HC Deb 02 July 1962 vol 662 cc43-85

4.6 p.m.

Mr. William Warbey (Ashfield)

I beg to move, in page 10, line 18, to leave out "the acquisition or".

The effect of this Amendment would be that the relevant paragraph in Clause 9 would provide that tax shall not be chargeable by virtue of this Section where the disposal occurs before 10th day April, 1962. It is, therefore, aimed at focusing attention on the question at what point the gains realised from the sale of the assets become taxable. It is to focus attention on the date of disposal and not on the date of acquisition of the assets.

During our discussions in Committee, there was some debate on whether or not the provisions of this Clause should be made retrospective, that is to say, whether or not an earlier datum line should be taken than the date on which the Bill was introduced by the Chancellor. The usual objections were raised to retrospective legislation, and I want to begin by meeting that possible argument, which the Government may produce against this Amendment, by saying quite definitely that this can only be regarded as retrospective legislation if we take a completely false view of what is intended by the raising of this tax.

It is perfectly true that the Chancellor of the Exchequer, in introducing this tax, described it as a speculative gains tax. Earlier, when the matter was discussed during the preceding months, he had given the impression that he was contemplating a capital gains tax, but when we came to the point we found that it had been reduced, in terminology at least, to a tax on speculation. This does not appear in the Finance Bill itself, and the Bill says nothing about speculation.

The rubric to Clause 9 says "Charge to income tax and profits tax", and subsection (1) of the Clause refers to tax on gains accruing to any person resident and ordinarily resident for the year in the United Kingdom from his acquisition and disposal of any chargeable assets, In other words, according to the Bill, it is a tax intended to apply to all gains made as a result of buying some shares or piece of property on a certain date and selling at a profit at some date later. It is not limited to speculation.

Therefore, we on this side of the Committee are quite entitled to argue, as we do argue here, that our aim is to turn this tax, which the Government have reduced to something insignificant, into a tax which would have real teeth in it, and would raise revenue for the Government, out of the activities of persons who engage in the buying and selling of property and who make profits or acquire gains out of so doing.

If one takes the limited, narrow view of the Government in this matter, it could be argued that it would be quite wrong to try to catch people who bought their shares or their property before 10th April, because we are concerned only with people who are deliberately engaging in speculation. Deliberately to engage in speculation a person must know that he is doing so, and that the gain from the speculation is likely to be taxed. He must start the speculation after he is aware of these matters and terminate it at some later date within periods fixed in the Bill.

Hon. Members on this side of the Committee take the view that all capital gains are legitimate matters for taxation. I say this, Sir William, in case you may be inclined to consider that I am out of order. This is what is contained in the Bill. The implication is that all gains accruing from buying and selling property are, and should be, subject to taxation. The purpose of this Amendment is to make that intention effective, more effective than would be the case were the Government to proceed with their very limited proposals.

During the Committee stage we discussed the way in which the Government's proposals might be evaded. By this Amendment, and subsequent Opposition Amendments, we seek to try to bring into the net the large amount of money being made by people through the buying and selling of shares and property. With this money those persons can secure a share of the wealth produced by the community in the form of goods and services without doing anything whatever to earn that privilege. We are saying, in effect, that when a man buys a piece of land for £10,000 and, within two, three, or four years, sells it for £20,000, his profit of £10,000 represents an addition to his income which he may use as he wishes.

It is true that the money might be used for further investment. But, equally, it could be spent on a house, on furniture, or on the redecoration of his property. It might be used for purchasing television sets or washing machines. He might buy a yacht, or engage two or three gardeners, or domestic servants. He might use it to increase the amount spent by his wife on having her hair dressed. In other words, the man can do exactly the same with that money as other people might do with money that they had earned as a result of working. He could spend it in taking from the community goods and services produced by the community.

Therefore, we say that in this case there is a double argument in favour of taxation. Not only are people enabled to acquire an additional source of income by acting in this way, but what they do is tantamount to robbery; because they are taking goods and services from the community without doing any work or making any contribution to the welfare of the community.

4.15 p.m.

Having recognised that the general case for taxing capital gains, as such, is that they represent an unearned addition to income or wealth—these terms in this context are regarded as interchangeable —we must make such a tax effective. It becomes a question of the date and the length of time chosen for the operation of the tax. I think that it may readily be shown that if the Government resist this Amendment, far from being fair to people who buy and sell property at a profit, they will be very unfair. They will be discriminating between different types of people.

Take, again, the case of a man who buys a piece of land for £10,000. Under the proposals of the Government, if he buys it in March of this year and sells it next month he will not pay a penny in tax. Another person may buy a similar piece of land on 10th April of this year, and may sell it, not next month, but two years or two-and-a-half years later. He would have to pay a very heavy tax on the profit which he made. Surely such a proposal will cause unfair discrimination between different people doing essentially the same thing.

The effect of the Amendment would be to create fairness in the treatment of persons engaged in this form of activity. But, basically, our argument is that this should be an effective tax, and it may be made effective only if we bring into the net all those who sell property which they own at present, or which they have been holding during the past three months, six months, three years, ten years or twenty years. In other words, the matter should be approached from the point of view of the gain made at the time of the sale of the asset. Surely that is the relevant time to consider whether a profit has been made upon which it would be legitimate to impose a tax.

We know that buying and selling of shares and land has been going on to an extraordinary, indeed a scandalous, extent during the last two or three years. We gave illustrations of this during our earlier proceedings in Committee. I quote one illustration of the buying and selling of land which appeared in the Daily Mail on 21st June, 1961. Here are two examples of prices paid for land at Whitfield, three miles from Dover. Speculator No. 1 paid £7,000 for 20 acres of farmland and then spent twelve months getting permission to build. He sold the land bare for £21,000. Speculator No. 2 bought 20 acres, with planning permission, for £15,000 and resold it within six months for £28,000. Neither of those speculators did a pennyworth of productive work in connection with that land.

All they had to do was to negotiate through an agent for the purchase of the land and later to negotiate for its sale. I do not know whether the Chief Secretary regards that as a form of productive activity. I find it difficult to do so. I do not know whether he regards it as a form of investment. I do not know whether he regards it as promoting capital growth. It promotes capital growth if by capital growth one means personal wealth, paper value.

Sir John Barlow (Middleton and Prestwich)

The hon. Member seems to assume in all these cases that a profit is made, but we have heard of a great slump on the Stock Exchange about a month ago. Presumably some very large losses are made. Does he suggest that it is all one-sided?

Mr. Warbey

No, not in the least. Of course losses are made from time to time. There is provision in the Bill to take account of that fact. Therefore, when we are talking about raising money by this form of taxation we are, in fact, talking about profits. Although losses may be made at certain periods, nevertheless the general tendency is to make a profit. There is no denying that the secular tendency is for the value of property, particularly in a capitalist society such as ours, to increase in value without any addition of work or even thought on the part of the owners of that property.

It is true that these illustrations were taken from a year ago, but although, in recent weeks, the value of shares on the Stock Exchange has fallen, I have not heard that the value of land has fallen. I think that the hon. Member for Middleton and Prestwich (Sir J. Barlow) will find plenty of examples from a more recent period. He is likely to find them during the present and coming years so long as the Government remain in power, examples of quite fantastic increases in the price at which land is sold.

I come back to the point that this is something which has taken place in the recent past and that in the recent past people have bought land with a view to selling it within the next six months, twelve months or two or three years, at a very substantial profit. The question is whether we are to apply the tax only to people who bought land on or after 10th April, 1962, and who sell it within the next three years or to apply the tax to people who already held land on 10th April and who sell it within the given period.

That is all there is between the two sides of the Committee on this question. It is merely a question fundamentally of whether we recognise or not that it is merely speculation which should be discouraged and is a fit matter for taxation or the acquisition of unearned wealth at the expense of the community. The question is whether that should also be taxed. That is the real issue and the basis on which I move the Amendment.

Mr. John Diamond (Gloucester)

I support the Amendment, but I wonder whether it makes the matter absolutely clear. This is a difficult thing from which we all suffer, particularly back benchers, that an Amendment we put forward may not cover exactly everything we have in mind. As I see it, the effect of the Amendment would be merely to leave out the date on which the acquisition and the tax arises and let the matter be open. The Amendment does not say precisely from what date we should calculate the profit or loss.

I am hoping that it will make the task of my hon. Friend in persuading the Government to accept the Amendment a little more easy if I interpret the Amendment in my way. The way in which I would interpret it is as meaning that whereas it is not right that anyone should be called upon to pay tax retrospectively where no warning has been given—this is quite different from the case we all have in mind where a warning was given—it is, nevertheless, quite unnecessary to give people enormous warning in advance of when the tax is to come into effect.

If a person who has land or shares at the given date, 10th April, it is quite unnecessary to say, "You shall not pay any tax on the profit or not be allowed any claim on the loss when those shares or land are sold no matter how long or short is the time after the date that transaction took place". It is quite unnecessary to go so far as that. It might be quite wrong to say, "Although you have bought these assets without any knowledge of this tax coming into operation you are now to be called upon to pay tax on the profit which accrued prior to the speech of the Chancellor of the Exchequer".

Although it may be wrong to go as far back as that, it surely cannot be wrong to say, "You pay tax on all assets of this kind which you sell within the prescribed period after the Act comes into effect and the amount of tax shall be calculated on the profit which accrues during the currency of this Act." That cannot be retrospective in any degree whatever. Therefore, we say that a person who has bought shares three months before the beginning of the Act and sells them 2.9 months after the inception of the Act and is, therefore, caught by the Act, should pay tax on the profit made. I admit that it would be an unusual share transaction to make a profit in those untypical circumstances, but it may be a person with no knowledge of investment on the Stock Exchange and one, therefore, likely to make a profit.

It is quite wrong to say, "You shall pay tax because we have a capital gains tax which is in force and you have made a profit while the Act has been in force. You have made a profit from 10th April onwards." All that is required is to value the asset at 10th April and provide, in cases Where it cannot be valued at 10th April, for the assumption that the increase or decrease has taken place retrospectively over the period between the purchase of the sale or the asset. That is not very difficult. This is the kind of thing which has to be done time and time again. With stocks which are publicly quoted it is perfectly easy to find the quotation on 10th April, the middle quotation and the quotation at close of business on that day, or on whatever date is chosen.

