HC Deb 03 July 1962 vol 662 cc446-510
The Attorney-General (Sir Reginald Manningham-Buller)

I beg to move, in page 22, line 41, to leave out from the first "to" to the end of line 46 and to insert:

  1. (i) the assets comprised in the acquisition or disposal and the consideration for the acquisition or disposal; and
  2. (ii) the date and manner of the acquisition OT disposal. including any condition to which it was subject and the satisfaction or otherwise of any such condition.

Mr. Deputy-Speaker

With this Amendment can be discussed that in the name of the hon. Member for Crosby (Mr. Graham Page), in page 22, line 49, at end insert: Provided that Where the person on whom such notice is served is a solicitor who is acting or has acted for the person who may be chargeable to tax in respect of any transaction about which information is sought in the notice, he shall not, without the consent of his client, be required to give any further information beyond that referred to in subparagraph (a) of this Clause and the statement whether or not he has acted for his client in connection with the matters specified in the notice.

The Attorney-General

During the Committee stage we had a very full discussion of Clause 15 (5) on an Amendment moved by my right hon. Friend the Member for Flint, West (Mr. Birch). I do not wish—and I do not think the House would wish me to do so at this late hour—to cover all the ground that we covered in that debate.

I would, however, like to remind the House quite shortly that it is in the opinion of the Government essential, if Case VII is to operate, that the Revenue should have powers to obtain information of the character indicated in order to prevent tax evasion. My right hon. and learned Friend the Chancellor in his Budget statement said—I reminded the Committee of it, and I would remind the House of it tonight—that in assessing liability to a Case VII charge the Revenue will rely primarily upon the ordinary Income Tax return, which will include a section for the return of chargeable matters under Case VII. It is important to bear that in mind.

The existence of a power by the Inland Revenue to check a return by seeking information from the agent of the taxpayer is likely to encourage the taxpayer to send in correct returns. The knowledge that his returns may be checked is likely to deter him from sending in incomplete ones. So Clause 15 (5) will have a deterrent effect. That, I believe, is its main value. I doubt whether in fact it will be necessary in practice to make much use of the power it gives to the Revenue; the important fact will be that those powers are there; and I hope the House will agree that it is essential that the Revenue should have some such powers.

Bearing in mind that for the purposes of Case VII what has to be found out is the date of acquisition, the price paid, what has been acquired, the date of disposal, and what has been disposed of, and for what price, it is obvious that the persons from whom to obtain information about these matters are those who have acted on behalf of the taxpayer, who have acted as his agents in carrying out such transactions. Under Clause 15 the Commissioners can only require information from the taxpayer's agent if it appears to them that the person is or may be chargeable to tax. That is the first condition which has to be satisfied. Under this Clause the Revenue cannot call for a return of transactions effected by an agent which can come within Case VII; they must have grounds for believing there is or may be a Case VII liability on the part of the particular taxpayer before they can make any inquiry, and their inquiry must be related to a named individual.

The first thing to find out is whether the person has acted as his agent in connection with acquisition or disposal, and that is provided for, as the House will see, by subsection (5, a). If he has so acted, then he may be asked for further information, and I will come to the question of what further information he can be asked for in a moment.

The point I want to make now is that for the purpose of checking a named taxpayer's returns it is just not enough to find out someone has acted for him in connection with an acquisition or disposal and no more. I would like to stress that point in view of the Amendment tabled by my hon. Friend the Member for Crosby (Mr. Graham Page) which we are going to discuss with this Amendment.

Having said that in relation to that Amendment, I now come to the question of what information the Inland Revenue should be able to ask for. In the Bill it is defined as information relevant to the question whether the taxpayer is chargeable and information relevant to the computation of the tax liabilities, of the gain or loss.

I said during Committee that I felt that some of the fears expressed about this provision were due to the use of the word "relevant". There is always room for argument about what is or is not relevant, and I undertook to see if it was possible to define more precisely what the Revenue could ask for. It is as a result of that consideration that this Amendment is moved. It is only fair that I state that there is no difference in what the Revenue have wanted and want power to obtain. The difference is in the wording of the Clause, and I commend it to the House because of its greater precision.

Under it, the House will see, information can be asked for under two heads, and I will deal with them in turn. First, there is information as to the assets comprised in the acquisition or disposal and the consideration for the acquisition or disposal. If we are to check the liability to charge under Case VII, we must be able to find out what has been bought and what has been sold, and the prices. Under the second head, the Revenue will be able to find out the date and manner of the acquisition or disposal, including any condition to which it was subject and the satisfaction or otherwise of any such condition. Clearly, we must get the date of acquisition or disposal, for chargeability will depend on that. The Revenue will also want to know the manner of acquisition or disposal. Was it, for instance, in the case of land, by the acquisition or disposal of a freehold or a leasehold interest? It is also important to find out whether the acquisition or disposal was in pursuance of a condition of contract and, if so, whether the condition was fulfilled, for that will affect chargeability to tax.

I hope that the House thinks that the Amendment is an improvement on what was originally in the Bill. It underlines the fact that the information required is simply of a factual character, and, further, it has the advantage that those from whom information is sought will not have to concern themselves with its relevancy but whether it comes under one or other of the specific heads set out in the Amendment. I do not for one moment believe that the Revenue would seek information to which under this part of the Amendment it was not entitled, but should it do so. then it will be open to the recipient of the request to refuse to give it without getting into any controversy about relevancy.

If there is to be any check on the taxpayer's return where it appears to the Revenue that there may be chargeability under Case VII, this, I submit to the House, is information which the Revenue must have power to obtain from agents who act on behalf of named taxpayers in the acquisition or disposal of assets. I desire to stress this and also to stress that there is no power to ask a bank as to what passed between the bank and its customer, no power to see a customer's bank account, no breach of the confidentiality of communications between the bank and the customer, but only power to find out what the bank has done in this field as an agent of the named customer. It is very important that we all recognise that that confidentiality of communications between bank and customer should be preserved. All that is sought is just the information, and no more than that is necessary, to check the chargeability under Case VII.

I turn to the position of solicitors, because fears have been expressed about it. Today The Timescarries a report headed "Move to defend solicitor's privileges". Solicitor's privilege is something quite new to me. It is, in fact, the client's privilege which protects communications between a solicitor and his client, not any privilege which attaches to a solicitor in any personal capacity. I think that it should be made clear that the concern which has been expressed by solicitors about this is not concern on their own behalf but in relation to their clients' interests, and I think that that should be made clear at the very beginning of what I say on this issue.

Just as in the case of bankers and their customers, so in the case of solicitors and their clients, the Revenue are not concerned with, and cannot under the Clause as amended obtain, information as to confidential communications between solicitor and client. Communications made to and from a legal adviser for the purpose of obtaining legal advice and assistance with regard to litigation are protected, and the Revenue will not be entitled to get any information of that character, so that there is no question of any breach of that facet of legal professional privilege.

12 m.

Let us suppose that a solicitor has acted for a taxpayer in buying some land. There will be no question of asking what instructions his client gave him or what advice he gave his client. All that is required is the date of the contract of purchase, the amount paid, and the manner of acquisition, whether it was freehold or leasehold. No question of litigation will be involved and no question of privilege which ordinarily attaches where litigation is contemplated. Even where such privilege arises there is authority for saying that a solicitor cannot refuse to produce evidence unless the client was entitled himself to refuse to produce it in court.

I seek to emphasise what I said in Committee. There is, as I see it, no question here of seeking to secure information as to communications between client and solicitor. They remain privileged, and all that can be obtained is factual information as to what the solicitor has done as agent for his client in the acquisition or disposal of assets. This is somewhat analogous to the provision in Income Tax which has been in existence since 1842 in what is now Section 22 of the Income Tax Act, 1952. Under that provision every person, and that includes a solicitor, can be asked to make a return of any money or value or any income which he receives for which some other person may be chargeable to tax. He may be asked to make a return of what is received on behalf of all his clients, and when the Royal Commission on Profits and Income was sitting I am informed that the Law Society made no representations with regard to Section 22.

I do not think it is possible to exempt one category or more than one category of agents from the scope of Clause 15(5). If then there is to be power to obtain information from an agent it must surely be from all kinds of agents, because if it were not so those exempted might expect an increase of business on chargeability to Case VII.

There is one further point with which I must deal in view of the article in The Timestoday. It is suggested that a solicitor might not be able to represent his client if the Inland Revenue prosecuted and if a solicitor was one of the main witnesses called by the prosecution. I do not feel very impressed by this contention, for the evidence required in such cases from a solicitor—and cases of criminal prosecution are very few—would be, as I have indicated, of a purely factual nature about which I think it most improbable that there would be any dispute. In fact there have been occasions in the past when solicitors for the defence have been called upon on subpoena to testify for the prosecution as to formal evidence and to produce documents. I do not think that there is very much in that point. However that may be, if the principle is accepted by the House, as I think it has been, that there must be power to check the taxpayer's return, I think it must follow that it must be a power to check with all agents. The Amendment defines more precisely what can be obtained, and for the reasons given I ask the House to accept it.

I conclude by saying that I think that a provision giving power to inquire, such as this, to the Inland Revenue should be properly subjected to close examination. I hope that what I have said will allay the fears of those members of the other branch of the legal profession who have felt, partly due to the use of the word "relevant" that the power given would be a power to inquire into matters relating to communications between a client and solicitor or solicitor and his client. I hope that I have made it absolutely clear that that is not wanted by the Revenue. It is not the intention that the Clause should provide it. The intention—and the Amendment seeks to make that clear beyond shadow of doubt —is only to seek power to obtain factual information in relation to acquisitions or disposals done by an agent, including a solicitor, which may give rise to chargeability under Case VII.

I am sorry for taking up so much time on this, but I thought, in view of that article and the fears which I know have been expressed, it would be right, and the House would like me, to deal fairly fully—although, I hope, not too fully—with this Amendment.

Mr. Nigel Birch (Flint, West)

I am grateful to the Attorney-General for moving this Amendment. It is, I think, an improvement on the wording in the original Bill. It is an improvement in that it clearly defines exactly what information can be asked for. I wish he could have gone further and adopted the suggestion I made before the High Court order, but these words are acceptable and I am grateful to my night hon. and learned Friend for going as far as he has gone.

Mr. Graham Page (Crosby)

With great respect to my right hon. and learned Friend the Attorney-General, think he has made perfectly clear what he wants, but I cannot read this Clause 15 (5) to have such a limited extent. Clause 15 (5) seems to oblige a solicitor upon demand from the Commissioners of Inland Revenue to disclose the affairs of his client.

It is all very well for my right hon. and learned Friend to say that it is not desired to demand disclosure of communications between the client and the solicitor and that all that is required is a matter of pure fact. There can be no division between advice and fact in the relationship between solicitor and client. The solicitor advises on facts. He advises on documents. They are part of the transaction between the solicitor and the client. I have no doubt that the administrative difficulties applying i n collecting the short-term gains tax are great —

Mr. Callaghan

Could the hon. Member help those of us who are trying to understand the solicitors' case on this matter? What does he mean when he says that there is no difference between advice and fact? If I am asked as a solicitor, "Did you sell on behalf of your client such-and-such a share and on what date?" the answer is "Yes, on such-and-such a date". Surely there is a difference between saying that and saying, Did you advise your client to sell this share?". What does the hon. Member mean by saying that there is no difference between advice and fact?

Mr. Page

If the hon. Member will allow me to develop the argument in my own way, I think I shall come to that point and I may be able to satisfy him. I cannot believe that this tax is so unlike any other form of taxation that it is necessary to have a special Clause of this sort in the Finance Bill which would set aside the constitutional right of the subject. My right hon. and learned Friend said quite rightly that this is not solicitor's privilege and has nothing to do with solicitor's privilege. It is the right of the subject, a right which I put as a constitutional right, to the privacy of legal services, not just the privacy of legal advice but the privacy of affairs between solicitor and client. I do not think that I am putting it on too high a plane.

It is of supreme importance to the proper administration of justice that the citizen should have the right to make what statements he likes to his solicitor, to seek what advice he chooses and that it should be confidential and should remain confidential. This has been recognised for a long time. I shall read a few sentences from Taylor on Evidence, an accepted text-book on this subject. It says: the rule is now well settled that, where a barrister or solicitor is professionally employed by a client, all communications which pass between them in the course and for the purpose of that employment are so far privileged that the legal adviser, when called as a witness, cannot be permitted to disclose them, whether they be in the form of title deeds, wills, documents, or other papers delivered, or statements made or of letters, entries or statements, written or made by him in that capacity. It continues: This rule equally applies, though the solicitor be employed in the character▀¬of a conveyancer to draw deeds, or though the conversation relate only to the sale of estate…It extends to all communications between a solicitor and his client, relating to matters within the ordinary scope of the solicitor's duty". That is well confirmed in Halsbury's Laws of England and in other textbooks.

First, I will clear up some fallacies which have arisen in connection with this matter.

Mr. Callaghan

I am not interrupting in any hostile manner. I think that it is important that we should try to understand the case which the hon. Gentleman is putting. Is he saying that the information 'which is now required is contrary to the definition he has read? If he says that, how does he square that with the returns which, apparently—I did not know this until today—a solicitor already makes under the Income Tax Act, 1952, to which the Attorney-General referred?

Mr. Page

If the hon. Gentleman will allow me, I shall come to that.

Mr. Callaghan

If the hon. Gentleman 'would answer now we should understand better as he goes on.

