, J. C.	Noel-Baker, Francis (Swindon)	Williams, Rev. LI. (Abertillery)
Fraser, Thomas, (Hamilton)	Noel-Baker, Rt. Hn. Philip (Derby, S.)	Williams, W. R. (Openshaw)
George, Lady Megan Lloyd	Oram, A. E.	Willis, E. G. (Edinburgh, E.)
Ginsburg, David	Owen, Will	Winterbottom, R. E.
Gordon Walker, Rt. Hon. P. C.	Padley, W. E.	Woodburn, Rt. Hon. A.
Hannan, William	Parker, John (Dagenham)	Woof, Robert
Hayman, F. H.	Pavitt, Laurence	Yates, Victor (Ladywood)
Herbison, Miss Margaret	Pearson, Arthur (Pontypridd)	Zilliacus, K.
Hilton, A. V.	Pentland, Norman
Holman, Percy	Probert, Arthur	TELLERS FOR THE AYES:
Howell, Charles A.	Randall, Harry	Mr. Irving add Mr. Short.

NOES
Aitken, W. T.	Corfield, F. V.	Harrison, Brian (Maldon)
Allason, James	Costain, A. P.	Heald, Rt. Hon. Sir Lionel
Amory, Rt. Hn. D. Heathcoat (T'v'tn)	Coulson, J. M.	Hendry, Forbes
Ashton, Sir Hubert	Courtney, Cdr. Anthony	Hiley, Joseph
Barber, Anthony	Critchley, Julian	Hirst, Geoffrey
Barter, John	Curran, Charles	Hocking, Philip N.
Batsford, Brian	Currie, G. B. H.	Holland, Philip
Baxter, Sir Beverley (Southgate)	Daikeith, Earl of	Hollingworth, John
Bell, Philip (Bolton, E.)	d'Avigdor-Goldsmid, Sir Henry	Hopkins, Alan
Berkeley, Humphry	Donaldson, Cmdr. C. E. M.	Hornby, R. P.
Bidgood, John C.	Drayson, G. B.	Hornsby-Smith, Rt. Hon. Patricia
Biggs-Davison, John	du Cann, Edward	Howard, Gerald (Cambridgeshire)
Birch, Rt. Hon. Nigel	Emery, Peter	Hughes-Young, Michael
Bishop, F. P.	Errington, Sir Eric	Hutchison, Michael Clark
Black, Sir Cyril	Farey-Jones, F. W.	Iremonger, T. L.
Bossom, Clive	Farr, John	Irvine, Bryant Godman (Rye)
Bourne-Arton, A.	Fell, Anthony	Jackson, John
Bowen, Roderic (Cardigan)	Finlay, Graeme	James, David
Box, Donald	Fisher, Nigel	Jenkins, Robert (Dulwich)
Boyle, Sir Edward	Forrest, George	Johnson, Dr. Donald (Carlisle)
Brewis, John	Fraser, Ian (Plymouth, Sutton)	Johnson, Eric (Blackley)
Bromley-Davenport, Lt.-Col. W. H.	Freeth, Denzil	Joseph, Sir Keith
Brooman-White, R.	Gammans, Lady	Kerans, Cdr. J. S.
Bullard, Denys	Gardner, Edward	Kerby, Capt. Henry
Bullus, Wing Commander Eric	Glyn, Dr. Alan (Clapham)	Kerr, Sir Hamilton
Butcher, Sir Herbert	Glyn, Col. Richard (Dorset, N.)	Kitson, Timothy
Butler, Rt. Hn. R. A. (Saffron Walden)	Goodhew, Victor	Lambton, Viscount
Carr, Compton (Barons Court)	Gower, Raymond	Langford-Holt, J.
Chataway, Christopher	Grant-Ferris, Wg Cdr. R. (Nantwich)	Leavey, J. A.
Clark, Henry (Antrim, N.)	Green, Alan	Legge-Bourke, Maj. H.
Clark, William (Nottingham, S.)	Grimond, J.	Legh, Hon. peter (Petersfield)
Cleaver, Leonard	Grimston, Sir Robert	Lewis, Kenneth (Rutland)
Collard, Richard	Hall, John (Wycombe)	Litchfield, Capt. John
Cordeaux, Lt.-Col. J. K.	Hamilton, Michael (Wellingborough)	Longden, Gilbert