With land, it is not quite so easy, but it is likely to be thoroughly equitable to say in regard to land as to which the inception of the Act was half-way through the period between the purchase and the sale that the owner must assume half the profit or loss, whichever it be, which accrued prior to the Act coming into force and the other half afterwards.

To that extent, if that is a possible interpretation of the Amendment, the Government could certainly accept it. In a sense there would be no question of retrospection, and it would be giving effect even to this miserable little provision of paying tax only in certain very restricted circumstances instead of omitting a large portion of the tax which might have been collected if the Government had intended fully to bring it into effect.

4.30 p.m.

Mr. J. T. Price (Westhoughton)

Without any apology, and for a very simple reason, I must support the Amendment. The simple reason is that already under taxation conventions other forms of property which are not liable to tax prior to a change being agreed by the House of Commons may ultimately have to pay that tax if the Statute so requires. I particularly have in mind those goods which are subject to Excise duties of various kinds and which may be held as stock and working capital by various businesses. They may be carrying only a small tax in one year, but if, later, the tax is increased the holders of these goods are still required to pay the tax, even if it were not regarded by the House as a retrospective imposition.

We have argued about this on many occasions and everybody knows that it is only like a reluctant dragon or a reluctant debutante that the right hon. and learned Gentleman and his hon. Friends were driven to bring into the Bill this miserable apology for a capital gains tax. It is only an apology for one, and it is hedged around by all kinds of escape hatches through which those who are clever enough can avoid paying at all. I will not make a long speech, but I could continue at length if I was so minded. I am concerned most not about the fluctuations on the Stock Exchange, which at the moment are downwards—and it is about time that they were. Surely the Stock Exchange has gone mad and has driven the right hon. and hon. Gentlemen administering the Treasury almost into a similar state of imbecility with all the repercussions of Stock Exchange transactions.

At the moment the Stock Exchange is taking a downward turn and will not produce very much on a margin of capital gains until the racket gets in full swing once more, but what cannot be denied is the far more sinister effect on the economy and the people of land speculation. The most fantastic capital gains have been made by clever speculators in obtaining access to land due for a development certificate for housing or businesses purposes. I cannot see how it can be claimed that speculators who have been fortunate enough or ingenious enough or unscrupulous enough—I do not wish to be unfair even to them—to acquire large parcels of land in the close proximity of urban areas needed for development should be covered by a special provision that if the land was acquired before 10th April, 1962, then their large capital gain should go scot-free.

We all make abstract statements, but I have no wish to be abstract in this matter, and I will take the situation in the part of Lancashire which I have the honour to represent. There are parcels of land in my division which, ten years ago, after I came to the House, I could have bought for £30 an acre if I had been a speculator. I refer to marginal land, rather poor land, near a large town. As soon as it gets a development certificate it is sold on an option under the hammer, or by all kinds of private treaties, for over £3,000 an acre.

In other words, the price of land has increased one hundred times in ten years in the part of Lancashire which I represent. This cannot be justified by any kind of clever economic argument, or any of those phrases so dear to the hearts of economists and politicians. The right hon. Gentleman is not usually forthcoming when he gets his heels well dug in, but I appeal to him to be forthcoming on this occasion.

Mr. Charles Loughlin (Gloucestershire, West)

My hon. Friend is wasting his time if the right hon. Gentleman has his heels dug in.

Mr. Price

I am an optimist, and I always hope for the best even from the Government Front Bench. Sometimes we get even them to see things. But as a matter of common sense and natural justice between one citizen and another, we cannot justify allowing land speculators to go scot-free under the Bill. I apologise for having spoken rather longer than I intended and I appeal to the Minister to give serious consideration to the very modest Amendment which my hon. Friend the Member for Ashfield (Mr. Warbey) moved.

The Chief Secretary to the Treasury and Paymaster-General (Mr. Henry Brooke)

In his concluding words the hon. Member for Westhoughton (Mr. J. T. Price) seemed to expect that I was not likely to accept the Amendment, and on behalf of my right hon. and learned Friend the dragon debutante I am bound to say that I could not advise the Committee to accept it.

The hon. Member for Ashfield (Mr. Warbey), in his interesting speech, managed to hitch on to this seemingly small Amendment a full exposure of his own personal argument for a thoroughgoing capital gains tax, and in his enthusiasm for it he quoted a number of examples which certainly would not have been caught by his own Amendment.

At this stage I do not think that I need go over again all the arguments which have been developed by the Chancellor and other Treasury Ministers about the necessity for enacting this as a short-term gains tax, making such short-term gains subject to Income Tax and Surtax, as distinct from a thorough-going capital gains tax such as the hon. Member desires. As far as I am aware, no country makes long-term gains subject to Income Tax and Surtax or the local equivalent as though the profit were ordinary income.

In framing his Budget and his Finance Bill, my right hon. and learned Friend was clear in his mind that he did not intend to introduce any element of retrospection into this new tax and that is why this subsection is drafted as it is and excludes from liability to tax the profit on the disposal of any asset which was acquired before Budget day. If that were altered as the Amendment seeks to alter it, then in the Chancellor's view that would involve a retrospective element—and he has set his face against that.

In passing, the hon. Member for Gloucester (Mr. Diamond) delivered a persuasive speech seeking to get the Committee to agree to a different Amendment from that on the Notice Paper. He said, charmingly, that if the right interpretation of the Amendment were his interpretation, then he was in favour of it, but the legal officers at the Government's disposal, at any rate, differ in their interpretation from that which he sought to put on it, and I am sure that he will forgive me if I stick to the subject of the Amendment as it stands and do not deal with his more ingenious version.

Mr. Diamond

The right hon. Gentleman would no doubt wish to say whether the Government would consider it to be retrospective if tax were charged only on the profit which has accrued since Budget Day.

Mr. Brooke

The hon. Gentleman will forgive me if I avoid getting out of order and address myself to the Amendment which is on the Notice Paper and not to other Amendments which might have been tabled.

Mr. Loughlin

Will the right hon. Gentleman deal with this subtlety of retrospection? When Purchase Tax is increased the Government cannot recover the increased Purchase Tax from people who hold stocks of goods which they bought at the lower price. That is an element of retrospection based upon the right hon. Gentleman's interpretation in this case.

Mr. Brooke

Sir William, I do not think that you would allow me to deal with that at length, but I can certainly say, in passing, that before the hon. Gentleman entered the House a Committee examined that question on behalf of the Government of the day and reported that there was no means of dealing with the apparent anomalies or unfairness which might arise when Purchase Tax was changed, so putting a paper profit into the pockets of those who hold goods or imposing a paper loss on them.

But I must deal with the Amendment on the Notice Paper. I must say simply that the Government are not prepared to make this short-term gains tax apply in the case of any asset acquired before Budget day. There is a further point which was not dealt with in any of the speeches commending the Amendment to the Committee. My right hon. and learned Friend having made his Budget speech and the Finance Bill having been published, people who had acquired assets which might in other circumstances have been chargeable assets under Case VII will unquestionably have acted on the basis that the Chancellor of the Exchequer did not intend to change the law retrospectively. Therefore, during the last couple of months or so they may well have sold assets which, if the Amendment were accepted, would be taxable.

That would be wholly unfair to them because, had they had any previous knowledge that the Budget might be radically altered and that an Amendment like this might subsequently be written into the Bill, they would have had the choice of holding the assets for a longer period and avoiding tax on them. The hon. Member cannot escape from the clear charge of retrospection which would be levelled against him if he were successful in having the Amendment made to the Bill.

Mr. Warbey

Will the right hon. Gentleman deal with the case of the person who, having read the extensive report in the Press of the Chancellor's intention, having read the Chancellor's own much earlier warning that he was contemplating the possibility of introducing some kind of gains tax, and having anticipated, again on the basis of very well informed speculation, that the Chancellor was likely to fix Budget day as the date from which the tax should operate, hastened the acquisition of a parcel of land by a few days in order to buy it before 10th April rather than after 10th April? Surely that person, by a little intelligent anticipation, will, under the Chancellor's proposals, benefit very substantially, as opposed to the man who waited until after Budget day to decide what to do?

Mr. Brooke

Whether he will benefit very substantially will depend in part on the course of the markets. I can think of very few assets which he could have acquired just before Budget day which he would now be able to sell at a substantial profit. The hon. Gentleman is quite incorrect in assuming that anybody from reading the papers or picking up bits of information before the Budget could have had any clear idea of what the Chancellor intended. The papers published immediately after Budget day contained statements to the effect that the Chancellor in his Budget had confounded many prognostications as to the form which this tax would take.

I return to what I said at the beginning, because this is a relatively narrow point. My right hon. and learned Friend is not prepared to amend the Bill to introduce an element of retrospection which was not there when the Bill was first presented to Parliament. That is all I have to say in resisting the Amendment.

4.45 p.m.

Mr. G. R. Mitchison (Kettering)

There is no element of retrospection in the Amendment. The Amendment does not seek to alter either of the two limiting periods. All it does is to remove the necessity of the acquisition having happened before Budget day. The right hon. Gentleman is the greatest authority in the House of Commons on questions of retrospection. It was he who gave what most of us thought was full and explicit warning of the golden handshake. When this was acted on by the Chancellor of the Exchequer of the day, and a Bill was introduced to give effect to what the right hon. Gentleman had warned us the Government would do, the Government could not stand up to their own back benchers and the Bill was amended accordingly. I would not for one moment deny that the right hon. Gentleman knows all about it, but he has in this case got the picture wrong.

There is one instance so simple that it provides the complete answer. The Bill contains elsewhere a proposal to alter death duties. Is that proposal to be limited to the property which was held at the date when the proposal came into effect or when the Money Resolutions were passed? Death duties have never been regarded as retrospective, and they are not retrospective. What must be looked at is the date when the tax falls to be paid, and if the falling to be paid arises out of something which was complete at a period before the proposal was introduced I agree that it is retrospection, but certainly not if that something had only begun, for instance, in the case of death duties, during life.