Mr. Page

The answer to the first part of the hon. Gentleman's question is that I do say that Clause 15 is a breach of the privilege of a client in his relationship with his solicitor. I say that it is a breach because it would require the production of documents, the production of facts, the production of communcations between solicitor and client which are at present protected from production.

The Attorney-General

My hon. Friend says "require the production of documents". I thought I had made clear that it does not require the production of any documents at all. All that is asked is that the solicitor shall state, "When did you buy this piece of land, and what price was paid for it?". No documents are asked for, and no information as to what advice he has given to his client or any communication which passed between him and his client is required.

Mr. Page

With great respect to my right hon. and learned Friend, he cannot ride off on that. In his own Amendment he requires the solicitor to state the date and manner of the acquisition or disposal, including any condition to which it was subject. Surely, that is the contents of the document. If my right hon. and learned Friend is now saying that the solicitor will not be required to produce the document, that does not carry any weight with me. He will be required to state what are the contents of the document in saying what was the date and manner of the acquisition or disposal, including any condition to which it was subject. I say that that is a serious breach of what has been recognised as a privilege of the citizen in his consultations with his solicitor.

My right hon. and learned Friend said, quite rightly, that is not the solicitor's privilege. It has been said in a case that the privilege is the privilege of the client, not of the professional adviser. He said also that, if allowed, it would not be restricted to a solicitor, and, if the communications of a solicitor are to have privilege, then it should apply to all agents. This is made quite clear in the law as it now stands. It is only the communications between solicitor and client which are protected in this way, and this protection has never been applied to the relationship between, say, a doctor and a patient or a priest and the person who consults him. For the purposes of the administration of justice this has been applied, and applied very strictly in the past.

12.15 a.m.

I want to make it clear that this privilege does not afford protection to any communications between a solicitor and client which are in preparation of a fraud or a crime. If there is something of that nature in the communications, the solicitor is obliged to disclose it. I will again quote a passage from Taylor on Evidence, because I think it expresses the position very well, to show that the Treasury has sufficient powers under the existing law to get all the information it requires without the new Clause, Which is a breach of the privilege. Taylor on Evidence says: But the legal adviser can be asked whether the conference between him and his client was for a lawful or an unlawful purpose. If, either from his admission or from independent evidence, it should clearly appear that the communication was made by the client for a fraudulent or criminal purpose…the privilege does not exist, and he is bound to disclose the guilty project. He is also bound to disclose the name of his client. The Treasury has sufficient powers already without altering the law, which is what the Amendment would do.

Great care has been exercised in the past to preserve this right of the citizen to privacy in his legal services. It was recognised in the Companies Act. It was recognised in the Borrowing (Control of Guarantees) Act. It was recognised in the Legal Aid and Advice Act. There are only three instances, one of which my right hon. and learned Friend mentioned, in which there has been any attempt to tamper with this privilege. The one which my right.hon. and learned Friend mentioned was Section 22 of the Income Tax Act, 1952, which imposes an obligation on solicitor's to supply information about taxable income passing through their minds. That is entirely different. Money is passing through the hands of the solicitor untaxed and he is required in the course of his business to disclose that to the Revenue.

The second instance is Section 414 of the Income Tax Act, 1952, under which the Special Commissioners can require information about transactions relating to the transfer of income of persons living abroad. In that case the Section has so many restrictions that it boils down to merely giving the name of the client.

The third example is the Trading with the Enemy Act, 1939, against which no one would complain. Any agent—not a solicitor, specifically—can be required to furnish the Custodian with information and documents. I think I can safely say that those are the only three occasions on which this privilege has been tampered with in any way.

There is here a conflict of public interest between the Revenue, on the one hand, and the proper administration of justice, on the other. The need for a few £s traced by this means is not worth the abandonment of what I believe is a constitutional principle. My hon. and learned Friend was quite right, although he scoffed at the example, when he indicated where it might lead. If a client has carried out some transactions on the advice of his solicitor, with the assistance of his solicitor, and if the documents have been drafted in the solicitor's office and the Revenue then thinks that he is chargeable to tax and gives notice to the solicitor to provide the information, even though it be the information which is set out in the Amendment, the solicitor can be called as a witness to give that evidence and produce documents against the client for whom he has previously acted. It may occur that that client comes to the solicitor for defence in that case and finds that the solicitor is the chief witness for the prosecution. It is not impossible that under the Clause that could happen. It would be a choice theme for a plot for one of the court scene plays or films that frequently appear. Although the short-term capital gains tax will be difficult to enforce, it is not worth causing this breach of the rights of the citizen in connection with his legal consultations.

Mr. J. Grimond (Orkney and Shetland)

Arising from what has been said and without prejudging the issue, I wonder whether the Attorney-General could answer just one question. I understand that the Clause as drafted gives the Commissioners of Inland Revenue the right to ask for certain information from solicitors and other agents. If I understood him aright, the Attorney-General said that this did not confer any right upon the Commissioners to demand the production of documents. If there is dispute, if the Commissioners are not satisfied with the information provided by solicitors or the client's agents, do I understand that they have no right to ask that the documents in question should be produced?

I quite understand that if there is any question of fraud it would vitiate privilege. If, however, there is a simple dispute, is it the intention that the Commissioners—

The Attorney-General

I can answer straight away. The Clause gives power to the Inland Revenue to ask the solicitor or agent specific questions—for example, to ask the solicitor what was acquired and the date of acquisition. If the solicitor writes stating, that, say, three fields were acquired at such and such a date and gives the location of them, that is all that can be done under this provision. The Inland Revenue cannot go further unless proceedings are started for fraud, when the service of subpoenas may come into the question. Under this provision, however, it is a power to ask the agent to supply information. The power does not extend beyond that.

Mr. Grimond

I am obliged to the right hon. and learned Gentleman. In fact, the whole question of subpoena'ing a solicitor to produce documents does not arise under the Clause?

The Attorney-General indicated assent.

Mr. Eric Fletcher (Islington, East)

I should like to say a few words in support of the Amendment put forward by the hon. Member for Crosby (Mr. Graham Page), because I rather detected from the interventions from the Front Bench that we have not entirely convinced all my hon. Friends about the merits of the Clause. I am encouraged to pursue the matter because I share the view of the hon. Member that a question of considerable constitutional importance is involved in the Amendment.

As the hon. Member said, we are faced with two conflicting public duties. One is the necessity of giving the Inland Revenue all reasonable power to prevent the avoidance of tax that is properly payable and the other is to maintain the important and cherished liberty of the subject freely to be able to communicate and discuss his affairs with his legal advisers without the risk of those confidential communications being disclosed.

I share the view, which is held, I am sure, on this side of the House, that it is the duty of everybody to do all he can to prevent any evasion of revenue laws. At the same time, we have to remember that for centuries the administration of justice has depended upon the fact that citizens are entitled to get legal advice upon all their affairs in the sure and safe knowledge that they can disclose matters in confidence to their legal adviser without the risk of their legal adviser, without their consent, having to disclose any information to third parties. If that were not so, the administration of justice could not continue and the liberties of the subject would be seriously affected.

It is part of the law of the country that nobody is guilty of an offence until his guilt has been proved. He is deemed to be innocent. In this law, as in other realms of the law, there will be a number of borderline cases in which disputes will arise as to whether an offence has been or has not been committed.

This Clause, like sections of all Revenue Acts and a great many other Acts, will call for a good deal of careful investigation and examination, and people will be entitled to take advice as to what is lawful and what is not. The law in respect of the Revenue is no different from other aspects of the law. It is a serious matter to evade any revenue duty, but there are other crimes equally serious.

Murder is a serious crime. People on a charge of murder are entitled to have their defence put forward. They are entitled to legal advice. They are not to be convicted until they are proved guilty. There are numerous other offences. There is the Official Secrets Act, to which the Attorney-General is so devoted. Cases arise under that.

We could get this country into a sorry state if its citizens accused of offences, when in a position in which they thought they might be involved in disputes with the authorities, whether the police or the Revenue, were not able, in conditions of absolute confidence, to seek legal advice and to seek it without fear of disclosure to third parties.

Mr. Anthony Crosland (Grimsby)

My hon. Friend speaks of legal advice and suggests that it is under threat from this Clause. The Attorney-General has said that under no circumstances could advice be covered by this provision but simply factual statements. What is the relevance of what my hon. Friend is saying?

Mr. Fletcher

I am sorry that my hon. Friend does not appreciate the relevance.

Mr. Callaghan

We are doing our best.

Mr. Fletcher

I am sure that anybody who has had any experience of practice in the legal profession, whether as solicitor or as a member of the Bar, must know perfectly well that it is quite impossible to draw a hard and fast line between what is fact and what is advice.

The Attorney-General

I am not asking for anything which passes between solicitor and client. I am asking for facts as to transactions with third parties conducted by the solicitor as agent for his client. It is the facts of the transactions with third parties that are required. I repeat again what I have said before. This Clause does not give power, and no power is sought, to inquire as to anything that passes between solicitor and client.

Mr. Fletcher

I know that the right hon. and learned Gentleman has said that, but in view of the answer he gave to the right hon. Member for Orkney and Shetland (Mr. Grimond), there is still a good deal of ambiguity. One of the right hon. and learned Gentleman's supporters said, when we discussed this in Committee, that he does not accept any assurances made in this House as to how any particular Statute will be interpreted.

What is far more relevant is that the Council of the Law Society, which is a responsible body consisting in large part of supporters of the present Government, feels acute and deep concern about this Clause, even though it has been amended in the way described by the right hon. and learned Gentleman. The members feel that concern not for their own protection but because, from their years of experience, they know that situations arise almost daily in which members of the legal profession are consulted about all kinds of matters, not on one specific transaction, but over a whole range of details of a person's affairs. That has been done deliberately, and people have been entitled to do it because of the absolute privilege which exists when they seek legal advice.

12.30 a.m.

Once there is any inroad into that privilege of the citizen to discuss matters freely with his legal advisers and give them information of facts on which advice may be tendered, there is a fear in the minds of the Council of the Law Society that solicitors will not be able to continue to practise their profession with the same freedom as they have done in the past, and there is also a fear that this inroad into the privilege of the citizen will lead to making it much more difficult for the administration of justice to be carried on, because be it observed that solicitors are not agents for the Revenue or for the police.

I have no doubt that if we lived under a complete dictatorship lawyers could be made agents of the Revenue and the police. If we want that sort of society, we can have it. Some States have it. It is the type of society in which no citizen has any freedom at all, and no right to take legal advice, and in which there is a presumption of guilt rather than of innocence. We can have that kind of society, in which lawyers are made the agents of the Government with a duty to make disclosures about their clients' affairs to the Revenue, to the police, or to anybody else, but that is not the kind of society in which we have been living for the last two or three hundred years, and it is not the kind of society which corresponds with my concept of a free society.

I appreciate this conflict, but where there is this conflict it is of paramount importance to protect the liberty of the subject. I believe that all these powers which the Revenue want to enforce under this part of the Bill can be obtained—as, indeed, I think the Attorney-General recognized—largely by the powers which exist to require information from the taxpayer himself or from other agents.

I think that where there is this conflict the House would be making a serious mistake if it made what is widely regarded as a serious inroad into this protection of the citizen against the risk of confidential information communicated to a legal adviser being repeated without his consent to a third party.

Mr. Forbes Hendry (Aberdeenshire, West)

It is with great regret that I rise to criticise the opinion of my right hon. and learned Friend the Attorney-General. There is a great deal of concern among the legal profession in Scotland about the proposed Amendment, and I have been asked to support the Amendment in the name of my hon. Friend the Member for Crosby (Mr. Graham Page).

The effect of the Government Amendment is not what my right hon. and learned Friend says it is. What a solicitor is being called on to do is to give details of any acquisition or any disposal. The Clause as originally drafted mentioned the word "relevance", but this word has disappeared, and a solicitor is now being called on to give information about any acquisition or any disposal. He is being called on to give not only the date but the manner of the acquisition or disposal, including any condition to which it was subject and the satisfaction or otherwise of any such condition. In other words, private and secret information between a solicitor and his client has to be disclosed to the Revenue, whether it has any relevance or not.

The law in Scotland on this subject is different from that in England, and goes back a long way. It was re-stated as far back as 1681 by Lord Stair in his "Institutions of the Law of Scotland". This is what Lord Stair states: Advocates, agents, factors, trustees are suspect witnesses for those who intrust them. But they are not obliged to depone to any secret committed to them. That has nothing whatever to do with legal advice but the secret communications between a lawyer and his client.

It is established law in Scotland that this is a privilege not of the solicitor or the advocate, but the privilege of the client which the legal adviser is not at liberty to disclose to anyone without the consent of the client. The whole principle was strongly stated in Dickson's work on evidence, which is still the standard work on evidence in Scotland. Dickson described it as follows: By a sacred and settled rule of law, communications between a party and his legal adviser regarding the subject of a suit depending or threatened arc secure from disclosure. That is a sacred and settled principle of the law of Scotland. The Act of Union preserved that principle of the law of Scotland for all time.

The present situation seems to be a question of whether the right of the citizen to commune with his legal adviser is to be weighed in the balance with the temporary advantage of a few £s for the Revenue. In the past it has been held essential in the interests of justice and good administration that there should be secrecy between a citizen and his legal adviser. Without that privilege it would be impossible for anyone to go to a legal adviser knowing that whatever he told him would not be given away. It is absolutely vital to the administration of justice that this privilege be continued.