Loveys, Walter H.	Powell, J. Enoch	Thomas, Leslie (Canterbury)
Lucas-Tooth, Sir Hugh	Price, H. A. (Lewisham, W.)	Thomas, Peter (Conway)
MacArthur, Ian	Prior, J. M. L.	Thompson, Kenneth (Walton)
McLaren, Martin	Prior-Palmer, Brig. Sir Otho	Thompson, Richard (Croydon, S.)
McLaughlin, Mrs. Patricia	Proudfoot, Wilfred	Thorneycroft, Rt. Hon. Peter
Maclay, Rt. Hon. John	Ramsden, James	Thornton-Kemsley, Sir Colin
McMaster, Stanley R.	Redmayne, Rt. Hon. Martin	Tiley, Arthur (Bradford, W.)
Maginnis, John E.	Rees, Hugh	Turner, Colin
Manningham-Buller, Rt. Hn. Sir R.	Rees-Davies, W. R.	Turton, Rt. Hon. R. H.
Markham, Major Sir Frank	Ridley, Hon. Nicholas	Tweedsmuir, Lady
Marlowe, Anthony	Ridsdale, Julian	van Straubenzee, W. R.
Marten, Neil	Roberts, Sir Peter (Heeley)	Vickers, Miss Joan
Matthews, Gordon (Merlden)	Roots, William	Vosper, Rt. Hon. Dennis
Mawby, Ray	Ropner, Col. Sir Leonard	Wakefield, Edward (Derbyshire, W.)
Montgomery, Fergus	Scott-Hopkins, James	Wakefield, Sir Wavell (St. M'lebone)
Morgan, William	Seymour, Leslie	Wall, Patrick
Nabarro, Gerald	Sharples, Richard	Ward, Dame Irene (Tynemouth)
Neave, Airey	Shaw, M.	Watts, James
Nicholson, Sir Godfrey	Shepherd, William	Wells, John (Maidstone)
Noble, Michael	Simon, Sir Jooelyn	Williams, Dudley (Exeter)
Osborn, John (Hallam)	Smith, Dudley (Br'ntf'rd & Chiswick)	Williams, Paul (Sunderland, S.)
Osborne, Cyril (Louth)	Speir, Rupert	Wills, Sir Gerald (Bridgwater)
Page, A. J. (Harrow, West)	Stevens, Geoffrey	Wilson, Geoffrey (Truro)
Page, Graham	Steward, Harold (Stockport, S.)	Wise, A. R.
Partridge, E.	Stodart, J. A.	Wolrige-Gordon, Patrick
Pearson, Frank (Clitheroe)	Stoddart-Scott, Col. Sir Malcolm	Woodhouse, C. M.
Peel, John	Storey, Sir Samuel	Woodnutt, Mark
Percival, Ian	Studholme, Sir Henry	Woollam, John
Peyton, John	Summers, Sir Spencer (Aylesbury)	Worsley, Marcus
Pike, Miss Mervyn	Sumner, Donald (Orpington)
Pilkington, Capt. Richard	Talbot, John E.	TELLERS FOR THE NOES:
Pitman, I. J.	Tapsell, Peter	Mr. Gibson-Watt and Mr. Whitelaw.
Pitt, Miss Edith	Teeling, William
Pott, Percivall	Temple, John M.

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

I now call the Amendment in the name of the hon. Member for Sheffield, Hillsborough (Mr. Darling) relating to societies registered under the Industrial and Provident Societies Acts—in page 50, line 7.

Mr. Ellis Smith

Are the others not being taken, Sir William?

The Deputy-Chairman

As the hon. Member may have heard, they were all discussed with the first Amendment and there was to be a chance to vote on this Amendment and one subsequent one. I

understand that this Amendment has been chosen to be voted on.

Amendment proposed: In page 50, line 7, at end add:— Provided that this section shall not have effect in relation to any trade or business carried on by a society registered under the Industrial and Provident Societies Acts, 1893 to 1954, or under the Industrial and Provident Societies Acts (Northern Ireland), 1893 to 1955.—[Mr. Darling.]

Question put, That those words be there added:—

The Committee divided: Ayes 127, Noes, 199.