In a property-owning democracy I suppose that the property-owning habits of many people begin at some much earlier period than their death. There is no logical distinction between the two cases. In this case it is a tax which falls on disposal, related, it is true, to acquisition. In the case of death duties it is a tax which falls at the death of a man, related to property which he may have held for long or short periods beforehand.

When that sort of argument is advanced as the only argument which the Government adduce for rejecting the rather limited Amendment, I begin to wonder why they are doing it. I start by wondering why the Chancellor of the Exchequer "leaked" to the extent he did before the Budget. This was not to forewarn people. We are told that it was not. What was the object of it? Why did he do it? I should have thought that he did it because he had made it perfectly clear that he intended to tax what are called in this Bill short-term gains. They have certainly been so described by the Government.

At an earlier stage we introduced a much more sweeping Amendment to extend this tax to other capital gains. That does not arise on this Amendment. The two limiting periods are still there. The period of six months applies to everything except land. Budget day was in April and we are now in July. A substantial part of the six months has already elapsed.

What we have to consider is the case of disposals for a period that cannot possibly exceed about four months in that case, and about two years and eight or ten months in relation to land. We have to consider a very limited class of transactions.

In Committee, the right hon. Gentleman was discussing the broader Amendment and said: I think that the Chancellor is right in saying that it is land held for a period of less than about three years and stocks and shares held for a period of less than about six months which are the normal subjects of speculation. I am certainly not saying that every sale that takes place within such a period is a sale following a purchase which was made with speculative intent."—[OFFICIAL REPORT, 22nd May, 1962; Vol. 660. c. 263.] There is certainly not a word in the Bill about motive or speculative intent, not even as such in connection with hobby farming. All we have to consider is land held for a period of less than about three years and stocks and shares held for a period of less than about six months. It is those things that we are taxing; why should we fail to tax them because they were acquired before the Budget? Is there any possible logical difference between the two?

There is no retrospection about it. What is happening is that the Government, for a purely illogical reason—and I really cannot understand their motive —are trying to exempt from tax one particular group of this class of what I shall call land or stocks held for a short period. If the class is to be taxed, why exempt this group? As the right hon. Gentleman himself said, there is in all this no question of speculative intent. We are simply dealing with something which, for perfectly good reasons, deserves to be taxed. It represents taxable capacity, and it is, in fact, the equivalent of income in the hands of the recipient, as we all know perfectly well. That is what we are getting at here.

Stocks bought a day or two before the Budget statement and sold a month or two months later are exactly the same as the others; there is taxable capacity, and income in the hands of the recipient. Why should a person be exempted from being taxed on what he received—what we treat, for these purposes, as income —simply because income happens to accrue to him at a particular date, depending on the date of the Budget speech? There is no logical distinction

whatever between now taxing, say, stocks and shares held for six months and bought just before the Budget and stocks and shares held for six months and bought just after the Budget. To say there is an element of retrospection in that indicates either a sad lack of logic in the minds of Treasury Ministers, or, as I think, a shortage of any other reason for objecting to the Amendment.

The right hon. Gentleman made what I think is the most preposterous statement I have ever heard of the relations between Government and Parliament. He said that we must not alter the Finance Bill now because people may have acted on what the Government put forward at any earlier stage. We all know that the Government are likely to win—they have a majority, and they probably will—but that is a very bad reason for resisting any change in the Finance Bill.

What actually happens is that, after a certain amount of pressure, the Chancellor of the day, one day or another, succumbs. For instance, he brings in an Amendment about blind persons, or something like that, which, very often, he has rejected stoutly in the earlier stages of the same Bill. It is constant pressure on the Government that is valuable, and all that we are trying to do in this instance is something very short and simple; to try to persuade the Government to be moderately logical, and not to make the wholly illogical distinction they have made by the language of the Clause.

For those reasons, on this small issue, and in order to try to knock a modicum of sense into Treasury Ministers, we propose to divide the Committee. In doing so, we have no feeling whatever that we are doing any hardship to the world outside. Why discriminate illogically in favour of those making large gains on their dealings in stocks and shares and then try to defend it on the ground that anything else would be retrospection?

Question put, That "the acquisition or" stand part of the Clause:—

The Committee divided: Ayes 230, Noes 161.