I beg my right hon. and learned Friend to change his mind on this issue and to accept the Amendment proposed by my hon. Friends.

Sir B. Janner

Some hon. Members who have spoken are solicitors. I should like to begin by answering the question that has been asked as to who is backing the kind of opinion my hon. Friends and I are putting forward. There is nothing secret about the answer. It is the Law Society. This organisation does not exist for the purpose of protecting solicitors in fraudulent or similar transactions. On the contrary, the Law Society sees to it that the public interests are protected.

If the Law Society, in its wisdom, having considered all the circumstances, has come to the conclusions we are trying to put forward tonight, it indicates not that the Law Society wants any advantage for the legal profession but that it wants the public to be protected in the way they have hitherto been protected when consulting legal advisers. I would make that clear here and now.

There is not an hon. Member present who, when he goes to his solicitor, does not expect him to keep every single piece of information secret and not to disclose it even to the nearest person connected with the hon. Member. Do not let us have any misunderstanding about this. The question arising now is whether any hon. Member would be prepared to say that what he has hitherto regarded as the relationship which existed between him and his solicitor should be in any way altered.

I ask the House to consider this from that point of view. That prevails not only with every Member of the House but with every person who crosses the threshhold of a solicitor's office as a client, not matter how small or how large his case may be. It may interest the House to know that one of the first things a solicitor does when he trains an articled clerk is to tell him that in no circumstances must he disclose anything which comes to his knowledge within the office to any other person, no matter how close that person may be to him.

Having that in mind, I think the Attorney-General has to consider how far he is prepared to crash into that principle. There is ample evidence, as the right hon. and learned Gentleman knows as well as anyone in the House, of learned judges who have expressed themselves in no uncertain terms about this. I could quote numerous references, but I do not intend to keep the House for any length of time. It is known to everybody. It is sheer nonsense for anyone to suggest that he does not realise that this constitutional principle has been established to such an extent that none of us would desire to have it interfered with in any way.

It is no particular gift to the legal profession. On the contrary, it makes the legal profession watch its p's and q's very closely on every occasion, even, for example, in the matter of disclosing a client's address. So in dealing with these Amendments I would like the House to realise that all the quips that come across the House are not really becoming on an issue of this kind. On the contrary, we are dealing with something which goes to the heart of the right of the individual as against an oppressive or potentially oppressive State or police force.

Those of us who have had a fair amount of practice know very well that often a client comes in and puts his cards completely on the table. It is within the knowledge of every hon. Member that judges very frequently tell a person who attempts to plead guilty that perhaps he had better consider his position and plead "not guilty" as it may be proved that he is not guilty. What all that implies must be clear to intelligent hon. Members who can think for themselves or have had occasion to consult lawyers.

What is being attempted here? Have we tested yet whether there is a need for any breach of this principle? Why should we anticipate that there will be need to break down this rule, which is a very essential rule from the point of view of protecting not the solicitor but the 'public? It is nonsense to say that because one is going to be asked to give particulars of the assets comprised in an acquisition, that will be the end of the matter. How can it be? If an action is taken, someone will be called to prove the case. Who will be called? It will probably be the solicitor who has given the information which has been requested of him. He will be under examination. Who can stop it? The judge will not be able to prevent him against producing documents because it naturally flows from the information which he has to give that the documents would have to be produced particularly if anyone were attempting to deny particulars contained in them. The prosecution would call on the solicitor. How could that solicitor possibly appear for the person who is charged? It is unreasonable to expect this, and the Attorney-General knows it very well.

The Attorney-General

The hon. Member must not say that. It has happened on more than one occasion, as I said, that the solicitor acting for the defence has given evidence of a formal character, of a factual nature, for the prosecution.

12.45 a.m.

Sir B. Janner

The Attorney-General, with his vast experience, knows very well that it is not a purely formal matter we are talking about. If there were any case, any action, against the client, it would not be a formal matter. With the greatest respect, I ask the Attorney-Genera, to think not of the days when he is the Attorney-General but of the days when he was himself practising in the courts and when he realised that his jab was to see to it that the person whom he was acting for was protected by himself as his adviser until he was found guilty. A lot of Members in this House are apt from time to time to make cynical remarks about the legal profession; they are wrong about it, because an enormous responsibility rests on a lawyer who is conducting a case on behalf of his client, and who is given information because the client knows very well that at no time will he disclose it to anyone else without consent. It is perfectly true, of course, that if there is any fraudulent intent, or if any fraudulent matter arises, that is an entirely different thing.

It may be that the solicitor has not participated in the transaction but gets knowledge of it because his client has told him what has happened, and may ask advice.

Mr. Millan

If that were the case, that would not be covered by the subsection because that would not fall under paragraph (a). It would not cover it.

Sir B. Janner

I do not agree it would not be covered by it. It would not require a considerable amount of ingenuity to bring that in. Assuming that a client had come in to seek advice about a contract, I think circumstances could arise in which the section could operate far beyond what has been indicated here.

The fact that the Attorney-General says in this House that it is not intended to mean something or another would not be admissible in a court, and everybody in this House knows that very well. We cannot bring HANSARD into court and show that the Attorney-General in his wisdom said on such and such a date that the subsection meant so and so. It is for the court to decide what it means.

I say respectfully to the Attorney-General, do not impose or put into a Bill something which will strike a blow at what he respects as well as 1 do, and that is the constitutional right of an individual to be protected by his solicitor, and to have protection from disclosing information or documents brought to the solicitor in his professional capacity. It may, of course, be just possible that, in a case or two, a difficulty will arise, but it is not worth driving a coach and four through a principle in order to obtain information from one or two pepole in cases.

I suggest to the Attorney-General that his best course is to accept the second of the Amendments, and if at the end of a year he finds it does not work, then to come again to the House to ask for the Amendment he wants. I am of the opinion that the Amendment would cover all the information which is necessary. The Attorney-General should retain the aspect of confidentiality which it is worth while keeping. He should accept the Amendment and, if it does not work, come back to the House next year and say so. That is better than inserting his Clause and, as it were, assuming the guilt of all those who come within its provisions. He should accept the Amendment. If it does not work and he returns to us next year, the House will give him what he wants.

Mr. Leo Abse (Pontypool)

It is not because the Law Society has expressed disquiet about the present position that I rise to speak but because I feel disquiet about it. I realise that hon. Members who are not solicitors may regard this, as apparently some do, as a lawyers' lobby seeking some special rights, but that is clearly not the position, for if there is one lesson which any experienced solicitor has learned it is that his duty is to protect the individual from encroachment made by State agencies.

When one realises the importance of this principle, one is surprised that this sledge hammer is being taken to what is obviously a marginal matter. It is perhaps characteristic of a society which is so preoccupied with the making of money that it wishes to erode this long-established constitutional principle on a question of revenue, whereas if the same principle were applied we should have the police in a position to write for a descriptive account, serving a notice on a solicitor asking the date when an alleged murder took place or the time at which an act of the client took place. If the Revenue may demand a descriptive account, what is to prevent the National Assistance Board from demanding from a solicitor the address, purely descriptively, of an errant husband for whom the Board is looking in connection with maintenance proceedings? If a man has had an accident, what is to prevent the Ministry of National Insurance—

Mr. Speaker

Order. The hon. Member must direct his observations to the matter which we are discussing.

Mr. Abse

I am pointing out that an encroachment is being made by the Inland Revenue upon a long-established principle and that this is opening the door for every other State agency to do likewise. It is no use the Attorney-General saying, "I am asking only a simple matter—when did the contract take place?" That could be a very complicated matter. Every solicitor knows that there are innumerable disputes to decide when property actually passed. One person may say one day and another person may say another day. A solicitor would be compelled to give a great deal of information in answering that question.

I point out to my hon. Friend the Member for Cardiff, South-East (Mr. Callaghan) that those who are used to this sort of procedure know full well the problem of being able to distinguish between facts and advice. Does the Attorney-General seriously suggest that in all transactions the solicitor could simply give the date when the property passed? He said that all that is being asked is certain conditions, but these may have to be spelled out from prolonged correspondence going back over a number of years.

In order to provide information to the Inland Revenue a whole series of letters may have to be submitted. Would those letters be entirely free advice or speculation? Would they be confined to specific conditions within a contract? We realise that this cannot be brushed aside in the way the Attorney-General has brushed it aside by saying that all that is required is a simple form answering "Yes" or "No" and supplying a date. These will be complicated matters and all the evidence that might come into them might have to be presented to the Inland Revenue. I would resent that I should have to become an agent of the police or of a Ministry or the Inland Revenue. Many of us who are jealous of our great tradition of the liberty of the subject are by no means appeased by the Attorney-General's suggestion that this requires only a simple form.

Assuming that it was a complicated transaction involving speculation as to the date when the contract was made, would not a solicitor who had to appear in court be subject to cross-examination on these matters? Is it not inevitable that he would have to say what his client said to him on such-and-such a date, to spell out the conditions and the time of the contract? It is abundantly clear that not enough thought has been given to this Amendment. It is inescapable that more information would have to be given to the court than the Attorney-General has suggested.

We oppose this because we are jealous of the liberties of the subject and we are concerned that no State body should be able to start using a profession as spies or agents of the Civil Service. I urge the right hon. and learned Gentleman to give another thought to this matter. It is well known that the law as it stands is sufficient to give protection against fraud and that solicitors have too much regard for themselves and are under sufficient discipline within the profession not to lend themselves to this type of thing.

What the Attorney-General's proposal is likely to bring about is that people will go to where they think the provision can be evaded. If a man has any doubt about the secrecy of a transaction he is likely to go to a solicitor in a part of the country remote from the solicitor whom he usually engages because he thinks that that will mean evasion. What will be done by this provision will be not to deal successfully with the evader but to embarrass the whole solicitor-client relationship.

We plead that an important constitutional right should never be eroded even if it is a matter of administrative convenience. It is always because it is administratively convenient that principle is eroded. It is eroded because it does not fit in with some bureaucratic Civil Service mind. Everything that we in the profession have done in the past that we regard as important has been done because we have been able to stand up for democratic rights. When we are faced with a society in which the bureaucratic attitude proliferates more and more it is essential that we take a stand. Unless we do so all our liberties seep away. This is an important one because it is one which protects ordinary citizens from serious encroachments by the worst forms of State bureaucracy.

1.0 a.m.

The Attorney-General

It might be for the convenience of the House if I reply to the arguments advanced by my hon. Friend the Member for Crosby (Mr. Graham Page) and others who have spoken on this matter. I listened with interest to their speeches, although I am afraid I could not agree with them for a number of reasons.

My hon. Friend the Member for Crosby outlined perfectly accurately the legal professional privilege which attaches when there is litigation or when litigation is contemplated. He read a passage from Halsbury which deals with that situation. He referred twice to the fact that that kind of privilege is necessary when there is litigation contemplated or threatened for the proper administration of justice. I do not quarrel with him at all about that. That is clearly the case, and I say to him that if he will study this Clause carefully he will find—and I am sure be able to satisfy himself—that it in no way invades that legal professional privilege.

Secondly, he asserted that it meant a serious breach—

Mr. Fletcher rose

The Attorney-General

I will deal with the speech of the hon. Member for Islington, East (Mr. Fletcher) later. I am dealing first with my hon. Friend.

Mr. Fletcher

I hope the Attorney-General will forgive me, but I think he has said something which is inaccurate. He said that this privilege applied only in case of litigation.

The Attorney-General

I did not say that. Those were not my words. If the hon. Member would be courteous enough to allow me to go on I shall come to his speech. I said that my hon. Friend had outlined perfectly accurately the privilege which attaches when litigation is contemplated and he said twice that it was necessary for the proper administration of justice. I went on to say, and the hon. Member for Islington, East may not have caught it, that in my submission to the House this provision in no way invades that privilege.

My hon Friend asserted that the power given by this Clause as we hope to amend it would enable the Inland Revenue to find out what he said were facts and advice in relation to what had happened between the solicitor and his client. I am not asking the House to accept any assurance from me, but I say that if he will consider the wording of this Clause and the Amendment he will not find any wording in the Amendment which would justify the request for any such information, and it has been deliberately worded in that way. If any such request were made, the solicitor to whom it was made would be perfectly entitled to refuse it. There is no question here of finding out what passes between solicitor and client. I hope, despite the observations of the hon. Members who have spoken to the contrary effect, that on reconsideration of the wording of this Clause they will see that there is not a peg on which that contention could hang in the wording. What can be asked for, and only asked for, is as to facts relating to acts done by the solicitor as an agent in connection with the acquisition or disposition of assets, that is to say, acts done with third parties.

I cannot agree that it is wrong that a solicitor should be required to give information about that. I do not feel that that involves a serious breach of a constitutional right. The objective is to provide the information under the specific heads which are given here. In fact, solicitors have to produce conveyances, which give a great deal of this information, for the purposes of Stamp Duty. The trouble about dealing with transactions in relation to land is that the liability to a Case VII charge does not depend upon the date of the conveyance but upon the date of the contract. If it is such a serious breach of constitutional right to disclose the subject matter of a contract and the date of its execution, it is astonishing to me that, for so many years, this information has been later revealed without objection by production of the conveyance.

Mr. Graham Page: I have restrained myself from interrupting my right hon. and learned Friend, but he mentioned a few sentences back that this dealt only with information when the solicitor has been dealing with third parties. Could he, please, give an undertaking about what is meant by things like consideration? It may not be a money consideration. It may be family consideration. And what of the manner of acquisition, too? If the solicitor is acting for a family and the transaction is between members of the family, as indeed it may well be in these tax matters, may he not be forced to give information under this Clause as amended?

