HC Deb 08 June 1961 vol 641 cc1430-49
Sir H. d'Avigdor-Goldsmid

I beg to move, in page 11, line 33, at the end to insert: Provided that if the person chargeable proves that the income tax payable for all years of assessment in respect of the same source exceeds the tax which would have been paid if the income tax had been assessed throughout on the basis of the income arising in the year preceding the year of assessment, then the tax so chargeable shall be reduced by the amount of the excess. This is a very long Clause dealing with one of the complications of tax law which arise from the commencement of a new industry and the varying choice of the taxpayer in his year of assessment. I will not detain the Committee long, because I have learned in my short experience that it is an impossibility for back-bench Members to put down a form of words which is acceptable to a Parliamentary draftsman. I therefore thought that it would save time if I did not put down a form of words which expressed my meaning, conscious that, in any event, it would not be acceptable to Parliamentary draftsmen. Instead I have put down a form of words to provide a peg in order that I may propound the idea.

Under these various forms of assessment the effect of Clause 15, and particularly subsection (5), is to work fairly if the overseas income is steady or even growing but to work unfairly if the overseas income is diminishing. The object of the Amendment is to provide that where, owing to a variation in the basic years of assessment, a firm trading overseas finds that it has to pay more tax than it would have paid if it had paid tax on the normal English basis—the previous year of operation—the firm may appeal and claim that it should not be liable for more tax than it would have paid had it paid tax on the previous year's basis.

I am certain that no form of words which I could have devised would have been acceptable, but I hope that the idea is acceptable to my right hon. and learned Friend that he will consider it.

5.15 p.m.

The Solicitor-General

I can tell my hon. Friend the Member for Walsall, South (Sir H. d'Avigdor-Goldsmid) that I have no drafting objections to the Amendment. On the contrary, my objection is on a matter of principle and fiscal equity. The Clause is designed to rectify anomalies which have arisen under double taxation agreements by reason of the commencement and ending rules, but particularly the commencement rules, under Schedule D. The liability under Schedule D is normally based on the income of the preceding year, but in the early years of the commencement of a business and in the last years of a source of income the current-year basis applies.

In addition, there are occasions in the commencing years on which the income earned in one accounting period can form the basis of assessment not only for that and the subsequent year, but also for the year before that—If, for example, the business starts half-way through an accounting period, in the half-year or whatever the fraction is.

The present law operates anomalously, in that the foreign tax in respect of that source of income can be used once only as a credit. Thus, if one has income arising in one accounting period, but used as the basis of assessment for, say, two-and-a-half years of assessment, the foreign credit can be used only against one of them, and that has led to an anomalous result.

The Clause is concerned to mitigate that effect. The general effect is to provide that where the profits of any period are assessed to United Kingdom tax more than once, the credit for the overseas tax paid on those profits will be available to a corresponding extent; and when the source of income comes to an end there will be a review of all the amount of credit which has been given during the life of the source in order to ensure that an excessive credit is not given. In effect it is that review which is covered in subsection (5).

May I give an example in order that the Committee may see the way in which it works? Let us take an example in which the income arising in the commencing year is assessed to United Kingdom tax two-and-a-half times in the circumstances which I have just described and to overseas tax once. Let us say that the overseas tax on that source of income is £1,000. Under the Clause, particularly subsection (3), the total credit for this tax allowed against United Kingdom tax will be £2,500, which is two-and-a-half times the £1,000 of the overseas tax. When the source comes to an end subsection (5) applies. This deals with the question of the overseas tax which does not rank for credit because it relates to a non-basis period, a period which because of the cessation provisions does not form the basis of any United Kingdom assessment. Let us say that that is £1,200.

Under subsection (5) an assessment is then made on this basis. We get, first, the credit given in this country £2,500, foreign tax paid £1,000, foreign tax which relates to a non-basis period for which credit has not then been given, £1,200—making £2,200 foreign tax paid. The credit given in this country is £2,500 so, on the face of it, there is an over-credit of £300. Subsection (5) says that a Case VI Schedule D assessment may be made to cover the excess credit of £300. I think that the Committee will see that the end result is a fair one. It ensures that an excessive credit has not been given.