Division No. 106.]	AYES	10.52 p.m.
Ainsley, William	Hughes, Cledwyn (Anglesey)	Randall, Harry
Allaun, Frank (Salford, E.)	Hughes, Emrys (S. Ayrshire)	Redhead, E. C
Awbery, Stan	Hughes, Hector (Aberdeen, N.)	Rhodes, H.
Bacon, Miss Alice	Hunter, A. E.	Roberts, Albert (Normanton)
Baxter, William (Stirlingshire, W.)	Hynd, H. (Accrington)	Roberts, Goronwy (Caernarvon)
Benoe, Cyril (Dunbartonshire, E.)	Janner, Barnett	Ross, William
Benson, Sir George	Jay, Rt. Hon. Douglas	Skeffington, Arthur
Blyton, William	Jeger, George	Slater, Mrs. Harriet (Stoke, N.)
Bowden, Herbert W. (Leics, S.W.)	Jenkins, Roy (Stechford)	Slater, Joseph (Sedgefield)
Boyden, James	Jones, Rt. Hn. A. Creech (Wakefield)	Small, William
Broughton, Dr. A. D. D.	Jones Jack (Rotherham)	Smith, Ellis, (Stoke, S.)
Brown, Alan (Tottenham)	Jones, J. Idwal (Wrexham)	Snow, Julian
Brown, Rt. Hon. George (Belper)	Lee, Frederick (Newton)	Soskice, Rt. Hon. Sir Frank
Brown, Thomas (Ince)	Lewis, Arthur (West Ham, N.)	Spriggs, Leslie
Butler, Mrs. Joyce (Wood Green)	Logan, David	Steele, Thomas
Callaghan, James	Loughlin, Charles	Stewart, Michael (Fulham)
Chetwynd, George	Mabon, Dr. J. Dickson	Stonehouse, John
Cliffe, Michael	McCann, John	Stones, William
Corbet, Mrs. Freda	MacColl, James	Strachey, Rt. Hon. John
Craddock, George (Bradford, S.)	McInnes, James	Sylvester, George
Crosland, Anthony	McKay, John (Wallsend)	Symonds, J. B.
Cullen, Mrs. Alice	Mackie, John	Taylor, Bernard (Mansfield)
Davies, G. Elfed (Rhondda, E.)	Mahon, Simon	Thomas, George (Cardiff, W.)
Davies, Ifor (Cower)	Manuel, A. C.	Thomas, Iorwerth (Rhondda, W.)
Deer, George	Marquand, Rt. Hon. H. A.	Thompson, Dr. Alan (Dunfermline)
Dempsey, James	Mason, Roy	Thornton, Ernest
Diamond, John	Mayhew, Christopher	Ungoed-Thomas, Sir Lynn
Dodds, Norman	Mendelson, J. J.	Wainwright, Edwin
Dugdale, Rt. Hon. John	Millan, Bruce	Watkins, Tudor
Edwards, Robert (Bliston)	Mitchison, G. R.	Weitzman, David
Fernyhough, E.	Monslow, Walter	Wheeldon, W. E.
Fitch, Alan	Morris, John	White, Mrs. Eirene
Forman, J. C.	Neal, Harold	Willey, Frederick
Fraser, Thomas (Hamilton)	Noel-Baker, Francis (Swindon)	Williams, D. J. (Neath)
George Lady Megan Lloyd	Noel-Baker. Rt. Hn. Philip (Derby, S.)	Williams, Rev. Ll. (Abertillery)
Ginsburg, David	Oram, A. E.	Williams, W. R. (Openshaw)
Gordon Walker, Rt. Hon. P. C.	Owen, Will	Willis, E. G. (Edinburgh, E.)
Hannan, William	Padley, W. E.	Winter-bottom, R. E.
Hayman, F. H.	Parker, John (Dagenham)	Woof, Robert
Herbison, Miss Margaret	Pavitt, Laurence	Yates, Victor (Ladywood)
Hilton, A. V.	Pearson, Arthur (Pontypridd)	Zilliacus, K.
Holman, Percy	Pentland, Norman	TELLERS FOR THE AYES:
Howell, Charles A.	Probert, Arthur	Mr. A. J. Irvine and Mr. Short.
NOES
Aitken, W. T.	Bidgood, John C.	Brewis, John
Allason, James	Biggs-Davison, John	Bromley-Davenport, Lt.-Col. W. H.
Amory, Rt. Hn. D. Heathcoat (Tiv'tn)	Birch, Rt. Hon. Nigel	Browne, Percy (Torrington)
Ashton, Sir Hubert	Bishop, F. P.	Bullard, Denys
Barber, Anthony	Black, Sir Cyril	Bullus, Wing Commander Eric
Barter, John	Bossom, Clive	Butcher, Sir Herbert
Batsford, Brian	Boure-Arton, A.	Butler, Rt. Hn. R. A. (Saffron Walden)
Baxter, Sir Beverley (Southgate)	Bowen, Roderic (Cardigan)	Carr, Compton (Barons Court)
Bell, Philip (Bolton, E.)	Box, Donald	Chataway, Christopher
Berkeley, Humphry	Boyle, Sir Edward	Clark, Henry (Antrim, N.)
Clark, William (Nottingham, S.)	Johnson, Eric (Blackley)	Roberts, Sir Peter (Heeley)