The Attorney-General

I find it a little difficult to visualise that one member of a family will seek to make a speculative gain out of another member of the family. [HoN. MEMBERS: "Oh."] I find it somewhat difficult to visualise. As I said, this is dealing with information simply for Case VII, the speculative gains tax. I stress that condition (a) has first to be satisfied, that the solicitor will be asked to state whether he has acted on behalf of the first-mentioned person in connection with any acquisition or disposal of assets by that person. That is a named person, and it is asking him to say, under (a), whether he has acted as agent. If he has acted as agent for the taxpayer in the disposal or acquisition of assets, he must have been acting as agent in the disposal to or acquisition from a third party. In all these cases, we are concerned with information as to transactions with third parties by a solicitor acting as agent. I think that that does appear quite clearly from the language, and it is not capable of any other interpretation.

The hon. Member for Islington, East spoke a great deal about legal advice and dwelt to some effect upon not taking any assurances from me. I am not asking the House to take any assurances from me. I ask the House to consider the wording of the Amendment, which is very different from and much more precise than that contained in the Bill as originally drafted. I suggest to the hon. Gentleman that, when he has applied his mind to this carefully, and reconsidered it in the light of what I have said, he will come to the conclusion that there is nothing in (a) and (b), as we propose to amend it, which entitles the Revenue to ask anything at all about legal advice. I can only say that that is my view. There is no intention to ask about legal advice. Whatever advice may or may not have been given is wholly irrelevant to the question of chargeability to Case VII tax.

My hon. Friend the Member for Aberdeenshire, West (Mr. Hendry) drew attention to Scottish law and referred to the opinion that solicitors in Scotland have to keep secret any secret committed to them. Then he went on to say that that was when a suit was depending or threatened. If a solicitor buys some land on behalf of a client, there is no suit then depending or threatened. All we want to know, and all we are seeking to ask for, is details of a transaction so far as they relate to chargeability under Case VII.

The hon. Member for Leicester, North-West (Sir B. Janner) made a speech which dealt to some extent with questions of professional etiquette. He talked about how it is impressed upon the youngest solicitor not to discuss a client's affairs outside the office. I agree. The hon. Gentleman went on to talk about legal professional privilege. I can only repeat what I have said before in the House. I would not support an invasion of the communications which pass between solicitor and client, whether they relate to facts or to advice. That is not what is being asked for. I can only give the assurance that we have most carefully considered the matter. The Amendment of my hon. Friend the Member for Crosby in page 22, line 49, would not enable the Revenue to have a cross-check on the taxpayer's returns. Our Amendment merely gives us what we ought to have to be able to get to cross-check and it does not enable the Revenue to ask for any more.

I want to deal with the question of what would happen should there subsequently be court proceedings. I repeat that this provision does not give the Revenue any power to call for the production of documents. It provides, like the provision relating to the return under Section 22, for the giving of information. Much has been said about professional privilege, but it is rather curious that when Section 22, to which I referred earlier, which had been on the Statute book since 1842, was under consideration by the Royal Commission, no representations were made to the Royal Commission by the Law Society to the effect that it was a breach of legal professional privilege.

As regards court proceedings, no reliance is placed on Clause 15 (5). The information that the solicitor sends in answer to specific questions will not be evidence against his client if his client is being prosecuted for a tax fraud. The documents that have come into existence, if there is a prosecution, may be producible on a subpoena duces tecurn.I repeat that I cannot believe that, if there was a prosecution, there would be any dispute as to the date of the contract or the acquisition or the amount of the price paid—the consideration.

I think that there was a case in 1954 where this very thing happened. The solicitor's evidence constituted a vital link in proving the case for the prosecution. The solicitor was called to give evidence on subpoena. That did not inhibit him from acting for the defence, because it was recognised that he was compelled to produce the document.

Dealing with production on subpoena, the solicitor cannot claim privilege himself and he can refuse to produce the document only if his client could refuse to produce it.

Sir B. Janner

Does not the learned Attorney-General realise that, before he calls for the production of a document, the information that he seeks from the solicitor would be necessary? It is on that information that he would call for the production of the document and institute the prosecution.

The Attorney-General

If the solicitor replied that he shad not acted for this named client in the acquisition or disposal of assets, or if he replied that he had acted but that he had no information to give about it—he might have no information; records sometimes get destroyed—that would be the end of the matter. If he gives the information, and in the unlikely event of a prosecution—prosecutions are very few—he could be called upon by subpoena to produce it. Indeed, a subpoena might be served upon him to produce all documents of this character without a return being made under this provision. It is necessary to make it possible to check the returns. I cannot see that any exemption for a particular category of agent is necessary.

1.15 a.m.

Mr. Fletcher

May I ask one question, which arises inferentially from the argument in today's The Times? It is there assumed, and it has been assumed for the purposes of this debate, that even without the Amendment the Clause would apply to solicitors. It is not so stated specifically; it has been assumed. The Attorney-General will realise that it could be argued that any such intention would be so contrary to precedent as to make it arguable. Can he give his opinion whether, without the Amendment, the Clause applies to solicitors?

The Attorney-General

I have no hesitation in saying that the Clause applies to all persons, whether solicitors or whatever other description attaches to them, who act on behalf of named taxpayers in connection with any acquisition or disposal of assets by that named taxpayer.

Mr. Callaghan

I hoped that the Attorney-General would end his remarks by appealing to the Committee to reach a conclusion on the Amendment. Apparently, there are still hon. Members who wish to speak on it, but I cannot believe that new arguments remain to be developed at this stage.

I rise for one reason. Everybody taking part in the debate so far has been a solicitor or barrister. As they have all been speaking with a view to protecting my interests as a citizen or client, it might not be a bad idea if one of the solicitors' clients was allowed to say a word. I have listened to both sides of the argument without much preconception about it, except this. On the whole, I am disinclined on principle to agree with the Attorney-General. I start on the natural assumption that he is wrong. To that extent, therefore, I was biased towards those who spoke in favour of the Amendment.

One thing that distresses me is that I find myself agreeing with the Attorney-General against my hon. and learned Friend the Member for Kettering (Mr. Mitchison), and this is most distressing for me. At least, it shows that there is a division of opinion between the lawyers in the House and the rest of us. On the whole, the rest of us are not disposed to make nearly as much of this as the lawyers are.

The hon. Member for Crosby (Mr. Graham Page) said something that, I thought, was absolutely true. There is clearly a conflict of interest and public duty. Having listened to the hon. Member's speech and to the speeches by my hon. Friends the Members for Leicester, North-West (Sir B. Janner) and for Pontypool (Mr. Abse), no one can say that they do not regard this duty as extremely important and serious and one that they want to take properly. Therefore, none of us should sneer at it or attempt to denigrate it.

I do not speak in that spirit, but I am bound to say that in view of the breaches in this principle—I use the words of those hon. Members—which have been made so fair without, apparently, impairing this delicate relationship between client and solicitor, I cannot believe that the production of these simple facts will endanger the whole fabric of our constitutional lives.

What is required is a simple piece of information. On the basis of what the Attorney-General said, I take it that it is open to a solicitor to refuse to go beyond the provision of information. If he does so, as I understand the right hon. and learned Gentleman, he cannot be required to produce anything beyond the information that is set out. [Interruption.] I know that my hon. Friend the Member for Leicester, North-West takes a different point of view, but I am speaking as his client. I am delighted that he seeks to preserve my interest so carefully, but I do not think I want it looked after quite as much as all that.

If I go to an accountant and ask him to sell some shares for me, he has to disclose it. If I go to a solicitor and ask him to sell shares for me, on the basis of the Amendment he will not have to disclose it. I am obliged to the solicitors for looking after me, but I see no reason why, if I ask a solicitor to sell shares, he should not have to disclose it any more than an accountant does.

I suppose that solicitors come much more closely into the question of land. I stress some of the points made by my hon. Friend the Member for Pontypool. On the other hand, as my hon. Friend the Member for Sowerby (Mr. Houghton) has reminded me, solicitors apparently already deliver to the valuation office particulars of contracts and sales. They have apparently, in all the tens of thousands that take place, encountered no violation to their consciences nor any betrayal of the interests of their clients in Riving, information to the valuation office about the amount for which the house was sold and the date of the contract.

We have spent 1½hours on what the lawyers undoubtedly believe is an important principle, but having listened with the best will in the world, and with the utmost desire to disagree with the Attorney-General, I find myself in agreement with him. If this matter is forced to a Division—I hope that it will not be—he and I will have to march through the Lobby side by side.

Mr. Dingle Foot (Ipswich)

I profoundly disagree with my hon. Friend the Member for Cardiff, South-East (Mr. Callaghan), and I am much disquieted by the speech of the Attorney-General. The right hon. and learned Gentleman referred to the privilege of the solicitor when litigation is contemplated, and said that these provisions in no way invaded that privilege. He knows perfectly well that the privilege of the legal profession goes far wider than when litigation is contemplated.

All sorts of people take legal advice about all kinds of matters from both sides of the profession when there is no question of litigation. There are all sorts of matters on which they need to be advised and to which privilege attaches. This subject goes far wider than the matters to which my hon. Friend the Member for Cardiff, South-East referred. Clause 15 (5) (b), even as amended, states that what is required of the solicitor or the agent concerned is that he shall …furnish information in his possession… That means any information in his possession. It means information which has come to him from clients. It is the essence of the legal profession, whether solicitors or members of the Bar, that, when clients consult them, everything those clients tell them is completely protected and wholly privileged. This principle is being invaded by the Clause.

The Attorney-General

Would the hon. and learned Member mind reading these words with those it is proposed to insert? He would then see that the information is information as to the matters specified in my right hon. and learned Friend's Amendment.

Mr. Foot

Certainly. And the information the lawyer has received on these matters is information he has received from his client, something which his client has told him but which he is

bound, under this Clause, to reveal. That is an invasion of privilege.

Mr. Millan

Does this not have to be read in conjunction with subsection (5) (a), and is not the definition contained in it the crux of the matter? Is this not a matter of interpretation?

Mr. Foot

There is no escape from the words of the Clause. The solicitor is firstly, under (a), to state whether he has acted on behalf of the first-mentioned person in connection with any acquisition or disposal of assets by that person; After he has made that statement, he has to go a step further and furnish any information in his possession. This is not just a question of furnishing dates or describing the assets. He has to furnish any information in his possession —and the important words are "any information"—which has been communicated to him by his client. I do not want to elaborate this at this late hour, but an extremely important principle is involved here, and I believe that the privilege not of the solicitor but of the client is of far more importance than the convenience of the Inland Revenue.

Amendment agreed to.

Amendment proposed:In page 22, line 49, at end insert: Provided that where the person on whom such notice is served is a solicitor who is acting or has acted for the person who may be chargeable to tax in respect of any transaction about which information is sought in the notice, he shall not, without the consent of his client, be required to give any further information beyond that referred to in subparagraph (a) of this Clause and the statement whether or not he has acted for his client in connection with the matters specified in the notice.—[Mr. Graham Page.]

Question put,That those words be there inserted in the Bill:—

The House divided:Ayes 20, Noes 110.

Division No. 237.] AYES [1.26 a.m.
Abse, Leo Howard, Hon. G. R. (St. lyes) Talbot, John E.
Black, Sir Cyril Kerans, Cdr. J. S. Turton, Rt. Hon. R. H.
Diamond, John Lubbock, Eric van Straubemee, W. R.
Fletcher, Eric Mallalieu, E. L. (Brigg) Wilson, Geoffrey (Truro)
Foot, Dingle (Ipswich) Mills, Stratton
Grimond, Bt. Hon. J. Mitchison, G. R. TELLERS FOR THE AYES:
Hendry, Forbes Skeffington, Arthur Sir Barnett Janner and
Hooson, H. E. Stoddart-Scott, Col. Sir Malcolm Mr. Graham Page.
NOES
Agnew, Sir Peter Barber, Anthony Berkeley, Humphry
Allason, James Batsford, Brian Bidgood, John c.
Atkina, Humphrey Bennett, J. (Glasgow, Bridgeton) Biffen, John
Bishop, F. P. Harris, Reader (Heston) Noble, Michael
Bourne-Arton, A. Hastings, Stephen Oakshott, Sir Hendrle
Bowden, Rt. Hn. H.W. (Leics, S.W.) Hobson, Sir John Osborn, John (Hallam)
Boyd-Carpenter, Rt. Hon. John Hocking, Philip N. Pearson, Frank (Clitheroe)
Boyle, Sir Edward Holland, Philip Pott, Perclvall
Brooke, Rt. Hon. Henry Hornsby-Smith, Rt. Hon. Dame P. Price, David (Eastleigh)
Brown, Alan (Tottenham) Houghton, Douglas Prior, J. M. L.
Callaghan, James Howell, Denis (Small Heath) Proudfoot, Wilfred
Chataway, Christopher Hughes-Young, Michael Pym, Francis
Chichester-Clark, R. James, David Redmayne, Rt. Hon. Martin
Clark, William (Nottingham, S.) Jay, Rt. Hon. Douglas Rees, Hugh
Cleaver, Leonard Johnson Smith, Geoffrey Ridley, Hon. Nicholas
Cliffe, Michael Joseph, Sir Keith Roots, William
Cooke, Robert Kirk, Peter Shaw, M.
Cordeaux, Lt.-Col. J. K. Lawson, George Skeet, T. H. H.
Cordle, John Legge-Bourke, Sir Harry Smith, Dudley (Br'ntf'd & Chiswick)
Costain, A. P. Lilley, F. J. P. Smithers, Peter
Critchley, Julian Litchfleld, Capt. John Stewart, Michael (Fulham)
d'Avigdor-Goldsmid, Sir Henry Lloyd, Rt. Hon. Selwyn (Wirral) Taylor,Frank (M en st r, Moss sade)
Donaldson, Cmdr. C. E. M. Longden, Gilbert Temple, John M.
Drayson, G. B. Loveys, Walter H. Tompson, Richard (Croydon, S.)
Eden, John McLaren, Martin Touche Rt. Hon Sir Cordon
Elliot, Capt. Walter (Carshalton) Macieod, Rt. Hn. lain (Enfield, w.) Walker, Peter
Emery, Peter Macpherson, Niall (Dumfries) Wall Patrirk
Farr, John Maddan, Martin Wells, John (Maidstone)
Finlay, Graeme Maltland, Sir John Whitelaw, William
Fisher, Nigel Manningham-Buller, Rt. Hon. Sir R. Williams, Dudley (Exeter)
Fraser, Ian (Plymouth, Sutton) Matthews, Gordon (Meriden) Wise, A. R.
Galpern, Sir Myer Mawby, Ray Wolrlge-Gordon, Patrick
Gibson-Watt, David Maxwell-Hyslop, R. J. Wood, Rt. Hon. Richard
Gilmour, Sir John Maydon, Lt.-Cmdr. S. L. C. Woodnutt, Mark
Glover, Sir Douglas Millan, Bruce TELLERS FOR THE NOES:
Goodhart, Philip Miscampbell, Norman Mr. J. E. B. Hill and
Gower, Raymond More, Jasper (Ludlow) Mr. Gordon Campbell.
Hamilton, Michael (Wellingborough) Neave, Alrey

1.30 a.m.

