§ Mr. Frederick Mulley (Sheffield, Park)
I beg to move, in page 22, line 6, at the end, to insert:(3) Where gains accruing to trustees of a settlement are assessed and charged on them under Case VII, the tax chargeable shall be treated by the trustees as a proper expense to he set against the capital of the trust estate notwithstanding any contrary direction in the instrument creating the trust.This Amendment is in a sense consequential upon the decision to impose a short-terms gains tax and is not concerned with the merits of the tax. I desire to get clarification of the position of trustees under the new tax and, in particular. of trustees of the ordinary type of settlement which is usually to be found in family arrangements.
I do not suggest that there should be any exemption because money is put upon trust as distinct from all other categories. That point has been exhaustively discussed and, quite properly, it has been decided that it would be wrong to make an exemption for trusts of this character. Had such an exemption been made, it would be a fruitful loophole for evaders.
The point I wish to stress is the responsibility of the trustees and, in particular, whether the tax should be charged against the corpus or capital of the trust fund, or whether it should be borne by the life tenant out of income. The Bill makes it clear—it is set out concisely in the White Paper—that the tax will be due from the trustees and not from the beneficiaries of the trust. I assume from that, although doubt has been expressed in view of the Chief Secretary's remarks on Second Reading that the trustees would be personally liable, that the trustees are liable only in the sense that it is they who must pay the tax. Obviously, they must recoup themselves from the trust fund.
463 Since the tax arises as a result of short-term capital gains, it would be wholly wrong if it were set against the income of the fund. To give an example of the simplest kind of settlement of this kind, in which money is left to a widow for life and the remainder to children, it would obviously be wrong if the trustees engaged in substantial speculation and the widow's income was reduced to pay the tax, whereas, of course, the additional capital would accrue to the benefit of the remainder-men.
I am sure that, although this tax is so expressed to be an income tax, it would be wrong if the life tenant had to bear the burden of it. In some cases it could happen that the income for the year could be largely obliterated by the incidence of an exceptional tax of this kind. It might be said that trustees of this kind of settlement should not speculate, and I could not agree more. But, as has already been pointed out in the discussion of earlier Amendments, there will be cases where a disposal for the purposes of this tax is forced upon the trustees, possibly by the take-over of shares that have been recently acquired for cash, when there is no alternative but to have a technical disposal for purposes of this tax. There may well be cases where trustees who have no desire to speculate may find themselves technically subject to this tax.
I therefore suggest that unless this point is already taken care of, there should be provision, while we are dealing with the tax, to guide trustees as to whether or not this should be set against the income or the corpus of the trust fund. As I understand the position, unless there is specific provision in the instrument creating the trust, since this is an income tax—it is, after all, Case VII of Schedule D and comes under the Income Tax Acts—the trustees would have no alternative but to charge it against the income of the life tenant.
It could well be in future, when these instruments are drafted, that this point will be taken into consideration and there will be a special direction in trust deeds guiding the trustees on the possibility of this matter arising. Clearly, that cannot be expected to be 464 found in deeds which had been drafted when there was no tax of this kind. It may be that if I were to draft my Amendment today I would insert a date at the end of the words because I would not wish to fetter settlors or testators in the future.
It seems to me that we ought to get the position of trustees clear as to their responsibilities and powers as a result of this new class of tax which may from time to time concern their investments because, as the Committee knows, it is now not only a general conveyancing practice to give very wide powers of investment in trust deeds of this sort; in fact, in recent years there is provision in most cases for equity investment as a result of the Trustee Investment Act. This was not the case when the Trustee Act was passed, and I understand that before the war deeds giving trustees wide power of investment were rather exceptional. But today it is the practice, and I would think that we should not leave Case VII without giving this guidance to trustees.
§ Mr. Wade
I am glad the hon. Member for Sheffield, Park (Mr. Mulley) has moved this Amendment to give the Attorney-General an opportunity of clearing up the position. I think that there is some doubt in the minds of trustees—that is to say, those trustees who have read the Bill.
It seems to me that there are three questions which require an answer. First, are trustees personally liable? If they are, I presume they will be entitled to recoup themselves from the fund. Secondly, as this is a form of income tax, is it to be payable out of income or out of capital? That is a point which I believe the hon. Gentleman has already raised. Thirdly, if it is necessary to make some Amendment as is proposed, will the word "settlement" be adequate? Will "settlement" cover trusts created by a will—for example, the trust for sale with power to vary investments from time to time during the continuance of the trust for sale? If there is to be an Amendment, I hope that it will be wide enough to cover that point.