Division No. 222] AYES [4.56 p.m.
Agnew, Sir Peter Atkins, Humphrey Barlow, Sir John
Amrey, Rt. Hon. Julian Balniel, Lord Barter, John
Arbuthnot, John Barber, Anthony Batsford, Brian
Beamish, Col. Sir Tufton Harvey, John (Walthamstow, E.) Pott, Percivall
Bell, Ronald Harvie Anderson, Miss Powell, Rt. Hon. J. Enoch
Bidgood, John C. Hastings, Stephen Price, David (Eastleigh)
Biffen, John Heald, Rt. Hon. Sir Lionel Prior, J. M. L.
Biggs-Davison, John Hicks Beach, Maj. W. Profumo, Rt. Hon. John
Birch, Rt. Hon. Nigel Hiley, Joseph Proudfoot, Wilfred
Bishop, F. P. Hill, d. E. B. (S. Norfolk) Pym, Francis
Black, Sir Cyril Hirst, Geoffrey Quennell, Miss J. M.
Bossom, Clive Hocking, Philip N. Rawlinson, Peter
Bourne-Arton, A. Holland, Philip Redmayne, Rt. Hon. Martin
Bowen, Roderic (Cardigan) Hollingworth, John Rees, Hugh
Boyle, Sir Edward Hopkins, Alan Renton, David
Brewis, John Hornby, R. P. Ridley, Hon. Nicholas
Brooke, Rt. Hon. Henry Hughes Hallett, Vice-Admiral John Ridsdale, Julian
Brown, Alan (Tottenham) Hughes-Young, Michael Robertson, sir D. (C'thn's & S'th'ld)
Browne, Percy (Torrington) Hulbert, Sir Norman Robinson, Rt. Hn. Sir R. (B'pool, S.)
Bullus, Wing Commander Eric Iremonger, T. L. Robson Brown, Sir William
Burden, F. A. Jackson, John Rodgers, John (Sevenoaks)
Butcher, Sir Herbert James, David Roots, William
Campbell, Sir David (Belfast, S.) Jenkins, Robert (Dulwich) Royle, Anthony (Richmond, Surrey)
Carr, Compton (Barons Court) Jennings, J. C. Sandys, Rt. Hon. Duncan
Carr, Robert (Mitcham) Johnson, Dr. Donald (Carlisle) Scott-Hopkins, James
Cary, Sir Robert Johnson, Eric (Blackley) Seymour, Leslie
Chataway, Christopher Kerans, Cdr. J. S. Sharpies, Richard
Chichester-Clark, R. Kerby, Capt. Henry Shaw, M.
Clark, William (Nottingham, S.) Kershaw, Anthony Skeet, T. H. H.
Clarke, Brig. Terence (Portsmth, W.) Kirk, Peter Smithers, Peter
Cleaver, Leonard Lagden, Godfrey Stanley, Hon. Richard
Cole, Norman Legge-Bourke, Sir Harry Stevens, Geoffrey
Collard, Richard Lewis, Kenneth (Rutland) Steward, Harold (Stockport, S.)
Cooper-Key, Sir Neill Linstead, Sir Hugh Storey, Sir Samuel
Cordeaux, Lt.-Col. J. K. Litchtield, Capt. John Studholme, Sir Henry
Cordle, John Lloyd, Rt. Hon. Selwyn (Wirral) Summers, Sir Spencer
Costain, A. P. Longbottom, Charles Talbot, John E.
Crawley, A. M. Longden, Gilbert Tapsell, Peter
Critchley, Julian Loveys, Walter H. Taylor, Edwin (Bolton, E.)
Crowder, F. P. Lubbock, Eric Taylor, W. J. (Bradford, N.)
Curran, Charles Lucas-Tooth, Sir Hugh Teeling, Sir William
d'Avigdor-Goldsmid, Sir Henry McAdden, Sir Stephen Temple, John M.
Deedes, W F McLaren, Martin Thatcher, Mrs. Margaret
de Ferranti, Basil Maclean,SirFitzroy(Bute&N.Ayrs.) Thomas, Leslie (Canterbury)
Digby, Simon Wingfield McLean, Neil (Inverness) Thomas, Peter (Conway)
Donaldson, Cmdr. C. E. M. Macleod, Rt. Hn. Iain (Enfield, W.) Thompson, Richard (Croydon. S.)
Doughty, Charles MacLeod, John (Ross & Cromarty) Thornton-Ketnstey, Sir Colin
Drayson, G. B. McMaster, Stanley R. Thorpe, Jeremy
Duncan, Sir James Macmillan, Maurice (Halifax) Touche, Rt. Hon. Sir Gordon
Eccles, Rt. Hon. Sir David Macpherson, Wall (Dumfries) Turner, Colin
Eden, John Maltland, Sir John Turton, Rt. Hon. Sir Gordon
Eillot, Capt. Walter (Carshalton) Manningham-Buller, Rt. Hn. Sir R. Tweedsmuir, Lady
Emmet, Hon. Mrs. Evelyn Marlowe, Anthony van Straubenzee. W. R.
Errington, Sir Eric Marshall, Douglas Vane, W. M. F.
Erroll, Rt. Hon. F. J. Marten, Neil Vaughan-Morgan, Rt. Hon. Sir John
Farey-Jones, F. W. Mathew, Robert (Honiton) Vickers, Miss Joan
Farr, John Matthews, Cordon (Meriden) Wakefield, Sir Waveil
Fell, Anthony Mawby, Ray Walder, David
Finlay, Graeme Maxwell-Hyslop, R. J. Walker Peter
Fisher, Nigel Maydon, Lt.-Cmdr. S. L. C. Walker-Smith, Rt. Hon. Sir Derek
Fraser, Ian (Plymouth, Sutton) Moore, Sir Thomas (Ayr) Wall, Patrick
Gammans, Lady Nabarro, Gerald Ward, Dame Irene
Gardner, Edward Neave, Airey Watkinson Rt Holt Harold
Glover, Sir Douglas Nicholson, Sir Godfrey Webster, David
Glyn, Dr. Alan (Clapham) Noble, Michael Williams, Dudley (Exeter)
Goodhart, Phillip Nugent, Rt. Hon. Sir Richard Williams, Paul (Sunderland, S.)
Goodhew, Victor Oakshott, Sir Hendrie Wills, Sir Gerald (Bridgwater)
Gough, Frederick Orr, Capt. L. P. S. Wilson, Geoffrey (Truro)
Gower, Raymond Osborn, John (Hallam) Wise, A. R.
Green, Alan Page, Graham (Crosby) Wolrige-Gordon, Patrick
Gresham Cooke, R. Page, John (Harrow, West) Woodhouse, C. M.
Grimond, Rt. Hon. J. Pannell, Norman (Kirkdale) Woodnutt, Mark
Grosvenor, Lt.-Col. R. G. Pearson, Frank (Clitheroe) Woollam, John
Gurden, Harold Percival, Ian Worsley, Marcus
Hall, John (Wycombe) Peyton, John
Harris, Frederic (Croydon, N.W.) Pickthorn, Sir Kenneth TELLERS FOR THE AYES:
Harrison, Brian (Maldon) Pitman, Sir James Mr. Gordon Campbell and
Harvey, Sir Arthur Vere (Macclesf'd) Pitt, Miss Edith Mr. Michael Hamilton.
Ainsley, William Bennett, J. (Glasgow, Bridgeton) Braddock, Mrs. E. M.
Allaun, Frank (Salford, E.) Benson, Sir George Bray, J. W.
Allen, Scholefield (Crewe) Blackburn, F. Brockway, A. Fenner
Awbery, Stan Blyton, William Butler, Herbert (Hackney, C.)
Bacon, Miss Alice Bowden, Rt. Hn. H. W. (Leics. S.W.) Callaghan, James
Baxter, William (Stirlingshire, W.) Bowles, Frank Castle, Mrs, Barbara
Bence, Cyril Boyden, James Chapman, Donald
Cliffe, Michael Hynd, H. (Accrington) Probert, Arthur
Collick, Percy Hynd, John (Attercliffe) Proctor, W. T.
Craddock, George (Bradford, S.) Irving, Sydney (Dartford) Pursey, Cmdr. Harry
Cronin, John Janner, Sir Barnett Randall, Harry
Crosland, Anthony Jay, Rt. Hon. Douglas Rankin, John
Cullen, Mrs. Alice Jeger, George Redhead, E. C.
Darling, George Jenkins, Roy (Stechford) Reid, William
Davies, G. Elfed (Rhondda, E.) Johnson, Carol (Lewisham, S.) Roberts, Albert (Normanton)
Davies, Ifor (Gower) Jones, Dan (Burnley) Robertson, John (Paisley)
Deer, George Jones, Elwyn (West Ham, S.) Robinson, Kenneth (St. Pancras, N.)
Delargy, Hugh Key, Rt. Hon. C. W. Rodgers, W. T. (Stockton)
Diamond, John King, Dr. Horace Ross, William
Dodds, Norman Lee, Frederick (Newton) Royle, Charles (Salford, West)
Driberg, Tom Lewis, Arthur (West Ham, N.) Shinwell, Rt. Hon. E.
Dugdale, Rt. Hon. John Lipton, Marcus Silverman, Sydney (Nelson)
Ede, Rt. Hon. C. Loughlin, Charles Slater, Joseph (Sedgefield)
Edwards, Rt, Hon. Ness (Caerphilly) Mabon, Dr. J. Dickson Small, William
Edwards, Robert (Bilston) MacDermot, Niall Sorensen, R. W.
Edwards, Walter (Stepney) McKay, John (Wallsend) Soskice, Rt. Hon. Sir Frank
Evans, Albert McLeavy, Frank Spriggs, Leslie
Fitch, Alan MacPhereon, Malcolm (Stirling) Stewart, Michael (Fulham)
Foot, Dingle (Ipswich) Mallalleu, E. L. (Brigg) Stones, William
Foot, Michael (Ebbw Vale) Manuel, Archie Strauss Rt. Hn. G. R. (Vauxhall)
Fraser, Thomas (Hamilton) Mapp, Charles Stross,Dr.Barnett(Stoke-on-Trent,C.)
Gaitskell, Rt. Hon. Hugh Marsh, Richard Swingler, Stephen
Galpern, Sir Myer Mason, Roy Taverne, D.
Ginsburg, David Mendelson, J. J. Taylor, Bernard (Mansfield)
Gordon Walker, Rt. Hon. P. C. Millan, Bruce Thompson, Dr. Alan (Dunfermline)
Gourlay, Harry Mllne, Edward Thomson, G, M. (Dundee, E.)
Greenwood, Anthony Mitchison, G. R. Tomney, Frank
Grey, Charles Monslow, Walter Warbey, William
Griffiths, David (Rother Valley) Morris, John Weitzman, David
Griffiths, W. (Exchange) Moyle, Arthur Wells, Percy (Faversham)
Hale, Leslie (Oldham, W.) Neal, Harold Wells, William (Walsall, N.)
Hall, Rt. Hn. Glenvil (Colne Valley) Noel-Baker, Francis (Swindon) Wilkins, W. A.
Hamilton, William (West Fife) Noel-Baker,Rt.Hn.Philip(Derby,S.) Willey, Frederick
Hannan, William Oram, A. E. Williams, D. J. (Neath)
Harper, Joseph Owen, Will Williams, LI. (Abertillery)
Hayman, F. H. Paget, R. T. Williams, W. R. (Openshaw)
Healey, Denis Pannell, Charles (Leeds, W.) Williams, W. T. (Warrington)
Henderson,Rt.Hn.Arthur(Rwly Regis) Parkin, B. T. Willis, E. G. (Edinburgh, E.)
Herbison, Miss Margaret Paton, John Wilson, Rt. Hon. Harold (Huyton)
Hilton, A. V. Pavitt, Laurence Winterbottom, R. E.
Holman, Percy Pearson, Arthur (Pontypridd) Woof, Robert
Houghton, Douglas Peart, Frederick Wyatt, Woodrow
Hughes, Emrys (S. Ayrshire) Pentland, Norman
Hunter, A. E. Prentice, R. E. TELLERS FOR THE NOES:
Price, J. T. (Westhoughton) Mr. Rogers and Mr. Lawson

5.0 p.m.

Mr. Mitchison

I beg to move, in page 10, line 24, to leave out "three" and insert "five".

The Chairman

I think that it would he convenient for the Committee to discuss with this Amendment that in line 26, to leave out "six months" and to insert "two years".

Mr. Mitchison

That will be convenient, Sir William.

The first Amendment is designed to lengthen by two years the period over which land must be held before its disposal ceases to attract the capital gains tax, or whatever I should call it. "Speculative gains tax" is, perhaps, a better phrase. The next Amendment is a corresponding provision seeking to end large the period for other things, for example stocks and shares, from six months to two years.

I would he the first to admit—as. I think, the Government have admitted— that there is a bit of a hit and miss application in these periods. There is bound to be. It is perfectly logical to introduce a capital gains tax with no period at all or, at any rate, a very long one. But when trying to arrive at short periods for a purpose which is not particularly clear or well defined, the periods one arrives at may differ considerably with different people.

I seek to look at what the Government really have in mind. They have rejected, I think rightly, the idea that one should put in anything about the intentions of the person who is buying or selling. It may be a tax about speculative gains but there is not a word in the Bill, as I read it, about intention. The result to be achieved, therefore, depends entirely on the period chosen.

As I understand from what has been said on behalf of the Government, these are the periods where they think that most speculation would take place—periods to which they would consider that normal speculation, if I might use such a phrase, would occur and periods which will cover a certain number of cases without any speculative intention at all while, in the majority of cases, there will be an element of speculation. That is what I understand the Clause to be directed at.

It seems that six months, taking this period first, is a ridiculously short one for the purpose the Government have in mind. I should have thought that people who speculate on the Stock Exchange, for example, carry on a very in-and-out business and buy and sell in the process of an account. There are for later discussion Amendments designed to deal with this type of transaction. Many people buy shares and the like intending to hold on to them not for an indefinitely long period, but certainly for something likely to exceed six months. These people are likely to resell them and are not, on the whole, intending to keep them as something on the income of which they will depend for the rest of their lives or for many years.

I cannot imagine who thought up the period of six months, or why. I cannot see why as short a period as that can possibly be appropriate. This is a matter of individual judgment and common sense. I do not know whether there are any statistics available to show how long people habitually hold on to shares. Did the Chancellor use such statistics in arriving at the period of six months? I do not think that anything was said on Second Reading or in Committee as to why six months should be selected.

It may be that this was just a part of the Chancellor's intuition. After all, did not one of his predecessors see a pigeon on a ledge outside his residence and derive from it an imaginative conclusion that was subsequently embodied in that year's Budget? It was, I think, Lord Amory. It may be that when this lucky bird arrived it said to the right hon. and learned Gentleman the Chancellor, "Six months. That is it."

I do not know what pigeons do as between Chancellors of the Exchequer and themselves, but that is the only sort of reason that I can think of. It may be that they drew it out of a hat in the Treasury. "Ernie" is rather bulky to use for this purpose, but they may have asked him to fix the period. Really, on any sensible showing, surely six months is much too short a period.

I agree that in the practical circumstances of today it is right that there should be some distinction between land and other cases. When we come to land, it seems even clearer that three years is too short a period. Indeed, I feel doubtful whether we have been anything like thorough-going enough, assuming the general purpose of the Clause to be the Government's intention, to seek to add a couple of years. There are elements of holding land, building on it, developing it, things happening around it, the growth of the neighbourhood, this or that particular public enterprise, a new road, the development of a new estate, and so on, which make me think that even the average speculator would in most cases be likely to hold on for a considerably longer period than three years. But we have suggested five years, and five it is for the moment.

I cannot see why the Government should object to these extensions. Who will be penalised by them? Clearly, not the person who holds property for a very long time and lives on the proceeds or the income from it. In periods of this kind there must be really short-term gains in any strict sense of the word, and I should have thought that this kind of extension was reasonable and in accordance with common sense and practice.