Sir Henry d'Avigdor-Goldsmid (Walsall, South)

I beg to move, in page 22, line 49, at the end to insert: Provided that the Commissioners of Inland Revenue shall supply to the first named person a copy of the notice at the time it is served. This Amendment should not engender the same intense feelings as the last one. It refers to the notice to be served when the Commissioners have reason to suppose that there has been evasion. The effect is that when such notice is served by the Commissioners on the agent, at the same time the person into whose affairs inquiry is being made shall also be informed.

I understand from my few years of service in the House that it is not possible for back benchers to draft any form of words, however intelligible, which is acceptable to the Government draftsmen. But I believe that the Amendment contains a principle which the Government are prepared to accept. In moving the Amendment very briefly, I hope that even if these words are not acceptable, effect will be given to the principle in a subsequent Bill.

The Attorney-General

My hon. Friend the Member for Walsall, South (Sir H. d'Avigdor-Goldsmid) has moved the Amendment with commendable brevity. He has suggested that it is impossible for a layman to meet the drafting requirements. I would point out that the difficulty of the wording in this case is the requirement that a copy of the notice is to be supplied to the first-named person at the time it is served. That seems to demand a contemporaneous act which it would be difficult to achieve. Therefore, I am afraid that the wording cannot be accepted. It is unusual to accept an obligation to give a notice of this kind. There are many provisions in the Income Tax Acts enabling the Revenue to obtain information, but there is not a single precedent for a requirement of this kind on the Statute Book.

Having said that, and being of the view that in many cases it would be undesirable for the power to require information to be accompanied by any requirement to notify the suspected erring taxpayer, on this occasion I can say with the authority of the Board of Inland Revenue, which is controlling the inquiry for information, that it will undertake that when it makes inquiries of solicitors and banks it will notify without delay the taxpayer concerned. Without any undertaking of that sort, the banks and the soliciors would, one would expect, themselves notify their customers. But the Board of Inland Revenue is prepared to undertake to do that.

I think that that in substance meets the suggestion contained in my hon. Friend's Amendment. I do not think that it would be right or proper to create in the Statute Book a precedent of this kind which might be embarrassing on future occasions, but what I have said will be done, and that is what my hon. Friend wants done. Therefore, I hope that he will be able to withdraw the Amendment.

Sir H. d'Avigdor-Goldsmid

Might I take i: that that when my right hon. and learned Friend refers to bankers and solicitors he includes the other agents such as accountants and estate agents and other individuals who may be questioned in this connection?

The Attorney-General

Yes. Perhaps I ought to have mentioned them specifically. Dealing with the matter at this late hour, and particularly after the last Amendment, I had especially in mind the position of bankers. It will be notice to all the agents from whom information is sought.

Sir H. d'Avigdor-Goldsmid

It is satisfactory to learn that a feat which seemed impossible less than five minutes ago is now capable of achievement. In view of that, I beg to ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Clause 17.—(MODIFICATION OF RIGHT TO SET CAPITAL ALLOWANCES AGAINST GENERAL INCOME.)

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

I beg to move, in page 25, line 17, to leave out from "and" to the end of line 20 and to insert: shall not apply to a claim for the year 1962–63 or for the year 1963–64, if the claim is expressed to be made on the basis that this section shall not apply; but

  1. (a) subject to paragraph (b) below, a claim made by a person for any of those years on either basis (including a claim for the year 1961–62 made before the passing of this Act) may be superseded by a further claim made by him on the other basis within the time allowed for claims for the year 1963–64; and
  2. 482
  3. (b) a claim may not be made for the year 1961–62 or for the year 1962–63 on the basis that this section shall apply, if a claim (not since superseded) has been made in respect of the same trade for a later year on the basis that this section shall not apply, nor may a claim be made for the year 1962–63 or for the year 1963–64 on the basis that this section shall not apply, if a claim (not since superseded) has been made in respect of the same trade for a previous year on the basis that this section shall apply.
(7) Where under paragraph (a) of subsection (6) above a claim made on one basis is, after effect has been given to it, superseded by a further claim made on the other basis, then (without prejudice to any other provision for adjusting tax) there may be made all such repayments of tax and assessments or alterations of assessments as may be necessary to give effect to the further claim in place of the claim superseded". I may mention that there is a consequential Amendment to page 73, line 24.

I am glad to assure the House that this Amendment is not as formidable as it looks. Clause 17 is a complex one, but this Amendment deals with a quite narrow point in it and, I think, a noncontroversial one. The Clause as a whole deals with a new system for taking capital allowances into account from 1962–63 onwards and subsection (6) gives the taxpayer the option to decide whether to go over to the new system in respect of his claim for a loss in 1961–62. The whole object of the new system in Clause 17 is to be fairer to the taxpayer than the existing law on the subject, but in some cases the change over from the old system to the new under the Clause as it stands may do harm rather than good to the taxpayer. A compulsory change to the new basis in 1962–63 might, in fact, diminish his loss relief.

The purpose of the Amendment is to mitigate that by extending the option. The Amendment will enable the taxpayer to choose whether to start on the new method for 1961–62 or 1962–63 or 1963–64. In 1964–65, and onwards the new method will be compulsory, whereas under the Clause as it stands in 1962–63 the new system would be compulsory.

The Amendment further provides that if a taxpayer chooses the new method for one of those three years which I have mentioned he cannot then switch back to the old method for a later year. That is to say, he has the choice of years to go over to the new method, but once on the new method he must stay on it.

This option should help companies whose capital allowances happen to be diminishing in the relevant years.

If we left the Bill unamended a Clause which is designed to do greater justice to the taxpayer might in that sort of case cause a drop in loss relief and an increase in tax liability, and thereby do injustice rather than justice. I feel sure that the House as a whole will feel we should perfect the Clause in the way suggested in this Amendment.

Amendment agreed to.

Clause 24.—(PROPERTY SITUATE OUT OF

GREAT BRITAIN.)

Mr. Deputy-Speaker (Sir William Anstruther-Gray)

With the next Government Amendment it is possible to discuss the two following Amendments in the name of the hon. Member for Torquay (Mr. F. M. Bennett), in page 37, line 40, at the end to insert: (7) Any property which is situate out of Great Britain and which is by the law of the country in which it is situate immovable property and which passes only by virtue of paragraph (c) of subsection (1) of section two of the Finance Act, 1894, and having been the subject of a gift inter vivos which gift was effected before the first day of April, nineteen hundred and sixty-two, shall be deemed to be property in which the deceased never had an interest and accordingly shall not be aggregated with any other property but shall be an estate by itself for all the purposes of the estate duty. and in page 37, line 40, at the end to insert: (7) This section shall not have effect to charge with estate duty any property which is situate out of Great Britain and is by the law of the country in which it is situate immovable property and which passes only by virtue of paragraph (c) of subsection (1) of section two of the Finance Act, 1894, as having been the subject of a gift inter vivos which gift was effected before the tenth day of April, nineteen hundred and sixty-two, or which passes only by virtue of section forty-three of the Finance Act, 1940, as amended by section forty-three of the Finance Act, 1950, by reason of an interest limited to cease on a death having been disposed of or having determined which dispositon or determination was effected before the tenth day of April, nineteen hundred and sixty-two. and the Amendments in the name of the hon. Member for Crosby (Mr. Graham Page), all of them to page 37, line 40, at the end to insert: (7) Where an interest in expectancy in any property which includes or comprises immovable property situate out of Great Britain has before the tenth day of April, nineteen hundred and sixty-two, been bona fide sold or mortgaged for full consideration in money or money's worth and the estate duty payable in respect of that property when the interest falls into possession is greater than would have been payable but for the omission from subsection (2) of section twenty-eight of the Finance Act, 1949, of paragraph (c) thereof, then (a) no other duty on that property shall be payable by the purchaser or mortagee when the interest falls into possession than would have been payable if the said paragraph (c) had not been omitted; and (b) in the case of a mortgage, any excess of the duty actually payable over that payable by the mortgagee under the preceding sub-paragraph shall rank as a charge subsequent to that of the mortgagee. (7) Where an interest limited to cease on death (within the meaning of section forty-three of the Finance Act, 1940) after becoming an interest in possession has been disposed of or determined whether wholly or partly, then if that disposition or determination took effect prior to the tenth day of April, nineteen hundred and sixty-two no person shall be accountable by virtue only of the provisions of section forty-four of the Finance Act, 1950, for any increase in the amount of estate duty payable on the death by reason of the inclusion in the property in which the interest subsisted or immoveable property situate out of Great Britain. (7) For the purposes of section twenty-eight of the Finance Act, 1958, there shall be left out of account any settled property which is immoveable property situate outside Great Britain if the purchase of the interest in that property referred to in paragraph (b) of subsection (1) of that section was completed prior to the tenth day of April, nineteen hundred and sixty-two. (7) Where—

  1. (a) an interest limited to cease on death (within the meaning of section forty-three of the Finance Act, 1940) has been disposed of or determined after becoming an interest in possession;
  2. (b) the disposition or determination aforesaid took effect prior to the tenth day of April, nineteen hundred and sixty-two; and
  3. (c) the property in which the interest subsisted consisted of or included immoveable property situate out of Great Britain,
then such immoveable property shall not by virtue of the said section forty-three be deemed to be included in the property passing on the death. (7) Where immoveable property situate out of Great Britain was the subject of or comprised in a gift inter vivos taking effect prior to the tenth day of April, nineteen hundred and sixty-two, then notwithstanding the preceding provisions of this section that property shall not be deemed by virtue of subsection (1) of section two of the Finance Act, 1894, to have passed on the death of the donor nor shall the provisions of section thirty-eight of the Finance Act, 1957, have effect in relation to the gift so far as it consists of that property.

1.45 a.m.

The Attorney-General

I beg to move, in page 36, line 27, to leave out "the following subsections" and to insert: subsections (2) to (5) below: Provided that—

  1. (a) the property passing on the death of a person so dying shall not by virtue of a disposition or event occurring before the tenth day of April, nineteen hundred and sixty-two, being a relevant disposition or event within the meaning of section sixty-four of the Finance Act, 1960 (which relates to gifts inter vivos, etc.), be deemed to include any property—
    1. (i) which would not be deemed by virtue of that disposition or event to pass on the death if subsection (2) of the said section twenty-eight then had effect as originally enacted; and
    2. (ii) which is, or directly or indirectly represents, property that would not have been so deemed to pass if the death had occurred on the said tenth day of April;
  2. (b) where an interest in expectancy in any property was before the said tenth day of April bona fide sold or mortgaged for full consideration in money or money's worth, then—
    1. (i) no other duty on that property shall be payable by the purchaser or mortgagee when the interest falls into possession than would be payable if subsection (2) of the said section twenty-eight then had effect as originally enacted; and
    2. (ii) in the case of a mortgage any higher duty payable by the mortgagor shall rank as a charge subsequent to that of the mortgagee.
Subsection (1) of section fifty-six of the Finance Act, 1940 (which relates to transactions with companies under the control of not more than five persons), shall apply for the purposes of paragraph (b) above as it applies for the purposes of section three of the Finance Act, 1894. This all seems to be a rather formidable menu for this hour of the morning, but I hope that it will not be anything like as formidable as it sounds, because I believe this Amendment covers all the points raised in the others, and, I hope, to the satisfaction of those who have put their names to them. I will deal with it as shortly as possible.

I indicated in Committee that we contemplated tabling Amendments to exempt from duty gifts of immovables made within five years preceding the death because that would be in line with a number of precedents with which I will not weary the House. The donee, if the death occurred within five years after the date of the Budget, would be liable for Estate Duty when he was not liable for Estate Duty at the time of the gift and he might have disposed of the gift before the liability for Estate Duty ever arose.