What the Amendment does is to propose a proviso that if the person chargeable proves that the Income Tax payable for all the years in respect of the sums in question exceeds the tax which would have been paid if the Income Tax had been assessed throughout on a preceding-year basis, the tax chargeable should be reduced by the amount of the excess.

As my hon. Friend the Member for Walsall, South said, in support of that it may well be that where there is a declining business there is an over-assessment to tax compared with what there would be if we operated throughout on a previous-year basis. It is not correct, as he said, that the normal method of computation is a preceding-year basis. That is generally true, but it is not true of the commencing years and not true of the cessation year. I point out that this Clause is not concerned with the effect of the commencing and ceasing rules of Schedule D as such. This is merely remedying a double taxation anomaly which can result from them. It is directed simply to ensuring that total double taxation relief will be appropriately limited if necessary so as not to exceed the total foreign tax.

The sort of grievance to which my hon. Friend drew attention can occur just as much if the source of income arises in this country as it does if it arises abroad. Therefore, it is a major objection to this Amendment that it seeks to use a double taxation relief to substitute for the existing basis of assessment a dual basis—the present one and, at the option of the taxpayer, a preceding-year basis throughout if that is more favourable.

It seems quite illogical to try to correct the position in the very limited class of case with which we are concerned under Clause 15. If one is to amend the basis of computation, the basis of assessment, it is very difficult to say why it could not operate both ways; why it should only operate when it advantages the taxpayer—in other words, why the taxpayer, if he pays less tax than he would if he were assessed on a preceding-year basis, should not be made to pay more tax. For those two reasons, that this goes right outside the scope of the Clause and amends the general basis of computing tax for Schedule D purposes, and that it is one-sided, I cannot recommend the Committee to accept the Amendment.

Mr. Geoffrey Hirst (Shipley)

This is very complicated. Did I understand my right hon. and learned Friend to say that there is no benefit from the commencing-years under Clause 15? He said that there was no benefit in the case of those companies under Clause 15 in the commencing-years, unless I misunderstood him.

The Solicitor-General

I must have put it badly. Clause 15 is necessary for the reason that in the commencing-years under Schedule D the income in one accounting period can be used as the basis of assessment for more than one year. Since the basis under existing law is allowable against one of those periods only, it means that when there is the two-and-a-half years basis on one year's profits only one year of those two-and-a-half years gets the benefit of these foreign credits.

Mr. Millan

I agree with the Solicitor-General that it would not be proper for the Amendment—which is a very wide-ranging one—to be accepted on this Clause, but I think that at least the Amendment has drawn attention to what some of us consider to be a rather serious fault: the method of assessment on a previous-year basis, particularly in view of the complications that gives in the years of commencing and in the years of cessation. I think it perfectly legitimate to point out that if we had a taxation system which provided that the year of income should also be the year of assessment the complicated provisions in the Income Tax Acts and the additional complications in Clause 15 would not be necessary.

If I understand correctly, there has emerged in Clause 15, under subsection (5), a rather unusual principle and one which does not apply in the case of the ordinary United Kingdom taxation for commencing and cessation years. The United Kingdom position is that in the commencing years of the business, roughly speaking one year comes in twice to get on to the preceding-year basis. When the cessation basis is reached one year is dropped out so that there is a tax burden which approximates to the burden as it would have been calculated on an actual year basis on the total income over the period.

It is, of course, true that when there is an income which is rising over the years the taxpayer, on the whole, gains, because the double year at the beginning probably includes an income which may be substantially less than that of the year which is dropped out at the end under the cessation provisions. One of the fundamental faults of the case put by the hon. Member for Walsall, South (Sir H. d'Avigdor-Goldsmid) in favour of the Amendment, was that he was simply basing his case on a declining income where there could be injustice, but it is equally true, and probably more common—just as common anyway—that if there is an increasing income the taxpayer benefits. So, an Amendment like this does not meet the basic situation, which I repeat—I do not want to go into details—could be met if we had a different basis of assessment based on actual income and not on the preceding-year.