§ 4.45 p.m.
§ Mr. Mulley
I would not want to anticipate the views of the Attorney-General, but if the hon. Member for Huddersfield, West (Mr. Wade) looks at 465 the Settled Land Act and the Trustee Act he will find that he need have no anxiety on the point.
§ Mr. Mitchison
I should like to add a word on the second question raised by the hon. Member for Huddersfield, West (Mr. Wade), which I regard as the primary and perhaps the only question raised by this Amendment.
I see the difficulty here. It may be said that this is income, that these are short-term gains and that they are being treated for taxation purposes as income. None the less, they come out of dealings with the capital, and I should have thought that it was right as between the life tenant and the remainderman that they should be charged to capital account. When considering that question we are not considering any more than the nature of the tax itself. We are not really considering the administrative machinery under which it is taxed. It seems to me, looking at the matter as fairly as one can, that it is therefore right that these gains should be charged to capital and that the life tenant should not be made to pay them.
I also agree with what my hon. Friend the Member for Sheffield, Park (Mr. Mulley) said at the end of his speech, that the Amendment as it stands is not quite satisfactory because one does not really wish to limit future settlements. What one wishes to do is to prevent provisions which were put in without contemplation of this rather exceptional tax being applied in a manner which might not and, indeed, cannot be in accordance with the settlor's intentions because it is extremely unlikely that he foresaw what the Goverment were going to do.
For those reasons, I think that this is the right thing to do as between the two interests in the settlement.
§ The Attorney-General (Sir Reginald Manningham-Buller)
I am glad to be able to agree with the hon. Member for Sheffield, Park (Mr. Mulley) that the concluding words of the Amendment are 466 not really very happy because they would certainly fetter the discretion of those who create trusts in the future as to how provision should be made for this tax. I myself do not think there is the least doubt about the position of trustees in relation to this matter, or any reason for concern.
Under Clause 9 (3), the net amount on which tax is charged for a year of assessment is deemed for Income Tax purposes to be income of the persons chargeable, and in this case it would be the trustees. But this is, I repeat, for Income Tax purposes. It does not completely alter the character of the receipt. The capital gain will not become an income receipt which will go to the life tenant. The provisions of this Bill do not operate to affect that. So it is right to say that this provision does not operate to make the net gain income for any other purpose.
In the ordinary course it would seem that trustees would have to find the tax out of the capital of the trust, since the gain less tax would go to increase the capital. I think that there is no real doubt about that at all, and I would be reluctant to put into the Bill anything to fetter the discretion of trustees as to how provision is made in relation to payment of this tax. But, in view of the nature of the gain, being a capital gain for all other purposes except the purposes of tax liability, I would not think that there is any power, apart from the provisions of the trust deed, for them to make any deduction at all from the income to the life tenant.
I completely disagree with the statement which the hon. Member for Sheffield, Park made in moving his Amendment, saying that as the Clause now stands they would have no alternative but to charge the tax against the income of the beneficiaries. That is really not the case. I can understand how, on a first reading of the Bill, that impression might be gained, and I am grateful to the hon. Member for giving me the opportunity of making it as clear as I can that certainly the provisions of this part of the Bill do not operate to cast the duty on trustees of discharging this tax liability out of income payable to the beneficiaries.
In answer to the hon. Member for Huddersfield, West (Mr. Wade), trustees 467 are personally liable. I have dealt with the second question, and the third question does not, therefore, arise.
§ Mr. F. J. Bellenger (Bassetlaw)
Some confusion does arise, although the Attorney-General has attempted to allay it by his dictum, because the tax is charged under Case VII of Income Tax. Yet the Attorney-General said that trustees, although personally liable, will have to pay that tax not out of the income derived from the trust, but out of capital. Of course, if that is the case, that ends the matter so far as the Amendment is concerned, I should have thought. Indeed, the Attorney-General has said so clearly, that this comes out of the capital of the trust.
I intervene only because I happen to be a trustee myself, a trustee of two trusts, one a trade union trust of which the trustees will probably—I hope so—find that this matter will arise, because it happens that we recently invested some of our funds in a unit trust. Obviously, the purpose of that is to make sure that our capital does not depreciate too far, so that the beneficiaries can enjoy, as they hope to enjoy, the full benefits of the trust as it was originally set up.