Paragraph (a) of the proviso deals with gifts inter vivosand covers settlements. There is a possibility of hardship. In the case of settlements which are terminated it is possible under existing law to get a certificate from the Estate Duty Office as to the prospective Estate Duty liability, and those who applied for such a certificate before the Budget would have been told that there was no prospective Estate Duty liability on this account and, therefore, it would be unfair if such a liability were now imposed in those cases.

I hope that I have said enough to satisfy the House that the proposals in paragraph (a) of the proviso carry out what I indicated in Committee it was our intention to do and to satisfy my hon. Friends that the proposals follow precedents and give adequate protection.

Paragraph (b) deals with different topics, to which I also referred. It gives relief from the new charge to persons who before Budget Day were the purchasers or mortgagees of interests in expectancy in settlements of foreign immovables. Although it has not invariably been observed, there is a tradition that Estate Duty should not be imposed or increased to the detriment of purchasers or mortgagees of reversionary interests.

When Estate Duty was first imposed in 1894, existing purchasers and mortgagees were protected from the new charge, and whenever since then the rates of duty have been inceased, the relevant legislation has provided that any duty payable by a purchaser or mortgagee of a reversionary interest when the interest falls into possession shall be calculated according to the scale of rates in force when the purchase or mortgage was made.

Similar protection has sometimes, but not always, been given to purchasers and mortgagees when the charge to Estate Duty has been extended to property which was previously exempt. Purchasers and mortgagees could therefore justifiably say that they would have expected to be protected from any such new charge as is imposed by Clause 24. In the absence of any protection against changes in the law a purchase would become sheer speculation and it is likely that reversionary interests would be virtually unsaleable. Similarly, the mortgagee can work only on the basis of the existing law, and in the absence of any protection against changes in the law it would probably be very difficult to obtain loans on mortgage.

I hope that I have said enough to make the provision clear. The last five lines of the Amendment beginning Subsection (I) of section fifty-six are aimed at an avoidance trick by which a man might sell a reversion, in effect, to himself through the medium of a one-man company. The wording follows that of a previous Amendment and seeks to stop that avoidance trick.

Mr. F. M. Bennett (Torquay)

As my right hon. and learned Friend suggests, the Amendment amply meets the point of view expressed by a number of my hon. Friends and myself in Committee. I can go further in complimenting my right hon. and learned Friend and saying that his Amendment is better than those which we sought to draft and more amply covers our point of view.

On the last occasion that this matter was discussed, rather harsh words were said from the benches opposite about the length of time which some of my hon. Friends and I took in debating this issue, on the basis that it was a very small group of people that we sought to relieve. I do not think that that was a valid point, whether it was a small group or not, and I am glad that on this occasion Her Majesty's Government have accepted that there is a clear case for justice to be done in not allowing something to apply retrospectively when it ought not to do so. If it were necessary under the procedure to withdraw our Amendments, I can assure my right hon. and learned Friend that we would do so.

Mr. Callaghan

The hon. Member has misunderstood the point. He is never here except when a Clause of this kind is discussed. We were not complaining of the small groups being discussed or of the length of time spent on them. The complaint was that hon. Members opposite were not in Committee then and were not here today when we were discussing problems affecting millions of people on which there have been a number of Amendments. The complaint was of the long time taken by hon. Members opposite in purely peddling a small matter in which they were personally interested, as they themselves confessed, without bothering to come here to discuss other subjects. There is no complaint tonight because it has all been dealt with very quickly.

Mr. Graham Page

My right hon. and learned Friend the Attorney-General said that his Amendment covered all the other Amendments mentioned by the Chair. As far as those in my name are concerned, paragraph (a) certainly covers my Amendment to insert a new subsection (7) and paragraph (b) covers my Amendment to insert another subsection (7). There are also two other Amendments, which are alternatives, and a further one, proposing a new subsection (7) stands on its own. I have not been able to follow how the Government Amendment covers my other throe Amendments. If my right hon. and learned Friend can assure me straight away that it does, I will not argue the matter further.

The Attorney-General

I think I can, because I have received an assurance that all my hon. Friend's Amendments are covered by the Government Amendment.

Mr. Jay

Am I right in supposing that reliefs under both paragraph (a) and paragraph (b) are not permanent but are self-liquidating in the sense that they have to be related to dispositions or events occurring before 10th April, 1962?

The Attorney-General

They are related to a sequence of events which fall on either side of Budget day. I should like to add that my hon. Friend the Member for Torquay (Mr. F. M. Bennett) has asked me to say that he has no personal interest in this matter.

Mr. Mitchison

As I understand the position, it is that if there were a gift inter vivosbefore the Budget day which, had the property been in this country, would have attracted Estate Duty in the event of a death within the prescribed period, and if that gift was of land which at the time was not subject to Estate Duty but is made subject to it by this Clause then, in order to avoid retrospective legislation, this Amendment is made to exempt that land. We share the objection of hon. and right hon. Members opposite to retrospective legislation. We think that there are cases in which retrospective legislation ought to be allowed, notably in the case where a warning has been given, and, of course, there was no warning in this case.

We do not particularly like the class of case covered by this Clause. There were scandals about this sort of thing. We had them developed by hon. and right hon. Members speaking for the Government, but, on balance, this does not seem to be a case where one could ask for retrospective legislation to be maintained as it was originally in the Bill.

Amendment agreed to.

Clause 28.—(COMPULSORY REDEMPTION

OF TITHE ANNUITIES.)

Sir Charles Mott-Radclyffe (Windsor)

I beg to move, in page 40, line 33, to leave out the whole or a".

Mr. Deputy-Speaker

With this Amendment can be discussed the Amendment in line 36, to leave out "the land or".

Sir C. Mott-Radclyffe

The purpose of this Amendment is to limit the compulsory redemption of tithe to the case where only part of an agricultural holding is sold, on the grounds that if the purchaser intended to farm the whole holding as a unit in exactly the same way as before, cases might arise where the compulsory repayment of tithe could cause hardship and even make it difficult for a small farmer to find the necessary capital to farm the farm.

I do not propose, at this late hour, to go into the long and tangled story of the violent controversy which arose before the 1936 Tithe Act. If I did so, I should probably be out of order, but it is very dangerous to talk about averages when dealing with tithe rent charges. It might be quite true that on the average tithe rent charge is not very high. It may be true in East Anglia, where it is probably higher than anywhere else, the average is about 6s. to 9s. an acre, but there are certain anomalies which arise and certain extreme cases which could arise and which I think should be dealt with in this Clause.

I know one example of a small farm of 40 acres on which the tithe rent charge is£53 a year. That is an annual tithe rent charge of over £1 an acre. The farm is on bad land and, if it were sold in the open market, I should be surprised if it fetched more than £2,000. For the purchaser to redeem the tithe as he would have to under this Clause he would have to find in addition to the £2,000 a sum of over £700 for compulsory redemption of tithe. That is an absurd anomaly. I cannot believe that the Chancellor intended that kind of situation to arise when this Clause was drawn.

There is provision in the 1936 Act which deals with hardship. I want to make quite certain that that provision has not been repealed or amended in any way by this Bill. As far as I am aware, the provision in the 1936 Tithe Act laid down that where a payment could cause hardship the Board of Inland Revenue or the Tithe Redemption Commission could revoke a redemption notice or could agree to payments being made over an extended period in order to alleviate hardship.

But there is an important proviso that representations must be made before the date specified in the redemption notice. In other words, a prospective purchaser of a farm where the tithe was high would, before he made a bid for it, have to put his case that the redemption of tithes would cause hardship to the Board of Inland Revenue or the Tithe Redemption Commission. Technically, he would be making his case on grounds of hardship in hypothetical circumstances because the farm would not yet be his. Indeed, according to the reply he received from the Board as to whether the plea was accepted or not, he might well alter his decision about purchase.

2.0 a.m.

This is a ridiculous anomaly, and I am sure that my right hon. Friend does not mean that such a circumstance should arise. I ask him to give me an assurance that the old provisions of the 1936 Act to deal with hardship have not been repealed, and, as regards this Clause, that it would not be necessary for a prospective purchaser who thought that the tithe was too high to have to prove his case, so to speak, before he bought the farm.

My right hon. Friend will know that, as the law now stands, tithe redemption annuities are set against Schedule A so that, if there is compulsory redemption of tithes in respect of the sale of any agricultural holding, the net Schedule A liability will be by that amount increased. I hope that my right hon. Friend will be able to throw same light upon what are the intentions behind the new provisions in the Finance Bill.

My hon. Friend the Member for Gloucestershire, South (Mr. Corfield) and I put down these Amendments as exploratory Amendments, and I should be very grateful to have my questions answered.

Mr. Brooke

I understand the main point which my hon. Friend the Member for Windsor (Sir C. Mott-Radclyffe) makes. Although 1 am sure that his Amendment is not the right way to deal with it, I hope to be able to give him an assurance which will set his mind at rest.

I say as background, and in answer to his last remarks, that the object of the Clause is to extend the present compulsory redemption provisions which apply only to amounts of tithe rent charge not exceeding £3 a year. The reason why it is desirable, if it can be done without hardship, to speed up the redemption process is that the cost of collection of tithe rent charge is extremely heavy.

Thanks to the redemption which has been going on for several years, the number of staff employed in the collection has been reduced from 600 to about 200; but, if redemption were to come virtually to an end now that we have fairly well cleared up the cases under £3 a year, this would mean that staff would have to be retained and this very heavy cost of collection would have to continue.

That is why my right hon. and learned Friend looked round to see whether there was some way whereby, without hardship, the process of redemption might be expedited. It seemed to him that it was not unreasonable to provide for compulsory redemption when land was changing hands by sale.

I will certainly give my hon. Friend the assurance that the provisions about hardship in the 1936 Act are still on the Statute book. They are in no way affected by the Clause. The tithe redemption office of the Board of Inland Revenue widely uses those provisions under the existing compulsory redemption arrangement. I can promise him that they will continue to be administered in a liberal spirit.

My hon. Friend is concerned about those cases where land bears tithe rent charge at an abnormally high rate. I grant his point at once that one can fall into error if one argues simply about the average charge without taking into account the exceptional cases. I think that my hon. Friend is concerned lest, where land bears charge at an abnormally high rate and is offered for sale, the prospect of being compelled to find a substantial lump sum if one bought the land or the farm deterred a would-be purchaser from bidding at all, unless he knew in advance that he had good hope of the tithe redemption office being willing to apply the hardship provisions in the 1936 Act.

If a sale of land includes land which bears tithe rent charge at an abnormally high rate, I am happy to give the House a general assurance that the tithe redemption office of the Board of Inland Revenue will take this into account in judging whether redemption should be enforced or whether it is an appropriate case for applying the proviso to Section 15 (3) of the 1936 Act, which is the hardship proviso. If the amount of the redemption money, the lump sum, is very small, there is not likely to be any case for postponement. I think that my hon. Friend will accept that. If the sale includes land which bears tithe at an abnormally high rate and if the lump sum will be a considerable one for the purchaser, I make the promise that special consideration will be given and these words of mine will be on record and can be referred to if need be. I hope that that will set my hon. Friend's main anxiety at rest.

Mr. Mitchison

Before we go any further will the right hon. Gentleman enlighten me on one point? He spoke with feeling about the cost of collecting tithe redemption annuities. Can he tell me whether the cost exceeds or does not exceed the proceeds?

Mr. Brooke

I can certainly tell the hon. and learned Gentleman that the cost is about 16 per cent. of the proceeds, whereas the general cost of collection by the Inland Revenue over its functions as a whole represents only about 1½ per cent. of the amount collected. As I explained, the total staff was over 600. It has now fallen to about 220. If it were possible to speed up the process of redemption it might be possible to reduce this very high percentage cost.

Sir C. Mott-Radclyffe

In view of the assurance given by my right hon. Friend, for which I am grateful, I beg to ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Clause 29.—(SHORT TITLE,

CONSTRUCTION, EXTENT AND REPEAL.)

Amendment made:In page 41. line 20. at end insert:

(6) This Act, in so far as it relates to the Government Annuities Act, 1929, shall extend to the Channel Islands and the Isle of Man, and the Royal Courts of the Channel Islands shall register it accordingly.—[Mr. Barber.]

Fifth Schedule.—(SUGAR, INVERT SUGAR,

ETC. (MISCELLANEOUS PROVISIONS).)

Mr. John Farr (Harborough)

I beg to move, in page 48, line 34, to leave out "sections" and to insert "section".

Mr. Deputy-Speaker

The next Amendment, in page 48, line 34, leave out "and two hundred and seventeen" may be debated with this one.

Mr. Farr

Thank you, Mr. Deputy-Speaker.

The two Amendments, about which I shall speak briefly in view of the lateness of the hour, refer to Section 217 of the Customs and Excise Act, 1952, which, in its condensed form, relates to the relief or allowance of duty on sugar, etc., for use in art or manufacture.

Since the Finance Bill was introduced some months ago, one or two rather large, unexpected and certainly undeserving victims of this measure which was included in the Bill have come to light. My hon. and gallant Friend the Member for Down, South (Captain Orr) has a particular victim in pagura, which is an agricultural product. The pharmaceutical industry and the chemistry industry are one of the principal users of duty-free sugar under Section 217 of the Customs and Excise Act, 1952. Sugar is used by the pharmaceutical industry for the manufacture of goods both for the home and export markets, and I should like my hon. Friend the Financial Secretary, when he replies to tell me, or, possibly, to confirm, that such exports by the pharmaceutical industry will be granted relief under Section 218 of the 1952 Act.