Subsection (5) is an attempt to make an adjustment which will bring the taxpayer's position over the whole period from the commencement to the cessation into proper balance. It seems to me that there will be certain practical difficulties. One must not regard commencement and discontinuance as being necessarily over a period of a few years. It could be a period of fifty years, or perhaps even longer, and it is rather artificial to make this adjustment at the cessation, which may be fifty years from the commencement, in entirely different circumstances, when in any case the value of money is likely to be quite different from what it was at the beginning. It is a very odd sort of arrangement that we should be making this complicated provision to give that foreign taxation a theoretical balance, which in any case we do not have in the very much more important United Kingdom taxation, and where the theoretical balance may give a result which is more unjust than it would have been if we had simply allowed the foreign taxation to be treated on a basis similar to that of United Kingdom taxation.

5.30 p.m.

I wonder whether the Solicitor-General can say something about this matter. It is not terribly important, because the number of cases under subsection (5) for long periods will not be very great, although I imagine that it might operate over short periods where a company has an enterprise abroad and has to close it down in a short number of years because it does not turn out as successfully as was hoped.

We are entitled to a rather better explanation about why the Government have felt it necessary to have this provision in respect of foreign taxation when there is not a similar provision for United Kingdom taxation. As regards the latter, the Inland Revenue has discretionary power over the penultimate year of assessment. For foreign taxation, why should the Inland Revenue not have a similar discretion if the Government want to protect themselves in this respect?

Mr. A. E. Cooper (Ilford, South)

I have nothing to say about the merits or deficiencies of the Amendment, but at this stage in the Finance Bill last year I was forced to make a protest in the strongest possible terms about the near impossibility of the man in the street understanding this type of Clause, and after the protests of last year, by myself and by other hon. Members, I had hopes that in this Finance Bill we would have had provisions which were understandable by the man in the street.

Much of the tax evasion and tax avoidance in this country is largely the result of complicated Finance Bills which govern our Income Tax law. This year the Chancellor had a great opportunity—

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

I wonder whether the hon. Member's remarks would not be more appropriate on the Motion "That the Clause stand part of the Bill" when we come to it.

Mr. Cooper

Since I find it very difficult even to understand the Clause, it is probably just as well that I have spoken now. I have made my protest and that is all I want to say.

Mr. Diamond

When I made some comments earlier this afternoon and then resumed my seat, my hon. Friend the Member for Glasgow, Craigton (Mr. Millan) told me that I had made his speech for him. I now reciprocate by saying that he has just made my speech for me, but what he said is worth saying at least twice because what he has said is born of knowledge and a good Socialist approach to wealth and to economic and fiscal affairs and I fully share his views. We are very grateful to the hon. Member for Ilford, South (Mr. Cooper) for what he has said most relevantly on this Amendment.

I entirely agree that the Amendment cannot be accepted, although I have the greatest sympathy with what it seeks to do. The difficulty of the hon. Member for Shipley (Mr. Hirst) and that of the hon. Member for Ilford, South and that of other hon. Members is that this Clause stems from one thing and one thing only—the fact that the Government have obstinately resisted the good advice, proffered from most authoritative quarters, that they should change the rules of Schedule D certainly for companies, switching from the present anomalous rules to a current-year basis.

I am sure that it is as plain as a pikestaff to you, Sir William, but I had better add one or two words for the benefit of hon. Members. The Amendment and the Clause arise only because of the anomalies not in the foreign country but in our own tax structure. The Solicitor-General referred to two extraordinary oddities. He said that in the opening years of assessment one year's income might well be assessed two-and-a-half times. Who is right and who is wrong? The foreign country assesses the income of one year once, and that seems sensible and entirely right, for it is evidently nonsensical to assess the income at two-and-a-half times the amount, which is how the curious anomaly arises.

The other oddity which he mentioned was that in the closing years of assessment one year's profit was not assessed at all. This again creates an anomaly because the foreign country does not act on this curious, stupid and outmoded basis but values the income on the one year's basis, so that there is one year's profits and one year's tax and one year's tax relief to be set against the tax in that country.