I go one step further. The Chancellor has always been unable to tell us what, if any, receipts he expected to accrue from this tax. For all we know, it may be just waving of the flag without any accompanying army of tax collectors at all. It may he a mere gesture designed to satisfy the very deep public feeling that there is something wrong with all this and that there ought to be a tax on gains of this sort. That is quite a general feeling which the Chancellor has himself recognised and has, I think, supported in principle.

If that is what the right hon. and learned Gentleman has in mind, I suggest to him that general public opinion would certainly not regard six months as sufficient in the case of stocks and shares or three years as sufficient in the case of land. People who felt that there was something wrong here would be more convinced than ever that the Bill contained no serious attempt to put it right if the present very short periods were adhered to.

I will not take up the time of the Committee by discussing the wider question of whether there ought not to be a capital gains tax in the proper sense of the word, whether, in short, this kind of thing really serves any useful purpose. It certainly serves none of the purposes which a proper capital gains tax ought to serve. I accept for the purposes of this discussion, and for no other purposes, the Government's view of what the tax is intended to do, but like the Irish, having accepted it, I should like to know what it is. I have not yet discovered on what grounds these very short periods were put into the Bill originally.

No doubt we shall be told today what we have not so far discovered, whether it came from the oracular pigeon or from the sheer bright light of the right hon. and learned Gentleman's intuition or perhaps from some more detailed and possibly sounder considerations which, no doubt, the right hon. and learned Gentleman will now explain to us.

5.15 p.m.

Mr. Anthony Crosland (Grimsby)

Although I support what my hon. and learned Friend the Member for Kettering (Mr. Mitchison) has said, I do not think he is right about the pigeon being the source. I think it must have been an elephant. One thing that is known about elephants is that, as opposed to most human beings, their gestation period is six months, and I assume that this must be where the six months came from. [HON. MEMBERS: "Two years."] I think the two years is the gestation period of a rhinoceros.

I wish to put this serious question to the Chancellor of the Exchequer who has had something like two months in which to think about the tax and the period of six months. Does not the right hon. and learned Gentleman think that at the moment he is possibly getting the worst of both worlds on this very short six months period? On the one hand, it has been said by a number of commentators during the Stock Exchange slump recently that one of the destabilising influences on the Stock Exchange has been this tax. It has been argued in the Financial Times and other papers that but for this impending tax there would have been more speculation on the Stock Exchange. I do not know whether this is true or not. One cannot tell what volume of business there would have been had this tax not existed.

Does the Chancellor take the view that most of us take, that an extension of the slump on the Stock Exchange would have dangerous consequences to the economy and would possibly have dangerous consequences to the level of consumer spending and would also affect that mysterious matter of confidence? In the United States, the fear that the Stock Exchange slump can have an effect on consumer spending is widely held on Wall Street.

It would be interesting to know whether the Chancellor of the Exchequer has any similar fears concerning the Stock Exchange slump in this country and whether he thinks that this very short-term tax has been the factor which has destabilised the market in the last few weeks and has led the volume of business to fall more catastrophically than it would have done had we not had the tax. I should like to know whether the Chancellor subscribes to these fears, because it seems to me that if they have any substance, then, on the one hand, the right hon. and learned Gentleman has introduced a tax which has had a bad influence on the market and one which, nevertheless, is not going to bring in any revenue at all. It simply has an adverse effect on the amount of short-term speculation—restricts it—and, on the other hand, brings in no yield of any kind. It is possible, therefore, that in the kind of mixed economy system which we run now we shall get the worst of both worlds. We shall create a less efficient market and shall not get any yield from the tax.

Even though a comprehensive capital gains tax might be criticised on these benches—and let us suppose that the criticism can be substantiated—we, on the other hand, would say that because the tax brought in a very good yield it had good side-effects. But to bring in a tax which has a bad effect on the market and does not produce any yield is, as I say, to get the worst of both worlds. It is not clear what the exercise is supposed to do. Of course, one concedes that when the Chancellor introduced the tax he did so on a genuine, honest basis. One had a sense of what the right hon. and learned Gentleman had in mind. But we are not talking about that now; we are talking two months afterwards of what has happened in the last few weeks and what the consequence of this short-term capital gains tax has been.

I should like the Chief Secretary when he replies—and I am not making this as a party debating point—to say now, two months later, whether he is not prepared to admit that the tax on the one hand has a bad effect on the "perfect functioning of the capital market"—which I put in inverted commas because I am slightly sceptical about the perfect functioning of a capital market—while on the other hand bringing in no compensating benefit of producing a yield which might have a good effect on the distribution of income and on the trade union attitude when it comes to wage bargaining.

If the Chief Secretary cannot answer this question in the sense of saying yes, he is still convinced that this short-term tax avoidance brings about the disadvantages that I have mentioned, the sensible thing from his point of view would be, even at this late stage, to convert this heavily criticised notion of the very short-term gains tax to a longer-term gains tax, even though he had then to make the rates lower than they are in the short-term case.

Mr. H. Brooke

This matter of the appropriate length of period for short-term sales of both land and other assets was discussed at an earlier stage of the proceedings, and I seek to make the Government's view clear again. There obviously can be argument as to what is exactly the right period. The hon. and learned Member for Kettering (Mr. Mitohison) said that there was a good deal of hit-and-miss about it. That may be so, but I think that broadly speaking the Government have hit the target and the opposition have missed it.

The hon. and learned Gentleman said that the period of six months for stocks and shares and commodities other than land was ridiculously short. On the other hand, if one looks around one finds that it is six months in Federal Germany. That is the period there for a similar tax. I am not saying that the way that my right hon. and learned Friend the Chancellor of the Exchequer arrived at these periods of six months and three years was simply to look abroad and copy, because that it not so. In any case, the legislation for this country ought to be framed for this country's needs and not by transference from any other territory. I simply quote that case of Federal Germany as evidence to refute the hon. and learned Gentleman's allegation that the period of six months is ridiculous.

I think we must bear in mind the whole time that we are dealing here with a gains tax which is not like, for example, the American gains tax. This is a tax which imposes on profits from short-terms gains the full rigour of tax on income. The gains, if they are taxable under Case VII, will be subject to Income Tax and Surtax as though they were ordinary income, and that is so because it is the Government's assertion and belief that such gains are commonly spent as income, whereas it is equally the Government's belief that gains which accrue after longer periods are, in general, regarded by the owner or the recipient as profits on investment that will be available for reinvestment rather than as income which will be available for immediate spending.

Let me say at once that I cannot defend the period of six months or any other period as precisely and absolutely correct. There obviously could be argument as to whether it should be five, seven, or eight months. But I am prepared to say that the period of two years which is embodied in one of the Amendments is too long, and if hon. Members will give their minds to this I think they will feel that a capital gain which is secured after the stock or share has been held for up to two years really will not be likely to be regarded as year-by-year income.

As the hon. and learned Gentleman rightly said, conceptions of motive are kept out of the wording of this Bill. Motive does not enter in, and we all know that there may be sales within six months or within three years which are not the winding up of a speculative transaction at all. Similarly, I grant that there may be sales beyond the period of six months or three years which really are the completion of a transaction which had a speculative intent. But the view of the Government is that those two period's which are in the Bill broadly correspond to the dividing line in time between the probably speculative transaction and the transaction which was probably the sale of a genuine investment.

I remember when we discussed this in Committee that there was some reference to Amendments which would have gone further than these two. There was the Amendment which suggested ten years as a period for the sale of land and five years for other assets. If I remember rightly, that Amendment which was put on the Paper by an hon. Member opposite was described by the hon. Member for Cardiff, South-East (Mr. Callaghan) as "wishy-washy." We now have an Amendment which goes not quite so far as that and which has his support. It may be washy without being wishy, or vice versa. But I did not quite understand why he had so vigorously condemned the longer periods proposed by one of his hon. Friends in Committee and was now himself setting his name to this Amendment. It may be that it is because one cannot have absolute certainty in the matter, and that I grant.

I do not think that the hon. and learned Gentleman is correct in saying that the ordinary speculative transaction in land is likely to take more than three years between acquisition and disposal. Most of the cases that have been quoted here today and in earlier proceedings about speculative land profits have related to periods much shorter than three years. I think that both with regard to land and stocks and shares the periods that have been mentioned in the Bill will, broadly speaking, catch that type of transaction which my right hon. and learned Friend is aiming to catch.

Mr. Mitchison

I should like to know how the Government arrived at these figures. Apparently it was not a pigeon. It was not Federal Germany. What was it? Were there any statistics or information available that we could share in, or was it simply a matter of intuition?

Mr. Brooke

It was not a pigeon, nor a stool-pigeon. It was not Federal Germany, nor any other country. It was a judgment which we believe to have been correct. Nor do I think that one could prove the rightness of the figures in the Bill or in this Amendment by any statistical process. I think one just has to take a realistic judgment and try to think out for oneself what is the length of period for the completion of transactions where the profit is likely to be regarded as ordinary income, and what is the length of period where the completion of the transaction will be the sale of a genuine investment and, therefore, the proceeds of that sale will be treated as capital and not as income.

5.30 p.m.

This has been widely discussed in the Press for the last two or three months, and there has been very little serious expression of opinion diverging from the Government's figures. It is my business to read pretty well all the Press comments on the Budget and the Finance Bill. Though there have been expressions of opinion, the prevailing view undoubtedly has been that the Government have these periods about right.

Mr. James Callaghan (Cardiff, South-East)

Right for whom?

Mr. Brooke

For the public. What the Government have to consider is the interests of the public.

Mr. Callaghan

The right hon. Gentleman talks about the interests of the public. What he means is that he is about right in the interests of the speculators who know that if they hold on to securities for six months and a day they will not have to pay tax. The interests of the speculators are not the interests of the public, although the Conservative Party thinks that they are.

Mr. Brooke

If speculators hold on to assets for two years and a day, under the Amendment they will likewise escape tax. That argument can always be used with regard to any figure.