Possibly, however, one of the most important victims of the provisions relating to Section 217 of the Act are some large foundries which use sugar when preparing their bonding materials to make the moulds. One foundry uses about 200 tons of sugar a year. It has export agents in Spain, the United States of America and Italy. It has just exhibited at the May, 1962, Fair in Detroit. It now finds that the cost of the sugar which it uses in preparing the sand cores and moulds which it exports has gone up by over 100 per cent. For example, the cost of sugar used previously was about 30s. 6d. per cwt. and the removal of the repayment of surcharge will increase the price of the sugar by 34s. 10d. per cwt. For caster sugar, which is another type of sugar used in the bonding process, the previous price was 41s. 10d. per cwt. but the new price is 70s. 9d. per cwt.

I should like to know whether my right hon. and learned Friend the Chancellor of the Exchequer really meant that firms playing such an important part in our industry should meet the full effects of Section 217 and whether their exports will qualify for relief under Section 218 of the 1952 Act.

Sir E. Boyle

These Amendments, which have been lucidly explained by my hon. Friend the Member for Harborough (Mr. Farr) would have the effect of restoring to the position as it was before the Budget the exemption from sugar surcharge provided by Section 217 of the Customs and Excise Act, 1952, in respect of sugar used in any art or manufacture, other than the production of food or drink for human consumption". 2.15 a.m.

The point is that the sugar surcharge is not a tax but an addition to the price of sugar on the internal market of the United Kingdom, and if certain users are to be allowed to buy sugar without paying surcharge, the result can only be that other users will have to pay a higher surcharge. Until the provisions in this Budget, the domestic and other consumers of sugar as food were, in effect, subsidising the industrial users.

I do not think that there is justification for this subsidy, of over £500,000 a year, paid by the food users to the industrial users of sugar. That is why my right hon. and learned Friend, after considering the matter carefully, has decided that it would not be right to make the Amendments put forward by my hon. Friend. However, I can assure my hon. Friend on the export aspect, that provision exists for the repayment of the surcharge on the amount of sugar shown to have been used in the manufacture of exported goods. This applies even though the sugar is no longer present as sugar in exported goods, as in the case of lactic acid, but it does not apply where sugar is not actually used in the manufacture of exported goods, as in the case of metal castings. That is a fair distinction.

We have looked at this matter again, but it would not be right to alter the provisions in the Budget. We would simply have the situation in which the domestic consumer was subsidising the industrial user. Although I understand the problems raised by my hon. Friend, on balance it would be right to leave the Clause as we left it at earlier stages.

Mr. Farr

I am not satisfied with the reply, but, in the hope that perhaps on another occasion I may be able to raise this matter again with my hon. Friend, I beg to ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Eighth Schedule,—(PURCHASE TAX

(AMENDMENTS OF LIST OF CHARGEABLE GOODS).)

Mr. John Eden (Bournemouth, West)

I beg to move, in page 51, line 27, at end to insert: (4) Any article made up in the premises of a hotel or restaurant and served as part of a meal in such premises.

Mr. Deputy-Speaker (Sir Robert Grimston)

The House may discuss, at the same time, the other Amendment in the name of the hon. Gentleman, in page 51, line 48, at the end to insert: Any product made up in the premises of a hotel or restaurant and served as part of a meal in such premises.

Mr. Eden

The purpose of the Amendment is twofold—,to try to get some clarification and some simplification in the application of this new Purchase Tax requirement. Possibly it would be simplest were I to refer to Notice No. 78C, published by H. M. Customs and Excise, referring to the Budget Statement imposing Purchase Tax on confectionery, beverages and ice cream.

The first Amendment deals with Group 34, which covers items of confectionery. Any hon. Member who has studied the list, which is in two columns, one specifying those items which are chargeable at 15 per cent. and the other specifying the items which are not chargeable, will have noticed that it is extremely complicated and that it is difficult for the average person—and in this context I am well below average—to determine exactly what is to come within the scope of the new tax. For example, there is an item in this Notice which refers to "Collections of petit fours sold as such", which are thereby exempt. I am asking my hon. Friend to tell me whether petit fours served as part of a meal in an hotel or restaurant are exempt from Purchase Tax.

The more important Amendment is that in page 51, line 48. This deals with ice cream. Ice cream and water ices are not just simple commodities, as one might be led to expect. Consider water ice. It is made by a very delicate process and is sometimes flavoured with fresh fruit juice. This fresh fruit juice is liable to Purchase Tax. Water ice can also be made with fruit purse, which is exempt from tax, yet water ice itself is specified as being chargeable at 15 per cent. tax.

But more important even than water ice is ice cream itself. As I am sure hon. Members know, in high-class establishments ice cream is not made up of ready-made mixes or of ice cream powders, all of which are within the scope of this tax, but is made from fresh ingredients such as fresh cream, pure sugar, and fresh eggs. If ice cream is made up in that way and is sold on the premises as part of a meal, is it to be subject to 15 per cent. tax?

This is further complicated by the reference, in the examples in Group 36 to which I have referred, to frozen cakes not being chargeable, yet articles consisting of fruit, nuts, cake, and so on, covered with ice cream, are chargeable. It is extremely difficult for the layman, and indeed for the expert caterer, to differentiate between these two. For example, ice cream used in frozen cakes frequently includes nuts and cherries. I admit that this is a small item, but is this to be included in the tax, or exempted from it?

Again, ice cream is used in various forms. It is served as a frozen dessert as part of a meal, but frozen desserts are listed as exempt, yet ice cream used in other articles is apparently chargeable. How is a soufflé surpriseto be charged and listed? A soufflé surpriseis something very special indeed. It is a hot souffle with a special ice cream inside it. Is this to be chargeable, or exempt?

I give those examples to the House so that hon. Members can see that this is a complicated matter. It will become even more complicated if we place this considerable burden on the administrative staff of catering establishments. Consider a hotel which employs anything from 45 to 120 cooks. Who is to be responsible for seeing what articles go into (these made-up dishes, part of which consist of ice cream? These cooks work under extremely great pressure, at tremendous speed, and we are asking that someone should supervise what they are using, noting each small item of ingredient and seeing whether there is an ice cream covering with fruit and nuts—and whether it shall be charged and listed—or whether it is part of a frozen cake and is not a covering—and shall be exempt.

I hope that the Financial Secretary will take the opportunity to clarify this point and to give some relief on the administrative side to what is already an over-pressed industry. He may say that all these requirements apply only to those establishments which produce these chargeable goods in excess of £500 a year. If so, could he give some clarification of paragraph 3 of Notice No. 78c by the Commissioners of Customs and Excise? That paragraph contains the sentence: Every manufacturer of goods becoming chargeable with tax must be registered with the Customs and Excise unless he can satisfy the Department that his sales of all goods chargeable with tax do not, on the average exceed £500 a year. Do the words "sales of all goods chargeable" apply to all the goods, be they confectionery, beverages or ice cream, or do they apply separately in each group? If they do, then this is an even smaller point than I thought it was at the beginning. But if they do not, there is a real case to be answered. I know that a number of people, including those in the most important establishments in the hotel and catering industry, view this requirement with great dismay because it will add a heavy administrative burden. They beg for some relief from this burden.

Sir E. Boyle

I am not going to pretend that there will be no administrative difficulties in hotels arising out of this proposal. Listening to my hon. Friend the Member for Bournemouth, West (Mr. Eden) I could not help being reminded of that phrase: The lady doth protest too much, methinks. However, I do not think that it will be quite as difficult as my hon. Friend suggests.

The first Amendment—the impact of the new statutory tax on chocolates, sweets and confectionery—is, I agree, the easier of the two Amendments with which to deal. The effect of the Government's proposals is that things like meringues, pastries, eclairs and similar articles of confectionery likely to be made by a hotel chef will come outside the scope of the tax. The charge does not extend to bakers' and pastrycooks' confectionery. That is not the same thing as chocolate couverture.

I agree that ice cream is slightly more difficult, but I can state this doctrine to the House. The Customs does not regard the charge on ice cream and similar frozen products as extending to sundaes and other articles made up with an ice cream base. I think that that would apply to an omelette soufflé surprise.The taxable article in such compositions is simply the ice cream; and ice cream itself is the only important taxable article which hotel and restaurant kitchens are likely to be producing. The great majority of hotels and restaurants buy their ice cream ready made, at a tax inclusive price.

Listening to the remarks of the hon. Member for Bournemouth, West I thought that he must be living in an optimistic world. He spoke of gallons of fresh cream, fresh eggs and similar articles used in these commodities. That may be the practice of hotels in Bournemouth, but it is certainly not my experience of the universal activities of restaurants and hotels. The great majority surely buy their ice cream ready-made.

Mr. Eden

I emphasised that I was referring to high-class establishments.

2.30 a.m.

Sir E. Boyle

I realise that, of course. I was trying to produce a realistic assessment of how the Clause will work out in practice from the point of view of the general run of hotels.

For those who buy their ice cream ready-made at a tax-inclusive price no further liability to tax will arise. The same cannot be the case where they make their own ice cream if they do so from what are called complete ice cream mixes or dairy ice cream mixes which are being valued for tax purposes as though they were finished ice cream. I am not an expert on finished ice cream or dairy ice cream, and do not feel any the worse for that. The important point is that it is only the hotel or restaurant which makes its own ice cream from the separate ingredients, or from what is known in the trade as an incomplete mix, and has sales of ice cream which exceed £500 a year that will become liable to registration and payment of tax.

I appreciate that there will be difficulty. My hon. Friend is on a fair point about supervision when it comes to registration. I recognise that in some cases there will be a certain amount of discussion with the Customs and Excise about this. But surely a registered hotel or restaurant, like any other registered trader, will have to keep adequate records, for example, of the total gallonage of ice cream that it produces when it produces its own ice cream from the separate ingredients. There is no reason why this should be too difficult a requirement. The bases of valuation are available, and they will apply whether in a particular case the ice cream is for sale to the public, or whether it goes to some rather more elaborate kind of concoction such as that to which my hon. Friend referred.

My hon. Friend's Amendment would produce a rather difficult problem of its own. There will be, as I admit, some administrative problems arising out of the Bill. None the less, I think that the Amendment would produce difficult problems of its own which are very well illustrated by an actual case which has arisen since the Finance Bill was published. This concerns a restaurant occupying premises which are large enough to be available for dances, receptions and similar functions. The proprietors of the restaurant also own a tea room and a cake shop. They make their own ice cream mainly for service with restaurant meals but they also supply it when required for catering at dances and they sell a certain amount through the tea room and cake shop and provide a nearby hotel with supplies for its dining room.

If the House accepted the Amendment, the latter supplies would be tax free. Supplies in the cake shop would be taxable. But it is a rather nice point whether a banana split and a cup of tea in a tea room can be said to constitute a meal in a restaurant or not. The supplies for dancing and receptions would raise rather difficult borderline issues.

Mr. Jay

Is not all this nonsense a conclusive reason against having the tax at all?

Sir E. Boyle

On the contrary, it is a conclusive reason for something quite different. The arguments I have advanced are conclusive reasons for not exempting a class of goods simply because of their use in a particular case. That is always a difficult thing in Purchase Tax, anyway. This is a conclusive argument against the proposals in the Amendment.

While I entirely understand my hon. Friend's anxieties, I could not advise the House to accept the Amendment. I know that, in practice, it is the wish of everyone in the Customs and Excise and everyone else that there shall be as few administrative difficulties as possible. However, the House having decided to embark on this extension of our indirect tax system, I do not think it would be practicable to make the sort of Amendment which my hon. Friend has proposed.

Mr. Mitchison

The reasons given are as clear as mud even though they relate only to the ice cream. All I can say is that if one wanted any reassurance that this absurd tax designed to save the country in a financial crisis was utterly absurd, and the more so because it is the Government's last resort, we have had it in the two speeches to which we have just listened.

Mr. Eden

In asking leave to withdraw the Amendment I have moved, I feel a little more hesitation about the second one. I hope that in the application of this requirement some instruction will go from the Treasury to the Customs and Excise to operate it with extreme caution and care so as not to over-burden the administrative arrangements of the larger hotels and catering establishments.

With that assurance which I am sure my hon. Friend will give, I beg to ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Ninth Schedule. — (MISCELLANEOUS RULES APPLICABLE TO CASE VII OF SCHEDULE D.)

Mr. Barber

I beg to move, in page 64, line 20, to leave out from "in" to "which" in line 21 and to insert: respect of maintenance expenditure incurred by any person—

  1. (a) in computing the gain accruing to that person from the acquisition and disposal either—
    1. (i) for the purposes of the profits tax (if any) chargeable on the disposal; or
    2. (ii) for the purposes of sub-paragraph (3) of paragraph 7 of this Schedule; or
  2. (b) in computing for any purpose of this Schedule the amount which would secure that on that person's disposal of the land neither a gain nor a loss accrued to him;
and maintenance expenditure incurred by the person chargeable which falls to be taken into account for other purposes of Case VII shall not be taken into account under section one hundred and one or paragraph (g) of subsection (1) of section one hundred and seventy-six of the Income Tax Act, 1952 but where it has been taken into account under either of those enactments, any necessary adjustment of that person's liability to tax may be made by means of an additional assessment or otherwise and for that purpose the amount of any tax repaid by reason of its having been taken into account may be charged on him under Case VI of Schedule D and recovered accordingly. In this sub-paragraph references to maintenance expenditure incurred by any person are references to any expenditure so incurred". This Amendment arises out of a point which was brought to our attention by my hon. Friend the Member for Crosby (Mr. Graham Page) when we considered the Ninth Schedule in Committee. This Amendment fulfils an undertaking which I then gave to the Committee. It provides for the deduction, in computing a gain on disposal of land chargeable under Case VII, of expenditure which can be taken into account in a claim for relief from tax under Schedule A in respect of maintenance and so on of the property, and as a corollary, for the exclusion of such expenditure from a maintenance claim and withdrawal of any maintenance relief already given in respect of it. The rule runs only for Income Tax and not Profits Tax. It does not run in relation to Income Tax for certain special cases.