This is a very complicated matter and the drafting is very complicated. That is no criticism of the draftsman, but results because the Government insist on retaining this outmoded form. The Economic Secretary is once again honouring us with his presence. He knows my views about this matter and he is now lending his strength of character to the Government on this issue. We have to solve these problems and rid ourselves of the necessity to have not only this sort of Amendment but the whole Clause—and it is a long Clause to deal with one small point.

The Deputy-Chairman

Order. I am afraid that the hon. Member is tending to drift from the Amendment to a speech which would be more appropriate on the Question "That the Clause stand part of the Bill".

Mr. Diamond

It would be very remiss of me if I did that, Sir William. I am grateful to you for pointing out that I have strayed and I will alter my compass immediately and come on to the Amendment without denying myself the right to draw attention to this situation on the debate on the Question "That the Clause stand part of the Bill".

The Amendment is necessary because of the provisions of subsection (5), which are part of the complications arising from our basis of assessment. Our basis of assessment provides that the opening and closing years shall be dealt with on anomalous bases instead of on a simple current-year basis. The current-year basis is supported by the Royal Commission. It is supported by the Institute of Chartered Accountants, some of whose members grace the benches on both sides of the Committee. The current-year basis is supported by most knowledgeable thinking people, certainly as concerns limited companies. I am sorry that the hon. Member for Ilford, South has had to submit to so many complications because of the obstinacy of his own Front Bench.

Mr. Hirst

If I cut out most of the adjectives, I agree with the hon. Member for Gloucester (Mr. Diamond) more than usually. As my right hon. and learned Friend will appreciate, if we have paid rather a lot of attention to this and have, up to a point, pressed the Amendment, it is because those of us who are interested in this subject and have contacts with interests of this nature realise how important it is to help companies which find themselves in the position with which the Amendment is designed to deal.

I sometimes think that the perfectly proper and correct attitude of the Inland Revenue in making quite sure that there is no possible deviation from the narrow and respectable paths of tradition inevitably and unfortunately militates against our desires to help those companies, particularly those overseas companies, for which other countries do much more in the fiscal and financial fields than we do.

I have one example, which is extremely difficult and which would be helped by the Amendment, which my right hon. and learned Friend cannot accept. As I can state it shortly, I will mention it in order to learn whether the Solicitor-General can find a method of assisting the companies. If my right hon. and learned Friend cannot answer me now, perhaps he will write to me after the Committee stage has ended. It is the case of two companies of similar background which both have an income from a foreign source constant for the first five years at £1 million per annum. In one case the income for the last five years rises to a constant figure of £2 million, and in the other the income for the last five years is nil.

In the first case the taxpayer, as I understand it, can obtain the benefit of Clause 15 in the commencing years and when the source ceases he not only obtains an advantage from the basis of assessment in the United Kingdom because £2 million drop out of assessment in the non-basis period compared with only £1 million doubly assessed in the early years, but he is allowed to keep his Clause 15 relief intact because no Case VI assessment will arise under the formula in subsection (5).

In the second case, the taxpayer not only obtains no advantage from the basis of assessment on cessation, thus being with a double assessment on £1 million in the commencing years which is completely uncompensated, but he also has the Clause 15 relief withdrawn because under the formula in subsection (5) he will be entitled only to the credit which would have been allowed apart from the Clause.

As my hon. Friend the Member for Ilford, South (Mr. Cooper) will undoubtedly agree, that is just about as complicated as the Clause. Those two companies, which operate side by side and have a substantial financial difference in result, are hit absolutely right over the fence by the operation of the Clause as it stands.

The Amendment was drafted to meet such a case. I gather that the Amendment is ineffective. Before we part with the Bill I should like to feel that, whether in the Bill, in other Measures, or in the intentions of the Treasury, such a case is intended to be met.

5.45 p.m.

The Solicitor-General

I am very grateful to my hon. Friend the Member for Shipley (Mr. Hirst) for not demanding an immediate view of the two cases he mentioned. I will gladly avail myself of his kind invitation to write to him about them. However, I can say to him from what I have heard so far that I cannot see that the two cases, and such anomalies as they present, would be any different whether the income arose from abroad or whether it arose in this country, and whether there was a question of double taxation or no double taxation. That is my objection to the Amendment, namely that it treats differently and more favourably income which arises from abroad and is assessed to tax under Schedule D.