The hon. Member for Grimsby (Mr. Crosland) put questions to the Government about the possible ill-effects of a short-term gains tax on the stock market. I have had a word or two on the Front Bench with my right hon. and learned Friend the Chancellor of the Exchequer. He is inclined to disbelieve that the tax which he proposed in his Budget has had any appreciable effect on what has happened on the stock market since then. Obviously this is a matter of discussion which the economic historians of posterity may judge. I believe that the hon. Member for Grimsby would himself say that it is too early to give an authoritative answer to this question, but I think that many of us are inclined to believe that economists in the past have over-rated the steadying effect of speculators on the market. That again is a matter of judgment, but I certainly would not rest a case in favour of the speculator on that argument.

I agree with the hon. Member for Grimsby that one could have a long debate about the perfect functioning of the capital market and indeed about what is meant by the word "perfect" when one uses that phrase, but I can answer at short notice that the Chancellor, for his part, does not believe that the existence of this tax has had any perceptible effect on what has happened on the stock market.

I come back now to the main Amendment. I said in Committee that the Government have selected these periods of six months and three years as broadly the periods which will distinguish the speculative transaction from the genuine investment transaction. None of us can be absolutely right about this, but I think that we should carry the country with us in arguing that the periods of six months and three years which are in the Bill are much more realistic than the periods of two years and five years which are in the Amendments. On that account the Government cannot accept these Amendments.

Mr. Cyril Bence (Dunbartonshire, East)

I am not a financier. I never really understand the intricacies of this extraordinary financial mechanism but I have always understood that there was something scientific in arriving at financial decisions and something scientific in the development of fiscal policies. Yet the right hon. Gentleman the Chief Secretary to the Treasury has told the Committee that when the Chancellor arrived at these two figures he did not get them from Federal Germany or from a pigeon in a pigeonhole in Whitehall or from an elephant.

The right hon. Gentleman has no evidence and no statistics. How in the name of fortune did he arrive at a judgment that periods of six months and three years were right without any evidence to enable him to make that judgment? This reminds one of watching a farce in which the judge is asleep while all the evidence is being given and he then sums up. Here we have the Treasury, acting as a judge, summing up, and coming to a decision which the right hon. Gentleman makes irrevocable because he is not prepared to accept an Amendment, and yet he will not or cannot tell the Committee on what basis of statistics or evidence he has arrived at this important judgment.

I was trained as an engineer. When we engineers take a decision we can always tell people the reasons why we have decided to make one thing one size and another thing another size. We always have our reasons, but here in the Mother of Parliaments the representative of the Treasury tells the Committee that the Chancellor has come to a decision without any evidence or statistics. The right hon. Gentleman just does not know why the decision was made. The Chancellor did not get the idea from Federal Germany. He did not get it from any pigeon in Trafalgar Square or in Whitehall. He did not get it from an elephant and he did not get it from a rhinoceros.

There is evidence from chambers of commerce and the Stock Exchange that the majority of speculators will escape if they retain the holding for just over six months. There is evidence also about land holdings. [Interruption.] Does the hon. Member for Kidderminster (Mr. Nabarro) want to intervene?

Mr. Gerald Nabarro (Kidderminster)

Poor stuff.

Mr. Bence

It may be. I am a layman. I have never claimed the tremendous perspicacity, the knowledge, and the influence over the Treasury which the hon. Member has exercised through all the years he has been a Member of Parliament, but surely I am entitled as an ordinary Member to ask the Chief Secretary to give a fuller explanation of how these figures were determined. It is not good enough to tell us that he cannot give the source of his evidence or to give us the impression that he does not know of any evidence. If the right hon. Gentleman explained how these figures were arrived at and I found that his arguments and the evidence were convincing and realistic I might go into the Lobby on the right hon. Gentleman's side, but I certainly cannot support a proposition which has not been justified by any evidence. When someone puts a proposition to me and I find that it cannot be justified by any evidence, I reject it.

Dr. Alan Thompson (Dunfermline Burghs)

The debate has revolved around what is admittedly a difficult question, the distinction between long-term and short-term gains and losses. It has been argued for many years that the two come into different economic categories, that short-term capital gains are, properly regarded, not capital gains at all but a species of speculative profit and, as such, should come in with ordinary income.

In my view, the distinction which we have been trying to make between longterm and short-term gains comes back, at the end of the day, to the investor's control. The investor himself has discretionary control over the timing of gains and losses. This is why we want to expand the categories in order to catch as much as we can. Whatever one may say about objective long-term market influences and so on, the man who makes the decisions is the investor himself.

American experience has shown, according to Professor Seltzer's book, which, I am sure, many hon. Members who have taken a special interest in capital gains have read, that the shorter period discriminates against the lower income groups. According to his thesis, people in different income groups vary in their practice and the intervals at which they realise their gains or take their losses. It has been found that the richer members of the community hold on to their profits longer. On the other hand, they take their losses more quickly, winding up a losing venture much more quickly than people in the lower income groups who also invest on the Stock Exchange. I suggest that this is something which the Chancellor should consider.

When we debated this matter previously, I said that a capital gains tax or a land tax must always rate high on grounds of equality of sacrifice and rather low on difficulties of administration. Our Amendments would give those who administer the tax more elbow room and ease their task, at the same time tending more towards what we regard as equality of sacrifice. Behind this proposal, we must always remember that there are some people who escape their share of the country's tax burden while others paying tax on different kinds of income are discriminated against.

There is little to add on the subject of land and the outrageous rise in property prices except, perhaps, to point out again that, in regard to land, a much larger fraction of property capital gains as distinct from security capital gains accrues to professional dealers and companies. Again, this is the American experience. In dealing with property, capital gains in land as distinct from gains on the Stock Exchange, one is much more in the milieu of the professional dealer or speculator.

It is sometimes argued that a capital gains tax might diminish the supply of risk capital. I have myself never believed this, and moreover, if there is provision for losses as well as gains, the argument seems to be wiped out. Whatever may be said about the effect of the tax on the supply of risk capital, however, the tax certainly cannot affect the supply of land because the supply of land is fixed. Admittedly, its use can be varied, but in any given area the supply is fixed and there can be no argument that a tax will in any way stop or inhibit the proper use and development of land.

In recent years, the shocking rise in land prices has hindered all forms of public development, slum clearance and so forth, and it has made all the tasks of local authorities and the central Government almost impossible. It has forced councils to slow down or stop building houses even though they still have long waiting lists. It has hindered us from modernising our road system, especially inside towns. We do not see our Amendments as a complete answer to the problem of speculation in land. We have our own policies and proposals into which this would be dovetailed, with a reversion to emphasis on the use of land for the public good and much stricter control over its use. We consider that our Amendment would do something to limit what we regard as the anti-social market forces which have taken over in land speculation so ruthlessly in recent years.

5.45 p.m.

Mr. Peter Tapsell (Nottingham, West)

I wish to revert to the point made by the hon. Member for Grimsby (Mr. Crosland) about the possible effect of the speculative gains tax on the working of the stock market. I must declare an interest here because I am a member of the London Stock Exchange. I thought that the point made by the hon. Gentleman, which the Chief Secretary rejected, had a good deal of force in it. In conversation with me, many of those who work in the Stock Exchange, and have had many years of experience there, have expressed the opinion that this tax has had a considerable effect upon the market recently and that, over a long period, it will lead, as it has on Wall Street, to an accentuation of fluctuations, both up and dawn, which is hardly likely to be desirable.

It stands to reason that in a falling market buyers are less likely to come in if, should the market continue to fall, they will lose their money, while if, on the other hand, their judgment is right and the market goes up and they happen to be Surtax payers, almost all their profit will be taken away from them. Conversely, a rising market, for the same reason, it is unlikely that holders of shares which are rising rapidly will be quick to sell.

Therefore, one of the effects of the tax, which I have none the less supported and will continue to support, on social grounds, is likely to be that we shall have greater fluctuations in the stock market than before. I think that this is undesirable and it will to some extent create a more speculative situation than otherwise. So often, when one interferes with the free market mechanism, one produces results opposite to those which one is seeking to secure.

Several of my colleagues on the London Stock Exchange with a great deal of experience in these matters take the view that in the long run the effect of the speculative gains tax may be to reduce the turnover by about 25 per cent. If this happens, it will probably sound the death-knell of the jobbing system as we have known it in this country because the jobbing system, which is already in considerable difficulties, depends on turnover. If turnover falls considerably, the system will break down and we shall see ourselves moving over to something like the American specialist system which experience has shown to be less satisfactory than our own.

For those two rather technical reasons, which nevertheless have some national importance, I hope that my right hon. and learned Friend will keep an open mind on the matter. I hope that he will watch the working in practice of this speculative gains tax on the London Stock Exchange and the other stock exchanges which play a great part in the raising of capital in this country. If he finds that the market mechanism is being seriously damaged and that no tax yield of any significance is forthcoming, I hope that he will keep an open mind and, perhaps, look at the matter again in future years.

Mr. Callaghan

I think that the hon. Member for Nottingham, West (Mr. Tapsell) and my hon. Friend the Member for Grimsby (Mr. Crosland) have raised some points which the Chancellor and the Chief Secretary should keep in mind. I say frankly that I cannot assess what the value of a jobber is. He operates on the London Stock Exchange but not on other stock exchanges. Whether they are the better or the worse for that, I do not know. I agree with the hon. Gentleman to this extent, that if the jobber's occupation is to be wiped out it should be wiped out not as a sort of by-product or side-result of this tax but deliberately because it is fulfilling no useful social function. If that is so, I am quite happy to see the jobbers go. On the other hand, I do not think that they should go merely as a result of the operation of this tax. The hon. Gentleman made a very heavy attack on the speculative gains tax. The only reasons which he could find to support it were social. I have shown him that even those are nugatory.

As I understand it, there were three reasons for introducing the tax. We have had different reasons advanced at different times. The first was to raise revenue, the second was social and the third was to prevent speculation in order to put a rather prettier face on what is happening in the City of London and elsewhere to which the wage earners take very great exception. Each of these three reasons has been advanced at one time or another. We still do not know the main ground on which the Government rely. All that I can say is that all of these reasons are ineffective.