Of course it does sometimes occur that the courts take different views from those expressed in statements made in this Chamber, even by the learned Attorney-General. We must hope that the views which the Attorney-General has stated in dealing with my hon. Friend's Amendment will meet the point
§ Mr. Graham Page (Crosby)
I am sure that none of us would worry if my right hon. and learned Friend the Attorney-General were translated to another bench on this subject, or were even a Special Commissioner; we would rely on the proper interpretation of this Clause as he has interpreted it to us in the Committee.
But everyone does not read the reports of the debates of the Committee; the trustee who is in charge of a trust fund. when he makes a gain on a disposal of some of the trust fund, will read this Bill when it is a Statute, and the whole of these Clauses, from Clause 9 to Clause 15, deal with income and treat this gain entirely as charge- 468 able to Schedule D Income Tax. I am sure that there will be confusion in the minds of the public on this, and I am not sure that that confusion will not go into the legal profession and thence to the bench.
I really cannot see what harm would be done in making it clear beyond peradventure in the Measure itself that any tax on a gain of this sort comes out of the gain itself and is therefore chargeable to capital. I would ask my right hon. and learned Friend to see whether he can provide a form of words which will in no way detract from anything else in the Clause but which will make it quite certain from what source this tax is to be paid.
§ Mr. Mulley
I am sure none of us wants to venture to disagree with the legal views of the Attorney-General, but there is, I would suggest, a great deal of force behind the cogent argument of his hon. Friend the Member for Crosby (Mr. Graham Page). It is the argument which induced me originally to put down the Amendment. It seems to me that in a complicated matter of this sort the trustees, who, after all, for the most part, are taking on an onerous duty quite voluntarily, should be given clarity when it is possible, instead of obscurity.
Like the hon. Member, I would certainly hesitate to suggest the view which a High Court judge might express if this came before him, but I can certainly think of many points which, as counsel, one might put in submissions on a matter of this sort, and it is certainly the case, as many hon. Members of the Committee have already said, that, in presenting this tax to the Committee and, indeed, to the country, the Chancellor of the Exchequer and other Government spokesmen have always said it was to be a tax on income, or short-term speculative profits by way of income. This tax was designed to start from that, it has been said, and that this view would be before the judge.
As the Attorney-General well knows, and it is to a large extent the point of the Amendment, it is not a question of just the general law: it is a question of a wide variety of clauses in a large number of different settlements and instruments. I have not brought precedents from the books with me, but I can 469 think of several forms containing some such words as, "All tax arising from the investment of the fund shall be borne by the income of the fund"—words of that sort.
I would think that he would be an extremely bold man who would say that if the construction of such a provision in a trust instrument came before the court looking at Clause 9 (3, c) of the Bill it would find beyond any doubt at all that the trustees were entitled to, or were not guilty of a breach of duty if they did not, charge it against capital instead of against income. I think that it may well happen, if we were not clear in this matter, that there will be endless litigation, which will involve expense to trust funds, and I suggest that we should not put this burden on people if a simple Amendment to this Bill could remove the doubt.
I would not be so immodest as to suggest that the form of words I have put forward would be the best way of meeting the point, but if the Attorney-General would concede that there is some need for amplification, and would give an undertaking that on Report he will include words for this purpose, I would not, of course, press my own form of words.
§ The Attorney-General
I have listened to all that has been said. I am sorry I cannot agree with the hon. Member that a competent solicitor studying this Bill would think it completely converted what is a capital receipt in the ordinary sense into an income receipt qua a trust fund. He has only to look at the Bill to see that what it does is to treat a capital receipt as income for Income Tax purposes and Income Tax purposes only. Therefore, while I have listened with the greatest possible attention, I really do not think there is any need for any legislation to remove an alleged doubt which any competent solicitor ought to be able to dispel.
§ Mr. Mitchison
With great respect to the Attorney-General, this is being obstinate to little purpose. Here are one, two, three people, and all have a little experience in these matters. None of us would wish to set ourselves up against him even on what is rather a Chancery matter. We all agree with him to start with on what the Clause means. I said the same thing. But we 470 all feel some doubt about what may happen. All we are asking him to do is to put his own opinion and our opinion into the Bill, instead of uttering it in this Committee and hoping that everybody will read it. There is no need for me to tell him that what he says here is not available in the court dealing with it. Of course it is not
Though the Treaty of Rome may enable us to search into Parliamentary debates to discover the motives which induced the legislature to put this or that into a Bill, at present we cannot do it, and so long as we cannot do it, surely the only sensible thing to do is to accept that—I do not want to rate us too high—three fairly sensible hon. Members have doubt about what people may think and put something into the Bill to meet it.