My hon. Friend the Member for Ilford, South (Mr. Cooper) took the opportunity afforded by the Amendment to lecture us on the complexity of this provision. I know that it is no comfort to him, but I said last year that I have every sympathy with his viewpoint. As I pointed out last year, it is to some extent inherent in the nature of our tax law.

The Royal Commission says this in paragraph 1089: We accept that there are several valid reasons why income tax legislation should be difficult and obscure. Not infrequently its conceptions represent an attempt to dress what are really mathematical formulae in the vesture of English prose. That applies particularly to a Clause like this. The Commission goes on to say: It has established its own jargon and perhaps does well to stick to it. There is one other reason, which I did not mention when I answered last year, why we have a great complication in our tax code. It is that we pay scrupulous regard to rectifying in the interests of the taxpayer any small burden in the most obscure circumstances which might be thrown on him by a general provision. That inevitably causes a very considerable complication. The case raised by hon. Members last year was an outstanding example, but this, too, is not a bad example. What we are doing is to try to correct an anomaly, not so remote as the case which arose last year, but still not a usual one. It involves considerable complication.

The hon. Member for Glasgow, Craigton (Mr. Millan), in one of his very lucid speeches, and the hon. Member for Gloucester (Mr. Diamond), in one of his very forceful speeches, said that we would not be troubled by the Clause at all if we accepted the recommendation of the Royal Commission and went from the previous-year basis of assessment under Schedule D to the current-year basis. That is absolutely true. We should not be troubled with this Clause, but I think that we should be troubled with twenty Clauses of a complexity which would drive my hon. Friend the Member for Ilford, South almost demented. I need hardly say that the Inland Revenue has considered the matter with the greatest care and has not found any simple way of making the change. It goes much beyond the administrative difficulties and the appalling complexity of the drastic change which would be involved.

It would be extremely costly. I have forgotten the actual figure, but it would be well in excess of £100 million. Does any member of the Committee really think that the best use of the first available £100 million is to go from the basis of assessment under Schedule D—the preceding year—to the current year? I do not believe that anybody does. Therefore, because of that, I shall in due course venture to recommend Clause 15 to the Committee, not, perhaps, as what hon. Members opposite would regard as being the best but, at any rate, as correcting an anomaly which arises under the existing law.

Sir H. d'Avigdor-Goldsmid

At this point, it might be appropriate if I were to thank my right hon. and learned Friend for the attention he has devoted to this point; to say that I am glad to have drawn the Committee's attention to the unfortunate situation of a company which, instead of earning more money, earns less, and then, having done my bit to try to persuade my right hon. and learned Friend to allow a company to escape from having to pay tax on profits it has not earned, to beg to ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

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

Mr. Douglas Houghton (Sowerby)

It may be for the convenience of the Committee if I now make one or two brief observations. It will, at least, give my hon. Friends the Members for Gloucester (Mr. Diamond) and Glasgow, Craigton (Mr. Millan) a little time to decide which of them will make the speech of the other. At the same time, it will enable me to get one or two matters off my chest.

This is very heavy stuff, indeed, after an all-night sitting; I confess that my mind was much clearer at a quarter past five this morning than it is now. That underlines very clearly the appeal made by the hon. Member for Ilford, South (Mr. Cooper) for more simplicity in our tax affairs, and more explanation of that which may be complicated. I was making this plea almost from the very first day that I entered the House twelve years ago. I am very glad that the Solicitor-General is sitting in his place this afternoon, because it was to him more than to any other Minister on the Treasury Bench that I made this appeal for explanations to be circulated with the Bill telling hon. Members what the complicated Clauses were all about.

The right hon. and learned Gentleman did me the courtesy one year of saying that the matter had been very carefully considered but that there were so many difficulties in the way that it had not been found possible to comply with my request. He then proceeded to make an explanatory speech on the Second Reading of the Finance Bill of that year that would have been admirable as a written document of explanation circulated with the Bill itself. This year, as my hon. and learned Friend the Member for Kettering (Mr. Mitchison) has already pointed out, the Second Reading explanations of the Bill skipped these complicated Clauses. We are now grappling with them.