Cleaver, Leonard	Joseph, Sir Keith	Roots, William
Collard, Richard	Kerans, Cdr. J. S.	Ropner, Col. Sir Leonard
Cordeaux, Lt.-Col. J. K.	Kerby, Capt. Henry	Scott-Hopkins, James
Corfield, F. V.	Kerr, Sir Hamilton	Seymour, Leslie
Costain, A. P.	Kitson, Timothy	Sharples, Richard
Coulson, J. M.	Lambton, Viscount	Shaw, M.
Courtney, Cdr, Anthony	Langford-Holt, J.	Shepherd, William
Critchley, Julian	Leavey, J, A.	Simon, Sir Jocelyn
Curran, Charles	Legge-Bourke, Maj. H.	Smith, Dudley (Br'ntf'rd & Chiswick)
Currie, G. B. H.	Legh, Hon. Peter (Petersfield)	Speir, Rupert
d'Avigdor-Goldsmid, Sir Henry	Lewis, Kenneth (Rutland)	Stevens, Geoffrey
Donaldson, Cmdr, C. E. M.	Litchfield, Capt. John	Steward, Harold (Stockport, S.)
Drayson, G. B.	Longden, Gilbert	Stodart, J. A.
du Cann, Edward	Loveys, Waiter H.	Stoddart-Scott, Col. Sir Malcolm
Dalkeith, Earl of	Lucas-Tooth, Sir Hugh	Storey, Sir Samuel
Emery, Peter	MacArthur, Ian	Studholme, sir Henry
Errington, Sir Eric	McLaren, Martin	Summers, Sir Spencer (Aylesbury)
Farey-Jones, F. W.	McLaughlin, Mrs. Patricia	Sumner, Donald (Orpington)
Farr, John	McMatter, Stanley R.	Talbot, John E.
Fell, Anthony	Maginnis, John E.	Tapsell, Peter
Finlay, Graeme	Manningham-Buller, Rt. Hon. Sir R.	Teeling, William
Fisher, Nigel	Markham, Major Sir Frank	Temple, John M.
Forrest, George	Marlowe, Anthony	Thomas, Leslie (Canterbury)
Fraser, Ian (Plymouth, Sutton)	Marten, Nell	Thomas, Peter (Conway)
Freeth, Denzil	Matthews, Gordon (Merldan)	Thompson, Kenneth (Walton)
Gammans, Lady	Mawby, Ray	Thompson, Richard (Croydon S.)
Gardner, Edward	Montgomery, Fergus	Thorneycroft, Rt. Hon. Peter
Gibson-Watt, David	Morgan, William	Thornton-Kemsley, Sir Colin
Glyn, Dr. Alan (Clapham)	Nabarro, Gerald	Thorpe, Jeremy
Glyn, Sir Richard (Dorset, N.)	Neave, Alrey	Tiley, Arthur (Bradford, W.)
Goodhew, Victor	Nicholson, Sir Godfrey	Turner, Colin
Gower, Raymond	Osborn, John (Hallam)	Turton, Rt. Hon. R. H.
Grant-Ferris, Wg Cdr. R. (Nantwich)	Osborne, Cyril (Louth)	Tweedsmuir, Lady
Green, Alan	Page, A. J. (Harrow, West)	van Straubenzee, W. R
Grimond, J.	Page, Graham	Vickers, Miss Joan
Grimston Sir Robert	Partridge, E.	Vosper, Rt. Hon. Dennis
Hall, John (Wycombe)	Pearson, Frank (Clitheroe)	Wakefield, Edward (Derbyshire, W.)
Hamilton, Michael (Wellingborough)	Peel, John	Wakefield, Sir Waved (St. M'lebone)
Heald, Rt. Hon. Sir Lionel	Percival, Ian	Wall, Patrick
Hendry, Forbes	Peyton, John	Ward, Dame Irene (Tynemouth)
Hiley, Joseph	Pike, Miss Mervyn	Watts, James
Hirst, Geoffrey	Pilkington, Capt. Richard	Wells, John (Maidstone)
Hocking, Philip N.	Pitman, I. J.	Whitelaw, William
Holland, Philip	Pitt, Miss Edith	Williams, Dudley (Exeter)
Hollingworth, John	Pott, Percival	Williams, Paul (Sunderland, S.)
Hopkins, Alan	Powell, J. Enoch	Wills, Sir Gerald (Bridgwater)
Hornby, R. P.	Price, H. A. (Lewisham, W.)	Wilson, Geoffrey (Truro)
Hornsby-Smith, Rt. Hon. Patricia	Prior, J. M. L.	Wise, A. R.
Howard, Gerald (Cambridgeshire)	Prior-Palmer, Brig, Sir Otho	Wolrige-Gordon, Patrick
Hughes-Young, Michael	Proudfoot, Wilfred	Woodhouse, C. M.
Hutchison, Michael Clark	Ramsden, James	Woodnutt, Mark
Iremonger, T. L.	Redmayne, Rt. Hon. Martin	Woollam, John
Irvine, Bryant Codman (Rye)	Rees, Hugh	Worsley, Marcus
Jackson, John	Rees-Davies, W. R.
James, David	Ridley, Hon. Nicholas	TELLERS FOR THE NOES:
Jenkins, Robert (Dulwich)	Ridsdale, Julian	Mr. Brooman-White and Mr. Noble.
Johnson, Dr. Donald (Carlisle)