I think that I can best explain what it is intended to do in the following way. As it stands paragraph 15 (3) of the Ninth Schedule to the Bill, which it is sought to amend, denies the deduction, in computing a gain chargeable under Case VII on acquisition and disposal of land, of any expenditure incurred on the property which could—and this is the operative word—be taken into account in a maintenance claim.

When this matter was discussed in Committee my hon. Friend the Member for Crosby moved an Amendment which was designed to permit the deduction of such expenditure for which a Case VII taxpayer had not, in fact, had maintenance relief, and in replying to my hon. Friend I pointed out that the rule in the Bill might be too harsh but that the Amendment could have the result that the tax relief would be given twice over for the same expenditure, and this, of course, was something which neither my hon. Friend nor I wished to see happen.

I explained how it would happen under the Amendment that double relief might be given, because on the sale of a house, for example, the vendor might obtain relief on relevant expenditure against his Case VII liability and the purchaser might nevertheless bring it into the maintenance claim. But I agreed that the rule in the Bill might be too harsh, first, because, though the purchaser might be relieved of the seller's expenditure, the rule would charge the seller on more than his actual profit, and, secondly, because, as was pointed out by my hon. Friend, the maintenance relief could only be given up to the amount of the Schedule A assessment or the Schedule A assessment plus an excess rents assessment under Schedule D, and in the course of a short-term transaction buying and selling the taxpayer might spend more than this amount on repairs.

The effect of the Amendment is to confine the denial of a Case VII deduction for maintenance expenditure to the computation of a gain for the purpose of Profits Tax and to certain special cases for Income Tax as well as Profits Tax. In the ordinary way this leaves the general rule of the Bill to operate whereby a gain for the purpose of Case VII is to be computed as if the acquisition and disposal of the asset in question had been an adventure in the nature of trade.

I am sure that the House agrees that this is a reasonable Amendment and is grateful to my hon. Friend for having drawn attention to the point. I commend the Amendment to the Committee.

Mr. Graham Page

I am grateful to my hon. Friend not only for tabling the Amendment, but for his explanation of it. When it was put on the Notice Paper I studied it. My usual practice, in order to understand an Amendment of this sort, is to purge the paragraph of parentheses, to read the first few words with the last few words and to hope that they mean what the Clause means. I was quite unable to do that in this case. I am a very trustful sort of fellow, and I will trust my hon. Friend's explanation. Certainly, the explanation which he gave is exactly what I wanted, and, therefore, I hope that the Clause does what he explained that it does.

Mr. Callaghan

Another possibility which I have found useful on occasions is to insert "not" and to see whether it makes any more sense.

Amendment agreed to.

The Attorney-General

I beg to move, in page 66, line 2, to leave out "of twelve months following the gift" and to insert: ending with the year of assessment following that in which the gift is made". It would be convenient to discuss at the same time the following Amendment.

Both Amendments do the same thing —alter the period within which an election can be made from the twelvemonth period, following a gift in the one case and in relation to assets appropriated to stock in trade in the other case, to the period ending with the year of assessment following that in which the gift or stock in trade is dealt with. The reason is that the time limit was meant to give the taxpayers concerned reasonable time to decide what they wanted to do when dealing with the settlement of Case VII liabilities, but in fact, the periods are too short, and the most convenient time from both the Revenue point of view and the taxpayer's point of view is for the election to accompany the Income Tax return covering the period in which the relevant event has happened.

The return will normally be made early in the year of assessment following the event, and this can be more than 12 months after the event if it takes place early in the Income Tax year. For instance, in the ease of a gift on 10th April, 1963, the relevant return in the ordinary course of events would be made a month or so after 10th April, 1964.

2.45 a.m.

The Amendment accordingly extends the time limit for those two types of election to the period ending with the year of assessment following that in which the relevant event happened. The first Amendment deals with the election relating to gifts and the second relates to assets appropriated to stock in trade.

Amendment agreed to.

Further Amendment made:In page 66, line 8, leave out "of twelve months following" and insert: ending with the year of assessment following that in which is made".—[The Attorney-General.]

Eleventh Schedule.․(REPEALS.)

The Attorney-General

I beg to move, in page 71, line 8, column 3, to leave out "Section fifteen".

This Amendment is to correct a mistake in the Appeals Schedule. It repeals Section 15 of the Finance Act, 1959. This is not intended and not wanted.

Amendment agreed to.

PART VI
Government annuity repeals
Session and Chapter Short Title Extent of Repeal
15 & 16 Geo. 5. c. 20. The Law of Property Act, 1925. In section one hundred and ninety-one, subsection (1) from the words "Where the rent" onwards, and in subsection (4) the words "or the Government annuity".
19 & 20 Geo 5. c 27. The Savings Banks Act, 1926. The whole Act, so far as unrepealed
19 & 20 Geo. 5. c. 29. The Government Annuities Act, 1929. Sections one to seven. In section eight, in subsection (1), the words "and all annuities for years, whether immediate or deferred".
In section nine, subsection (2) and the proviso to sub-section (3).
Section twelve.
In section thirteen, subsection (2) and in subsection (3). the words "or the Bank of England".
Sections fourteen and sixteen to eighteen.
In section twenty-two, in subsection (1), paragraphs (a) to (c) and in paragraph (d) the words "or the books of the Bank of England".
In section twenty-three, in subsection (3), the words "purchase or".
Section twenty-eight.
Section thirty, as respects accounts for any period after 5th January, 1963.
In section thirty-two, subsection (1).
In section thirty-three, paragraph (f), in paragraph (g) the words "in the books of the Bank of England or "and in paragraph (i) the words" of any stock or annuities or".
Sections thirty-seven to forty.
In section forty-two, subsection (2) and the proviso to subsection (3).
Section fifty-three.
In section fifty-four, in subsection (1), the words "annuities and", subsection (2), in subsection (3) the words "for deferred savings bank annuities and" and the words "and invested in manner provided by this Act," and in subsection (4) the words "annuities and," where first occurring, and the words from "and defrayed" onwards.
In section fifty-eight, paragraph (b) and in paragraph (c) the words "annuity or".
In section sixty-three, in paragraph (h), the words "or any annuity for years".
Section sixty-five, as respects accounts for any period after 5th January, 1963.
In section sixty-seven, subsection (1) from the beginning to the word "same", except the words "All moneys which form part of the Government Annuities Investment Fund", subsections (2) and (3), and in subsection (4) the words "stock and annuities" and paragraph (f) from "distinguishing" onwards.
The First Schedule.

Further Amendments made:In page 73, line 24, column 3, at end insert: except as respects claims made on the basis that section seventeen of this Act shall not apply".—[Mr. Brooke.]

In page 74, line 15, at end insert: and the repeal of paragraph (c) of subsection (2) of section twenty-eight of the Finance Act, 1949, shall have effect subject to the savings contained in the proviso to subsection (1) of section twenty-four of this Act".—[The Attorney-General.]

In page 74, line 34, at end add:

Session and Chapter Short Title Extent of Repeal
23& 24 Geo.5.c.19 The Finance Act, 1933. Section forty-five.
1 Edw 8.& 1 Geo. 6. c. 54. The Finance Act, 1937. Section thirty-three.
2 & 3 Geo 6.c.117. The National Loans Act,1939. In the Second Schedule, in paragraph 5, sub-paragraph (c) and the words from "and such securities" on-Words.
11& 12 Geo.6.c.39. The Industrial Assurance and Friendly Societies Act, 1948. In section six, subsection (3).
2 & 3 Eliz.2.c.44. The Finance Act, 1954. In the Fifth Schedule, paragraph 2.
4 & 5 Eliz.2.c.6. The Miscellaneous Financial Provisions Act, 1955. In section five, subsection (13).
9 & 10 Eliz.2.c.15. The Post Office Act, 1961. In section nineteen, subsection (7) from "and any "onwards.
The above repeals, so far as they relate to the grant of immediate life annuities and matters connected therewith, shall not have effect in relation to any such annuity of which the purchase is completed (within the meaning of the First Schedule to the Government Annuities Act, 1929) on or before the last day of August, nineteen hundred and sixty-two.—[Mr. Barber.]

Bill recommitted to a Committee of the whole House in respect of the Amendment to Schedule 9, page 62, line 15, standing on the Notice Paper in the name of the Chancellor of the Exchequer.—[Sir E. Boyle.]

Bill immediately considered in Committee.

[Sir ROBERT GRIMSTON in the Chair]

Ninth Schedule.—(MISCELLANEOUS RULES APPLICABLE TO CASE VIII OF SCHEDULE D.)

Sir E. Boyle

I beg to move, in page 62, line 15, at the end to insert: 13.—(1) Where under any arrangement between a company and the persons holding shares in or debentures of the company or any class of such shares or debentures, being an arrangement entered into for the purposes of or in connection with a scheme of reconstruction or amalgamation, another company issues shares or debentures to those persons in respect of and in proportion to (or as nearly as may be in proportion to) their holdings of the first-mentioned shares or debentures, but the first-mentioned shares or debentures are either retained by those persons or cancelled, then those persons shall be treated as exchanging the first-mentioned shares or debentures for those held by them in consequence of the arrangement (any shares or debentures retained being for this purpose regarded as if they had been cancelled and replaced by a new issue): Provided that sub-paragraph (2) of paragraph 12 above shall not apply. (2) Where any scheme of reconstruction or amalgamation involves the transfer of the whole or part of a company's business to another company, and the first-mentioned company receives no part of the consideration for the transfer (otherwise than by the other company taking over the whole or part of the liabilities of the business), then the first-mentioned company shall not be chargeable under Case VII by reference to the transfer in respect of its acquisition and disposal of any assets included in the transfer. (3) In this paragraph "scheme of reconstruction or amalgamation" means a scheme for the reconstruction of any company or companies or the amalgamation of any two or more companies, and references to shares or debentures being retained include their being retained with altered rights or in an altered form, whether as the result of reduction. consolidation, division or otherwise. It will be remembered that this is the Amendment which we were about to discuss at the earlier recommittal stage last night when the hon. Member for Gloucester (Mr. Diamond) put us all in his debt by discovering a printing error. I am sure that the Committee will be pleased to see the word "shares" twice appearing after the words "first-mentioned" in line 6. I have made inquiries since that time. The text was delivered perfectly correctly to the printers. I think that, strictly speaking, the supervision of the text is a matter for the House authorities, but, quite clearly, we in the Treasury should also have scrutinised the Notice Paper to see that it was correct and I should like once again and finally to apologise that that was not done.

This is a succulent dish to put before hon. Members as a final course on the Bill. In view of the lateness of the hour I might say that the Amendment looks long, but it adds a new paragraph to the Schedule containing provisions necessary to deal with certain types of schemes for the reconstruction or amalgamation of companies. It arises out of a point raised by my hon. Friend the Member for Walsall, South (Sir H. d'Avigdor-Goldsmid) at an earlier stage of the Bill. But the problem went rather wider than the type of case which my hon. Friend mentioned on that occasion.

I should be perfectly ready to explain in greater detail the provisions of the Amendment. Frankly, it is not easy to do so shortly. I should either make a long speech to the Committee or just move the Amendment, as I do now and then endeavour to answer any questions which hon. Members may wish to put to me.

Mr. Diamond

At all events, I must say how grateful I am to the Financial Secretary for the trouble he has taken and to the officials of the House for the convenience with which they have turned us back into Committee to enable this matter to be discharged. The last thing I would wish to do would be to hold up the Committee, though I do not know whether it would be for the convenience of the Standing Committee which is sitting elsewhere if we carried on with our consideration, because there may be some relationship between the deliberations of that Committee and of this Committee of the whole House.

I am still unable to understand this Amendment, try as hard as I have done. I do not understand, in particular, the words which refer to shares or debentures which are either retained or cancelled. Any Amendment which has the same effect whether it retains or cancels shares does not seem at first sight absolutely pellucidly clear. Although I should hate to detain the Committee at this time, I could not say that I know what it is all about.

Mr. Callaghan

I think the Financial Secretary is bludgeoning us in an intolerable way. He is saying, "Either you take this on trust, or I make a long speech". Why the Committee should be subject to that sort of thing from this Government at this time of night I fail to understand and I resent very much the spirit in which he has approached this matter. Faced with this awful dilemma of listening to a long speech or taking it on trust, I think that, on balance, we had better take it on trust.

Amendment agreed to.

Schedule, as amended, agreed to.

Bill reported, with an Amendment, as amended (on recommittal), considered to be read the Third time this day and to be printed.[Bill 128.] ADJOURNMENT Resolved,That this House do now adjourn.—[Mr. Whitelaw]

Adjourned accordingly at eight minutes to Three o'clock, a.m.