I still think that it should be possible for the Government to circulate an Explanatory Memorandum with the Finance Bill. What is the real difficulty about it? All the safeguarding words can be writen into the document—that it is not necessarily a statement of the law and is circulated for the guidance of hon. Members. The Accountant, Taxation and other technical publications attempt to explain the several Clauses of the Finance Bill so that their readers may understand what is afoot. I believe this is to be one of the most important matters in the conduct of our business in the House, and especially on the Committee stages of Bills as complicated as this.

There sits the Solicitor-General, there sits the Chancellor of the Exchequer, there sits the Economic Secretary—they all have big bundles of briefs from the Inland Revenue telling them exactly what the Clauses do and what the Amendments purport to do. They are saturated with quotations from the speeches made by hon. Members on both sides of the Committee on similar Amendments in previous years. They know it all, but here we are—ignorant.

Why cannot they share this document? Why cannot it be handed across the Table? Why cannot we be allowed to look at it, so that we may know what is coming, and be in a better position to bring to bear such wits as we possess upon the business of the Committee? I am very serious about this. I will make the threat that if, next year, the Government do not publish an Explanatory Memorandum to the Finance Bill, I shall do it myself. At least we shall try to do something that will facilitate the work of the Committee.

I turn now to the Question "That the Clause stand part of the Bill"—and I apologise, Sir William, for having tried your patience for a few minutes. I do not propose to say very much, except that I agree with my hon. Friend the Member for Gloucester when he says that so much of this could be swept away if we would really come to grips with the basis of assessment under Case 1, Schedule D.

Although we have been told of the difficulties, let me remind the Committee that years ago the basis of assessment under Schedule D was the three-year average. We got rid of that, and went to the preceding year. The basis of assessment under Schedule E was the previous year. We got rid of that, and came to the current year. We introduced P.A.Y.E.—I know at considerable future cost, but at the time there was really no interruption in the flow of revenue. It was merely that, at the end of the road, revenue that would have been due for collection would not be due for collection, but that day will never come because as one generation of taxpayers who would have had an overspill of taxation due at the end of their taxation lives passes out, it is replaced by people who will pay currently, and no such complication arises.

This reform might be worth paying a large sum of revenue to achieve. Some hours of debate were spent last night in dealing with an anomaly in the proposals in Clause 11 because of this very point of assessing Schedule D on the profits or gains of the preceding year. The Chancellor had to take a gruelling for departing from his declared intention of giving the Surtax relief on earned income in the year in which it was earned, this year and in future years because, incidentally, his proposals gave relief to Schedule D taxpayers who are taxed from the profits of the preceding year. All that time and effort would have been saved and the anomaly would not have been there.

As my hon. Friend the Member for Gloucester pointed out, all this arose, not from any difficulties in any other country but because of problems arising from a basis of assessment that we choose to retain. There is, Sir William, a new Clause on the Notice Paper on the question of the basis of assessment under Schedule D, and I hope that we shall later have an opportunity to go into that fairly thoroughly.

I did not hear the Solicitor-General refer to the Royal Commission's Report in the context of Clause 15, but I assume that this Clause is a somewhat belated action taken on paragraph 744 of the Radcliffe Commission's Report of 1955. What worried me more than a little on seeing Clause 15 was that the implication could be drawn from its appearing now, six years after the Report, that the Government apparently do not intend to do anything about the basis of assessment under Schedule D. If they had that in mind, there was no real need to trouble the House and this Committee with Clause 15. And it is all set out in paragraphs 742 to 744. I assume that the principle underlying Clause 15, from the comment made about it by the Solicitor-General, is carrying out the observations and suggestions of the Royal Commission in the latter part of paragraph 744.

6.0 p.m.

I agree that the Clause is desirable if anomalies are to be avoided under the conditions which the Solicitor-General has described. We are using the income of one year as the basis of assessment for two years, and possibly more than two years, whereas the tax which is payable in other countries is assessed on the year itself—and they have no such queer ways of dealing with commencement and cessation.