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

11.0 p.m.

Mr. Crosland

I am sorry at this hour to detain certain hon. Members opposite, but this is the most important Clause in the Bill, and it really must not be allowed to go through without discussion. This is the one major increase in taxation which the Bill proposes. It was discussed by many hon. Members in the Budget debate, and something should be said about it now.

Mr. Grant-Ferris (Nantwich)

Speak up.

Mr. Crosland

If the hon. Member, who has not taken part in any of our debates on the Finance Bill, will kindly shut up, we may be able to get on.

The argument against the Clause is that it represents an extremely clumsy way of doing what the Chancellor himself has in mind. According to the right hon. Gentleman's speech on the Budget, the object of this 2½ per cent. increase in the Profits Tax is not to restrain capital investment but, presumably, to restrain the increase in dividends and the increase in capital values. The whole argument against doing it by an undifferentiated increase in Profits Tax is that it will not even fulfil its object.

It will not fulfil its object because, to a considerable extent, the increase in Profits Tax will be met not out of dividends but out of profit retentions. This shows how much more flexible an instrument we should have if we still had what, until a few years ago, we had, namely, a differential Profits Tax which would enable one to touch dividends or profit retentions as one chose.

We on this side do not object to the idea that some restraint on dividends and on the increase in capital values is necessary at this moment. What we very much object to is an increase in a tax which may have the slightest risk of restraining company savings and company investment. It is curious that it should be hon. Members opposite, who do little but make speeches about the importance of savings and the need for more savings, who are nevertheless prepared to support an increase in a tax which is certain to reduce company savings.

It should be agreed on both sides of the Committee that we need in this country today higher savings and higher investment. The Chancellor has recently been lecturing various bodies on what is likely to happen to our balance of payments this year. What is likely to happen is not very cheering. It looks as though we shall have a surplus of £100 million. We shall certainly lend overseas more than that £100 million, the consequence being that our gold reserve will go down.

As the right hon. Gentleman keeps on arguing in his public speeches that we can remedy this position only by increasing our exports, the question which the Committee must face is why, year after year, in the export race we are falling behind almost all the other nations in Europe.