Some of my hon. Friends who have spoken have done the Chancellor of the Exchequer the injustice of taking him seriously. This is not a serious tax. It is not seriously meant. It will have no serious results. It is merely a bit of camouflage which was announced on 26th July last year, at the same time as the pay pause was announced, to persuade the nurses to continue to accept under-payment because the Government were going to deal with the tycoons in the City of London. That was the purpose. That was the origin of the tax.

To assume that this is a serious tax for the purpose of raising revenue is to take the Chancellor of the Exchequer much more seriously than he takes himself. The Chief Secretary let the cat out of the bag when he said that no one in the City of London really disagrees with what is being done. Of course not. The financiers in the City know that this tax will not hurt them. It does not affect them. It has no effect of any major consequence in raising revenue or in convincing the P.A.Y.E. taxpayers that there is justice as between them and the speculators. Therefore, it does not have the social effect which the hon. Gentleman hoped that it would have, and he might as well withdraw his support on that ground. There is a great deal of cynicism about the consequences of this miserable little tax when it is discussed in trade union branches because everyone recognises that it will not raise any revenue. It is doing the maximum damage and is of the minimum usefulness.

The purpose of this Amendment is to try to convert this tax into something which will yield some revenue. I do not think that it would have social consequences if we did that because the amount of revenue which it would yield would not be sufficiently great. But I have always regarded this as a useful revenue-raising device and I therefore support my hon. and learned Friend the Member for Kettering (Mr. Mitchison) in trying to extend the period in which the tax should operate.

If the Amendments were accepted, we should probably have to go on to consider the rates chargeable because I do not think it possible to charge the full rate of Income Tax or Surtax on a long-term basis. I would want to see it adjusted in a downward direction. For the Chief Secretary to say that, because I described the proposition as wishy-washy in Committee, I am not entitled to support this Amendment is reducing the Committee to the level of a charade. The Government turned us down on the last Amendment. We therefore put forward a more modest Amendment hoping that the Government would accept it, but they turned that down, too.

I hope that the Chief Secretary will raise the level of his argument. He has spoken twice this afternoon. It is the first time that he has told us that retrospection means that nothing can be done if a transaction has not already taken place—a very new definition of retrospection. The truth is that the Government have not a case in this matter. I have been long enough in the House of Commons to know that the Government yield not to argument but to pressure. They have yielded to pressure on this occasion—the pressure of Lord Ritchie and his friends. All that matters is that Lord Ritchie and his friends are satisfied about this. If it is not to them that the Government has yielded, then, as the hon. Member for Kidderminster (Mr. Nabarro) said sotto voce, it is the 1922 Committee to which they have yielded.

Mr. Nabarro

Who said that?

Mr. Callaghan

The hon. Gentleman did.

Mr. Nabarro

What I said was that the hon. Gentleman evidently had forgotten that there was a 1922 Committee, which is an entirely different thing.

Mr. Callaghan

I do not know what difference the hon Gentleman wants us to assume, but that is not what he said. He said that the Chancellor had yielded to the 1922 Committee.

Mr. Nabarro

I did not say that.

Mr. Callaghan

The hon. Gentleman is a sufficiently good controversialist not to have to get out of an argument in which he has been defeated by denying that he has used it. He should be able to find a better reply. I am ready to accept that, if it was not to Lord Ritchie to whom the Chancellor yielded, it was the 1922 Committee.

Mr. Tapsell

At least the hon. Gentleman will agree that Lord Ritchie's friends are singularly ungrateful to the Government for the arrangement reached.

Mr. Callaghan

I am not sure. If this were a serious tax, we should have had more serious Amendments this afternoon. I have yet to see the City of London under-represented on the benches opposite. The fact that there have been so few Amendments and that there is so little discussion on this Amendment is evidence to me that the City of London could not care less about this tax because they intend to avoid it by carrying on precisely in the way that they have always done.

As I have said, very little revenue will result from this tax. If I had to make a forecast it would be that if the Chancellor thinks that he can get away with it he will repeal it before the life of the Government is at an end. If he does not, it will at least provide some foundation for constructing a proper capital gains tax which will be equitable to the public in the truest sense of the word—that capital gains which accrue to those who do not earn them should yield some revenue to the public purse for the relief of those who need it. That is the basis on which I stand, and we have moved the Amendment to try to achieve that basis.

Although this tax is a miserable, farcical affair, the Chancellor has opened the sluice gates just a little, which will enable us to construct a proper taxation system in the long run. Perhaps he will be remembered as the author of a capital gains tax even though he did it by accident, by default, and never really wanted to do it.

Sir Alexander Spearman (Scarborough and Whitby)

The hon. Member for Cardiff, South-East (Mr. Callaghan) under-estimates the social advantages. Perhaps we do not mean exactly the same thing by "social advantages".

I accept that this tax is not likely to raise much revenue, that it will make for greater fluctuations in prices, will imperil the position of the jobbers, and will narrow the market for stocks and thereby adversely affect great institutions, like the great insurance companies.

On the social side, I think that there is quite a strong feeling of bitterness on the part of people in industry, and, indeed, in the City of London, who feel that, although they are working hard and solidly, they are sometimes making much less than someone who has made a gain over a very short time. An official of one of the biggest private banks in the City was very much in favour of the tax for that reason. He said that great difficulty was being caused among his staff—he has a very large staff—in that those who were working hard at research and at the proper business of investment were getting smaller rewards than some of their colleagues who were tempted to waste their time making short-term profits. However, he emphasised that that applied only to the very short-term speculator. It does not apply in the same way to the man who makes a profit by his investment over a long period. That is where the bitterness is created. The tax will certainly help in that respect. I am sure, therefore, that the hon. Member for Cardiff, South-East vastly under-estimated the social advantages.

Question put, That "three" stand part of the Clause:—

The Committee divided: Ayes 240, Noes 178.