I hope that the Solicitor-General will be able to throw a little more light on the Government's intentions about sweeping away this cause of the trouble. A moment ago he cast some rather heavy clouds on that hope, but he is bound to encounter this trouble time and again. Who would have thought that the Chancellor would be in difficulty on a matter of this kind, in connection with relief from Surtax It took all night to deal with these difficulties—but we did not get rid of any of them by the time we went to breakfast this morning.

This is a shocking waste of Parliamentary time. It shows the weaknesses in the administration of our Income Tax law and it is time that we did something about it. I shall not go further into the question of whether the law on this matter should be made more understandable by the public because I do not entirely agree with the hon. Member for Ilford, South that everything must be written in such a way that it is completely understandable by the man in the street. That may be asking too much. Hon. Members are not men in the street. They are in the House of Commons.

Nevertheless, hon. Members are expected to be able to understand at least something about Acts of Parliament, while the man in the street may not have to look at one in his lifetime. I realise, however, that when it comes to matters of explanation and administration they must be understood by the public. I also appreciate that, on the whole, the man in the street would not be concerned with Clause 15.

These are all matters of degree, and one of the most serious matters in connection with our taxation system is its complexity and the difficulty of getting it across to members of the public. All of us, in our correspondence, get cases where people are seriously inconvenienced, because they cannot rely on their own judgment to interpret the tax laws. Many of them, even those of more than normal intelligence, consider that they cannot work out their own Income Tax affairs. They feel that they should get a qualified accountant and thus the fees paid to hon. Gentlemen opposite, if not to hon. Members on this side of the Committee, represent additional taxation of the citizens, who feel that they cannot themselves cope with their Income Tax affairs—and they pay a sort of Danegeld in order to get righteous treatment of their grievances.

Mr. Diamond

I am glad to see the Chancellor here. He had a difficult time last night and I hope that he is reasonably refreshed and will do me the courtesy of listening to just two points that I wish sincerely to put to him. I must first apologise to him since he complained about the forcible way in which I made my earlier remarks. I sometimes regard it as my duty to bring grievances forcibly to the notice of the Government.

Sir William, look around the Chamber at the moment. A number of us who have knowledge of general taxation problems and practice are doing what we can to shape a Bill that will affect the lives of practically every citizen in the country for the forthcoming year. And every year, when we discuss the Finance Bill, the Chamber is virtually empty because hon. Members, except those with specialised knowledge of this matter, cannot get the knowledge they need by quickly reading the Clauses of the Bill.

Every hon. Member likes to be able to advise on Clauses and the general purport of Amendments and hon. Members are usually quick to grasp the essence of the matter and make a quick judgment on whether they are for or against it. But because that is not possible in this Bill many hon. Members must endure agonising hours elsewhere—I say elsewhere—because they are unable to appreciate exactly what it is we are discussing. I know that the majority of them would enjoy carrying out their proper function of participating in the debate, if only they had the minimum help that my hon. Friend the Member for Sowerby (Mr. Houghton) has called for.

I share with my hon. Friend the view that I am unable to understand—and this is not made as an Opposition argument—why the Government are not prepared to help hon. Members to carry out their duties on the Finance Bill, when the Government are prepared to help in other matters. There are White Papers galore, accounts galore; we have a pink paper with practically every Order telling us what information is available in the Vote Office to help us with the background, and so on. But on the Finance Bill, although endless material is available without going to excessive trouble or work, it is referred to only shortly, both in the Budget speech and when the Chancellor introduces the Finance Bill. Why cannot this be put on two or three sheets of paper so that hon. Members can have an idea of what it is all about?

Obviously, if a particular Clause is highly technical, hon. Members could merely be told that it is a highly technical matter, but on subjects which are not technical, such as help that is given to Commonwealth countries—which is of extreme importance—a guide could be supplied. It is because matters are couched in technical terms that hon. Members are put off taking part in Finance Bill debates. I hope that the Chancellor will appreciate that what I have said I mean, and I beg him to give consideration to this matter.

The second point I wish to raise with the Chancellor was his desire, immediately upon taking up the Chancellorship, to implement what he referred to in his Budget speech as the "simplification of the tax system". The Chancellor obviously feels strongly about this and I would like to inform him that before he came into the Chamber hon. Members were having a debate based on this Clause and we all agreed that the Clause would not have been necessary had we had a simplified system of assessment of tax for Schedule D.