The fact is that our prices are not as competitive as they should be in export markets, and the Chancellor must take a view as to what he will do about this. One thing which has been urged on him recently and which he could logically do, but which the whole Committee would like to avoid, is to devalue the £. This is a last resort which nobody wants to urge upon him. If, however, our prices are not as competitive as they should be and the £ is not to be devalued in terms of other countries, the only possible hope for the country is to get down its relative costs. The only way to do that is by raising its level of investment.

The figures have been quoted before, but they deserve repetition. The country is investing 14 per cent. of its national income in industrial investment. The countries of the Common Market are investing 17 per cent. and Germany is investing 20 per cent. This kind of ratio has gone on year after year under the Conservative Government. Hon. Members opposite, who talk about the importance of investment and of savings, are, nevertheless, apparently prepared complacently to put up with Government policies which keep our investment performance as low as this.

We shall not stop the gradual slide in our exports, we shall not achieve a rate of economic growth equal to that of the other countries of Europe, unless we can jerk up our level of investment from 14 per cent. to at least 17 per cent. and, preferably, to 20 per cent. This should be the whole object of Government financial policy, instead of which we have an increase in Profits Tax, which, granted that we do not have a differential tax, is the next best thing, or better than nothing. We have an increase in Profits Tax, which, because the instrument is crude, because it cannot differentiate between dividends and profits retentions, will strike to some unknown extent at both company savings and, possibly, company investment. For that reason, it is a crude instrument and the Clause will not properly fulfil the purposes which the Chancellor of the Exchequer has in mind.

Mr. Hirst

For, in part, different reasons from those of the hon. Member for Grimsby (Mr. Crosland), I cannot let the Clause pass without some measure of protest, as will be clear from an Amendment which I had on the Order Paper but which, understandably, according to the normal rules, has not been called.

I do not run parallel with the hon. Member for Grimsby in the first part of my argument, but I do in the second. In the first part, I consider the tax in any event a bad one. To increase it is even worse. The burden falls selectively on limited companies and it is a retrograde step to increase it by 25 per cent., as the Chancellor has done. I can find no excuse for that. It will not save the £ or do anything else. It is a completely unnecessary action and is a retrograde step, against which I protest strongly.

I fall right into line with the hon. Member for Grimsby inasmuch as, although possibly for different reasons, this tax acts as a disincentive to investment in industry. We have been short of investment in industry and this is a discouraging move. The fiscal reasons which seem to have activated my right hon. Friend the Chancellor of the Exchequer are nothing like as important as the disincentive which this higher tax is likely to be towards investment, which must be geared up considerably if we are to take our place alongside other nations to build up our exports to the extent which my right hon. Friend and the nation want.

I cannot understand my right hon. Friend's mind. In fact, I cannot understand him very much in this year's Budget or Finance Bill. I am glad, however, that he has been able to listen to this debate, which he was not able to do on Clause 59.

Sir E. Boyle

After listening to the last two speeches, I am not sure of the extent to which the hon. Member for Grimsby (Mr. Crosland) and my hon. Friend the Member for Shipley (Mr. Hirst) are in complete agreement. I will, however, make a few brief points on the Clause. As is well known to the Committee, the object of my right hon. Friend the Chancellor of the Exchequer in raising the Profits Tax was primarily to fortify the revenue for the years ahead. Inevitably, Profits Tax does not bring in revenue in the first year, but at a time when my right hon. Friend felt that some moderate restraint of demand was necessary, it seemed not unreasonable to make company profits bear some of the restraint that was needed. I am bound to say that my right hon. Friend believed that the higher rate would have at any rate some marginal effect on dividend distribution and on share values at the present time when we have had two years of price stability and when nothing is more important than maintaining that stability That was a further reason that seemed a good argument for putting up the Profits Tax this year.

11.15 p.m.

The hon. Member for Grimsby (Mr. Crosland) returned tonight, quite rightly, to a subject on which he spoke during the Budget debate, namely, the importance of Britain's improving her effort in investment during the course of this Parliament. It always seems to me that, when one is considering the relation between Profits Tax and investment, it is important to distinguish, as I am sure the hon. Member would wish to do, between companies having sufficient wherewithal for increased investment and having sufficient incentive for increased investment.