Division No. 223.] AYES [5.59 p.m.
Agnew, Sir Peter Atkins, Humphrey Barlow, Sir John
Arbuthnot, John Balniel, Lord Barter, John
Ashton, Sit Hubert Barber, Anthony Batsford, Brain
Beamish, Col. Sir Tufton Harrison, Brian (Maldon) Pannell, Norman (Kirkdale)
Bell, Ronald Harvey, Sir Arthur Vere (Macclesf'd) Pearson, Frank (Clitheroe)
Bennett, F. M. (Torquay) Harvey, John (Walthamstow, E.) Percival, Ian
Bidgood, John C. Harvie Anderson, Miss Peyton, John
Biffen, John Hastings, Stephen Pickthorn, Sir Kenneth
Biggs-Davison, John Hay, John Pitman, Sir James
Birch, Rt. Hon. Nigel Heald, Rt. Hon. Sir Lionel Pott, Percivall
Bishop, F. P. Henderson, John (Cathcart) Powell, Rt. Hon. J. Enoch
Black, Sir Cyril Hendry, Forbes Price, David (Eastleigh)
Bossom, Clive Hicks Beach, Maj. W. Prior, J. M. L.
Bourne-Arton, A. Hiley, Joseph Profumo, Rt. Hon. John
Boyle, Sir Edward Hill, Dr. Rt. Hon. Charles (Luton) Proudfoot, Wilfred
Brewis, John Hill, J. E. B. (S. Norfolk) Pym, Francis
Brooke, Rt. Hon. Henry Hirst, Geoffrey Quennell, Miss J. M.
Brown, Alan (Tottenham) Hocking, Philip N. Rawlinson, Peter
Browne, Percy (Torrington) Holland, Philip Redmayne, Rt. Hon. Martin
Buck, Antony Hollingworth, John Rees, Hugh
Bullus, Wing Commander Erie Hopkins, Alan Renton, David
Burden, F. A, Hornby, R. P. Ridley, Hon. Nicholas
Butcher, Sir Herbert Hughes Hallett, Vice-Admiral John Ridsdale, Julian
Campbell, Sir David (Belfast, S.) Hughes-Young, Michael Robertson, Sir D. (C'thn's & S'th'ld)
Campbell, Gordon (Moray & Nairn) Hulbert, Sir Norman Robinson, Rt. Hn. Sir R. (B'pool, S.)
Carr, Compton (Barons Court) Iremonger, T. L. Robson Brown, Sir William
Carr, Robert (Mitcham) Irvine, Bryant Godman (Rye) Rodgers, John (Sevenoaks)
Cary, Sir Robert Jackson, John Roots, William
Chataway, Christopher James, David Royle, Anthony (Richmond, Surrey)
Chichester-Clark, R. Jenkins, Robert (Dulwich) Scott-Hopkins, James
Cleaver, Leonard Jennings, J. C. Seymour, Leslie
Cole, Norman Johnson, Dr. Donald (Carlisle) Sharples, Richard
Collard, Richard Johnson, Eric (Blackley) Shaw, M.
Cooke, Robert Kerans, Cdr. J. S. Shepherd, William
Cooper, A. E. Kerby, Capt. Henry Skeet, T. H. H.
Cooper-Key, Sir Neill Kershaw, Anthony Smith, Dudley (Br'ntfd & Chiswick)
Cordeaux, Lt.-Col. J. K. Kirk, Peter Smithers, Peter
Cordle, John Lagden, Godfrey Spearman, Sir Alexander
Costain, A. P. Lancaster, Col. C. G. Stanley, Hon. Richard
Crawley, A. M. Legge-Bourke, Sir Harry Stevens, Geoffrey
Critchley, Julian Lewis, Kenneth (Rutland) Steward, Harold (Stockport, S.)
Crowder, F. P. Linstead, Sir Hugh Stoddart-Scott, Col. Sir Malcolm
Curran, Charles Litchfield, Capt. John Storey, Sir Samuel
Dance, James Lloyd,Rt.Hn.Geoffrey(Sut'nC'dfield) Studholme, Sir Henry
d'Avigdor-Goldsmid, Sir Henry Lloyd, Rt. Hon. Selwyn (Wirral) Summers, Sir Spencer
Deedes, W. F. Longbottom, Charles Talbot, John E.
de Ferranti, Basil Longden, Gilbert Tapsell, Peter
Digby, Simon Wingfield Loveys, Walter H. Taylor, Edwin (Bolton, E.)
Donaldson, Cmdr. C. E. M. Lucas, Sir Jocelyn Teeling, Sir William
Doughty, Charles Lucas-Tooth, Sir Hugh Temple, John M.
Drayson, G. B. McAdden, Sir Stephen Thatcher, Mrs. Margaret
du Cann, Edward Maclean, Sir Fitzroy(Bute&N.Ayrs.) Thomas, Leslie (Canterbury)
Duncan, Sir James Macleod, Rt. Hn. Iain (Enfield, W.) Thompson, Richard (Croydon, S.)
Eccles, Rt. Hon. Sir David MacLeod, John (Ross & Cromarty) Thornton-Kemsley, Sir Colin
Eden, John McMaster, Stanley R. Touche, Rt. Hon. Sir Gordon
Elliot, Capt. Walter (Carshalton) Macmillan, Maurice (Halifax) Turner, Colin
Emery, Peter Macpherson, Niall (Dumfries) Turton, Rt. Hon. R. H.
Emmett, Hon. Mrs. Evelyn Maddan, Martin Tweedsmulr, Lady
Errington, Sir Eric Maginnis, John E. Vane, W. M. F.
Erroll, Rt. Hon. F. J. Maitland, Sir John Vaugtian-Morgan, Rt. Hon. Sir John
Farey-Jones, F. W. Manningham-Buller, Rt. Hn. Sir R. Vickers, Miss Joan
Farr, John Marlowe, Anthony Wakefield, Sir Wavell
Fell, Anthony Marshall, Douglas Walder, David
Finlay, Graeme Marten, Nell Walker, Peter
Fisher, Nigel Mathew, Robert (Honiton) Walker-Smith, Rt. Hon. Sir Derek
Forrest, George Matthews, Gordon (Meriden) Wall, Patrick
Franer, Ian (Plymouth, Sutton) Mawby, Ray Ward, Dame Irene
Gammans, Lady Maxwell-Hyslop, R. J. Webster, David
Gardner, Edward Maydon, Lt.-Cmdr. S. L. C. Williams, Dudley (Exeter)
Glover, Sir Douglas Mills, Stratton Williams, Paul (Sunderland, S.)
Glyn, Dr. Alan (Clapham) Mott-Radclyffe, Sir Charles Wills, Sir Gerald (Bridgwater)
Goodhart, Philip Nabarro, Gerald Wilson, Geoffrey (Truro)
Goodhew, Victor Neave, Alrey Wise, A. R.
Gough, Frederick Nicholson, Sir Godfrey Wolrige-Gordon, Patrick
Gower, Raymond Noble, Michael Woodhouse, C. M.
Green, Alan Nugent, Rt. Hon. Sir Richard Woodnutt, Mark
Gresham Cooke, R. Oakshott, Sir Hendrie Woollam, John
Grosvenor, Lt.-Col. R. G. Orr, Capt. L. P. S. Worsley, Marcus
Gurden, Harold Osborn, John (Hallam)
Hall, John (Wycombe) Page, Graham (Crosby) TELLERS FOR THE AYES:
Harris, Frederic (Croydon, N.W.) Page, John (Harrow, West) Mr. Michael Hamilton and
Mr. McLaren.
Alnsley, William Bacon, Miss Alice Benson, Sir George
Allaun, Frank (Salford, E.) Baxter, William (Stirlingshire, W.) Blackburn, F.
Allen, Scholefield (Crewe) Bence, Cyril Blyton, William
Awbery, Stan Bennett, J. (Glasgow, Bridgeton) Bowden, Rt. Hn. H.W. (Leics, S.W.)
Bowen, Roderic (Cardigan) Houghton, Douglas Peart, Frederick
Bowles, Frank Howell, Charles A. (Perry Barr) Pentland, Norman
Boyden, James Hughes, Emrya (S. Ayrshire) Prentice, R. E.
Braddock, Mrs. E. M. Hughes, Hector (Aberdeen, N.) Price, J. T. (Westhoughton)
Bray, Dr. Jeremy Hunter, A. E. Probert, Arthur
Brockway, A. Fenner Hynd, H. (Accrington) Proctor, W. T.
Butler, Herbert (Hackney, C.) Hynd, John (Attercliffe) Pursey, Cmdr. Harry
Callagnan, James Irving, Syndey (Dartford) Randall, Harry
Cattle, Mrs. Barbara Janner, Sir Barnett Rankin, John
Chapman, Donald Jay, Rt. Hon. Douglas Reid, William
Cliffe, Michael Jeger, George Roberts, Albert (Normanton)
Collick, Percy Jenkins, Roy (Stechford) Robertson, John (Paisley)
Craddock, George (Bradford, S.) Johnson, Carol (Lewisham, S.) Robinson, Kenneth (St. Pancras, N.)
Cronin, John Jones, Dan (Burnley) Rodgers, W. T. (Stockton)
Crosland, Anthony Jones, Elwyn (West Ham, S.) Rogers, G. H. R. (Kensington, N.)
Crossman, R. H. S. Jones, J. Idwal (Wrexham) Ross, William
Cullen, Mrs. Alice Jones, T. W. (Merioneth) Royle, Charles (Salford, West)
Davies, G. Elfed (Rhondda, E.) Key, Rt. Hon. C. W. Shinwell, Rt. Hon. E.
Davies, Ifor (Gower) King, Dr. Horace Silverman, Julius (Aston)
Deer, George Lawson, George Silverman, Sydney (Nelson)
Delargy, Hugh Lee, Frederick (Newton) Skeffington, Arthur
Diamond, John Lever L. M. (Ardwick) Slater, Joseph (Sedgefield)
Dodds, Norman Lewis, Arthur (West Ham, N.) Small, William
Driberg, Tom Lipton, Marcus Smith, Ellis (Stoke, S.)
Dugdale, Rt. Hon. John Loughlin, Charles Sorensen, R. W.
Ede, Rt. Hon. C. Lubbock, Eric Soskice, Rt. Hon. Sir Frank
Edwards, Rt. Hon. Ness (Caerphilly) Mabon, Dr. J. Dickson Spriggs, Leslie
Edwards, Robert (Bilston) MacDermot, Niall Stewart, Michael (Fulham)
Edwards, Walter (Stepney) McKay, John (Wallsend) Stones, William
Evans, Albert McLeavy, Frank Stross,Dr.Barnett(Stoke-on-Trent,C.)
Fitch, Alan MacPherson, Malcolm (Stirling) Swingler, Stephen
Fletcher, Eric Mallalieu, E. L. (Brigg) Taverne, D.
Foot, Dingle (Ipswich) Manuel, Archie Taylor, Bernard (Mansfield)
Foot, Michael (Ebbw Vale) Mapp, Charles Thompson, Dr. Alan (Dunfermline)
Fraser, Thomas (Hamilton) Marsh, Richard Thorpe, Jeremy
Gaitskell, Rt. Hon. Hugh Mason, Roy Tomney, Frank
Galpern, Sir Myer Mendelson, J. J. Wade, Donald
Glnsburg, David Millan, Bruce Warbey, William
Gordon Walker, Rt. Hon. P. C. Milne, Edward Weltzman, David
Gourlay, Harry Mitchison, G. R. Wells, Percy (Faversham)
Greenwood, Anthony Monslow, Walter Wells, William (Walsall, N.)
Grey, Charles Morris, John White, Mrs. Eirene
Griffiths, David (Rother Valley) Moyle, Arthur Wilkins, W. A.
Griffiths, W. (Exchange) Mulley, Frederick Willey, Frederick
Grimond, Rt. Hon. J. Neal, Harold Williams, D. J. (Neath)
Hale, Leslie (Oldham, W.) Noel-Baker, Francis (Swindon) Williams, LI. (Abertillery)
Hall, Rt. Hn. Glenvil (Colne Valley) Noel-Baker,Rt.Hn.Phillp(Derby, S.) Williams, W. R. (Openshaw)
Hamilton, William (West Fife) Oliver, G. H. Williams, W. T. (Warrington)
Hannan, William Oram, A. E. Willis, E. F. (Edinburgh, E.)
Harper, Joseph Owen, Will Wilson, Rt. Hon. Harold (Huyton)
Hayman, F. H. Paget, R. T. Winterbottom, R. E.
Healey, Denis Pannell, Charles (Leeds, W.) Woof, Robert
Henderson,Rt.Hn.Arthur(RwlyRegis) Pargiter, G. A. Wyatt, Woodrow
Herbison, Miss Margaret Paton, John Yates, Victor (Ladywood)
Hilton, A. V. Pavitt, Laurence
Holman, Percy Pearson, Arthur (Pontypridd) TELLERS FOR THE NOES:
Dr. Broughton and Mr. Redhead.
Mr. Barber

I beg to move, in page 11, line 42, at the end to insert: or would be so brought into account apart from subsection (5) of section forty-two of the Finance Act, 1938 (which relates to payments between associated companies). The Amendment corrects a technical flaw in subsection (7) of Clause 9, which provides for the charging of profits tax on short-term gains. Under paragraph (a) of the subsection which it is sought to amend the gains and losses to be taken into account in computing the profits of a trade or business for Profits Tax purposes—[Interruption.]

The Chairman

Order. It is impossible to hear what is being said.

Mr. Barber

I am grateful to you, Sir William.

As I was saying, the gains and losses to be taken into account are those accruing from the disposal of assets: where income arising from the assets to the person making the disposal would be brought into account as a receipt in computing the profits … of the trade or business. I explained at some length when we considered the Clause earlier in Committee that the provision took this form in order to meet the case of, for example, a local authority which is charged to Profits Tax only on the income of its trading undertakings. The effect of section 42 (5) of the Finance Act, 1938, which is referred to in the Amendment, was, unfortunately, overlooked when the Clause was drafted.

To put it very briefly, the subsection provides that where any interest, annuity, rent or royalty is payable by a company resident in the United Kingdom to another company and both companies are members of the same group of companies, the payment is not to be deducted in computing the profits of the paying company and is not to be included in computing the profits of the recipient company. Clearly, this provision should not of itself preclude a charge to profits tax on short-term gains, and the Amendment simply ensures that it shall not do so.

Amendment agreed to.

Clause, as amended, ordered to stand part of the Bill.