I beg him to have a fresh, unbiassed, objective look at the possibilities of assessing Schedule D on a current year basis. It needs imagination and determination—and nothing else. I refuse to believe that the Government cannot overcome the obvious administrative difficulties that exist, and I urge the Chancellor to cast his mind back to Schedule E tax and the introduction of P.A.Y.E. He will remember the speeches he made on this subject and the similar appeals which he urged when he was on these benches. When we came to deal with P.A.Y.E. we had exactly the same problem of switching from the previous year to the current year.

We had exactly the same problem in having to face the difficulty of tax which was due and dealing with it on some broad basis. Perhaps the figure was slightly different, but not a penny was really lost. Now, we have P.A.Y.E. working smoothly in every shop, factory and office throughout the country, saving an enormous amount of work and, what is more important, an enormous amount of wear and tear on the nerves of taxpayers and tax collectors and those horrible people to whom my hon. Friends refer so often, the professional assistants who help to keep the two in sympathetic and understanding touch with one another.

The change could be made quite easily. The recommendations are very strong. If I may say so, I am not at all moved by the arguments which the Solicitor-General used in objecting to it. I recognise that this is not, perhaps, the point at which we could go into the matter in detail, although it is closely relevant to the Question now before the Committee because it is agreed that the Clause would not be here at all if the change were accepted by the Government.

The Solicitor-General said that the first point he made was not the important one. Let us leave it there. His second point related to money. I share the view of my hon. Friend the Member for Sowerby that the argument that there would be a great loss to the Revenue is quite untenable. The Royal Commission considered this aspect and produced its answer. Only imagination and determination are needed to introduce a much desired and workable reform into our system in order to solve all the problems and meet all the difficulties, the loopholes, the dodges and tax avoidance devices still practised because of the opening and closing provisions. It would settle the difficulties of people who do not know what their tax is because they earn their money in one year and the tax is payable eighteen months, two years, or two and a half years later. Under the present system the impact of the tax is not brought, as it should be, as near as possible to the time at which the money is earned. All those useful results would flow from what I suggest. I ask the Chancellor to consider it again.

Mr. Douglas Jay (Battersea, North)

Despite the formidable complexity of the subject, may I, in support of my hon. Friend the Member for Gloucester (Mr. Diamond), put a very amateurish suggestion to the Solicitor-General? It seems that there is unanimity of expert opinion in favour of making the change to the current year basis, if it is practicable. The Solicitor-General did not seem to contest the desirability of it. Apart from this point that, no doubt, the transition would be complicated, his only real argument was that it would inevitably involve a very large amount of revenue. He spoke of £100 million. I agree that that is a serious matter, even though the Government were willing to throw away almost as much as that on the Surtax payers yesterday.

Surely the loss of revenue during the transition must depend upon the rates of tax. We are here dealing with Schedule D on companies. While making the transition which, other things being equal, would mean the loss of £100 million, would it not be practicable to make some variation temporarily in, perhaps, the rates of Profits Tax in such a way that, although all the formulae would be altered, the same amount of money would pass from the same taxpayers to the Revenue, which, from this point of view, would be the substance of the matter?

I ask the Solicitor-General to think it over. I no better understand mathematics than I understand this Clause. On the face of it, as a matter of common sense, I should have thought that, if the difficulty were the temporary loss of revenue, it should be possible, at least as to 90 or 95 per cent. of it, to overcome that by an appropriate alteration of the rates of tax.

6.15 p.m.

The Solicitor-General

In replying to the debate on the Amendment, I was goaded into dealing with the question of the transition from the previous year basis to the current year basis in the assessment of company tax under Schedule D. That was not the right time to do it, nor was I the right person.

Very persuasive speeches have been addressed at the appropriate stage, namely, on this Clause, in regard to both issues, the Explanatory Memorandum and the basis of computation. The arguments were advanced in the presence of my right hon. and learned Friend, who is the proper recipient and the best of all recipients, for the advice which was offered. As the Committee has seen, he has been listening attentively.

Question put and agreed to.

Clause ordered to stand part of the Bill.