I did not think the hon. Member altogether convincing about the wherewithal for increased investment, because the first four months of this year—not just April, although the figures for April were strikingly high—showed an average increase in industrial profits of 13 per cent., and an average increase in dividends of 26 per cent., while company saving for the period increased by 21 per cent. I find it difficult to believe that companies will not have the wherewithal to increase investment by about the percentage, namely, 10 per cent., which is expected during the year 1960–61.

Indeed, I think that one can lay stress on exactly the opposite point—and here I refer to something I said in the Budget debate. If companies get too liquid, it obviously gets more difficult for monetary policy to operate. I do not want to set out this argument in detail now, but obviously at a time when we are relying on a combination of monetary and fiscal measures, there is a danger in companies becoming too liquid.

An expansionist policy, nonetheless held within bounds, will give companies an incentive to investment if they feel that they will see several years of steady expansion. It is against that background that we are most likely to see improvements in Britain's investment performance. All told, there is no doubt that my right hon. Friend had to do something else this year beyond increasing the Tobacco Duty, and company profits at their present level can reasonably be expected to bear the extra imposte of 2½ per cent. which my right hon. Friend has made.

Mr. Jay

I suppose that this is the most important proposal of the Budget. On this side of the Committee, we are at least glad to have it recognised by the Chancellor of the Exchequer and the party opposite that a rise in the Profits Tax is a legitimate method of restraining demand in the economy. I remember that when we made a similar increase in the Labour Government in 1949, of 5 per cent. in the distributed rate of Profits Tax, hon. Members opposite opposed it as an entirely improper way of trying to restrain excessive demand. Now we see that there has been, at any rate, some conversion on this important matter.

However, let no one think that the increase which the Chancellor of the Exchequer has made is of any substance. This is an increase of only 2½ per cent., and it is now true that the total direct taxation on company profits, Income Tax and Profits Tax together, is 51¼ per cent. As the United States has had a corporation profits tax of 52 per cent. for many years, the burden cannot be thought to be that excessively heavy. Indeed, it is remarkable how the two countries seem to reach almost exactly the same results by different routes.

Nevertheless, it is extraordinary to see what the Chancellor has now been induced to do and the present form in which he has got Profits Tax. Let us consider the right hon. Gentleman's own reasons for making this change. On Second Reading he said that he was satisfied that in present circumstances … this increase will not … interfere with the current upward trend in industrial investment, but would have some limited effect on consumer spending."—[OFFICIAL REPORT, 3rd May, 1960; Vol. 622, c. 904.] Therefore, his whole purpose was to restrain consumer spending without restraining investment. But it is quite clear that had he retained the differential rates of Profits Tax and been in a position to put a higher rate on dividend-paying profits, he must have been in a better position to produce the very effects which he himself has said he desires than by the arrangements which he has now made. Indeed, if we take what the Chancellor has done, together with the words which he used in defending it on the Second Reading of the Bill, it is quite clear that he has put himself in a less advantageous position by abolishing the differential rate a year ago.

If he had raised the distributed rate, as was done in 1949, there would have been relatively more incentive for companies to have retained profits and less incentive for them to pay them away in dividends. Secondly, it is quite clear from the whole of this discussion we have had about local authorities and co-operative societies that in that respect, also, the Chancellor now has a much less flexible instrument in his hands. Under the policy effected by my noble Friend, Lord Dalton, in 1947, the nonprofit making bodies such as local authorities and building societies paid only the retained rate of profits tax. It was possible for the Chancellor to raise taxation on the ordinary limited companies and not to raise it at the same time on the co-operative societies and the building societies.

The Chancellor has deprived himself of that flexibility, and one effect on the building societies of the rise in the general Profits Tax has been that the societies have been forced to raise their lending rates—Which they have done since the Budget was introduced—by a greater margin than they have raised their borrowing rates. So, because of this abolition of the differential rates of Profits Tax, the Chancellor has actually forced the building societies to charge an even higher rate of interest to those who are buying houses on mortgage. Is that what he intended? Whether it was intended or not, he has been forced to do it as a result of the clumsiness of the instrument in his hands. It shows how wrong he was to lump everything together in this way and how right we were two years ago when we suggested that there should be a lower rate of tax, where that was the proper instrument to apply, without having, as we now have, to impose it clumsily on everything at once. I hope that he will take that into account when he comes to consider this matter again.

Question put and agreed to.

Clause ordered to stand part of the Bill.

Clauses 62 to 68 ordered to stand part of the Bill.