If the Attorney-General will not do that, I am sorry to say that we shall have to divide the Committee. We know that the Amendment is inadequate at the end. We all agree with the Attorney-General about what the actual state of affairs is. What we should divide on would be his obstinate refusal to do a very small and sensible thing.
§ The Attorney-General
It really is not that. I will try to make the point as clear as I can. The Amendment, as has been admitted, is one which completely fetters the discretion of the creator of the trust.
§ The Attorney-General
While it is perfectly easy to express the view that these payments should and would come out of capital—I do not think there is any doubt about that—I am very reluctant to agree to put any statutory provision into the Bill which would prevent trustees and beneficiaries making such arrangements as they wished to do in relation to a trust.
It is not all that easy simply to take the declaratory provision which the hon. Members opposite is seeking to do without at the same time fettering the rights of beneficiaries and trusts to make such arrangements as they wish Personally, I do not share the view expressed that there is any real doubt about what the 471 position would be in the absence of any special agreement. I am certainly reluctant to put anything into a Statute which would interfere with the power of the trustees and beneficiaries to make any such special arrangements as might be suitable.
§ Mr. Bellenger
Would the Attorney-General explain the remark that he has just made about fettering the rights of trustees and beneficiaries to treat the charge as a charge against capital or income? Surely that depends on how the trust deed is drawn? If the charge, as it is at the present moment, is an Income Tax charge, the assumption would be, I should have thought, that without any contrary provision in the trust deed it would come out of income.
But if the Attorney-General is right in saying that it is mandatory on the trustees to make this a charge against capital, it seems to me to be almost a non sequitur for the right hon. and learned Gentleman to say that the trustees have some margin to decide whether it should go as a charge against capital or income. After all, the trustees are subject to fairly rigid laws.
1 agree with my hon. and learned Friend the Member for Kettering (Mr. Mitchison). If it is only a question of making this point clear—it is not a question of great substance to the Government—what harm would it do if the right hon. and learned Gentleman made the point as clear in the Act of Parliament as in the words which he has expressed to the Committee?
§ The Attorney-General
I should like to get this point home to the right hon. Member for Bassetlaw (Mr. Bellenger).
§ The Bill does not say that a capital gain will in future, if it falls within Case VII, be income. All it says is that a capital gain is to be treated as income for Income Tax purposes alone. So it does not start by being an income receipt. It starts as a capital receipt, and it is because it is to be treated as a capital receipt that we are making this specific change in this narrow field. This being so, the fact that it is a capital receipt remains unaltered by the Bill.
§ I am always willing to seek to make the Statutes as clear as I can, but there may be cases where there are a few beneficiaries and they are all of age, and then, personally, I do not think it would be desirable to put any Amendment into the Statute which would fetter their discretion as to how they should discharge this tax liability. It is a personal liability on the part of the trustee. As I said initially, it being a liability to pay tax on what remains in all other respects a capital gain, that tax one would expect to come, and it would have to come in the absence of a special arrangement, out of the capital fund. It might suit some trustees if the liability to tax which rests on the trustee were at one time discharged out of income. If the beneficiaries were all of age, they might be able to agree to that course being taken.
§ I am a little reluctant to accede to the request of the hon. Gentleman to put into a Statute something which, although declaratory in one sense, might also be mandatory in another.
§ Question put, That those words be there inserted:—
§ The Committee divided: Ayes 175, Noes 235.473
|Division No 198.]||AYES||[5.6 p.m.|
|Ainsley, William||Brown, Rt. Hon. George (Belper)||Edwards, Rt. Hon. Ness (Caerphilly)|
|Allaun, Frank (Salford, E.)||Butler, Herbert (Hackney, C.)||Edwards, Robert (Bilston)|
|Allen, Scholefield (Crewe)||Butler, Mrs. Joyce (Wood Green)||Edwards, Walter (Stepney)|
|Bacon, Miss Alice||Callagnan, James||Evans, Albert|
|Baxter, William (Stirlingshire, W.)||Castle, Mrs. Barbara||Finch, Harold|
|Beaney, Alan||Chapman, Donald||Foot, Michael (Ebbw Vale)|
|Bellenger, Rt. Hon. F. J.||Cliffe, Michael||Forman, J. C.|
|Bence, Cyril||Collick, Percy||Fraser, Thomas (Hamilton)|
|Bennett, J. (Glasgow, Bridgeton)||Corbet, Mrs. Freda||Gaitskell, Rt. Hon. Hugh|
|Benson, Sir George||Craddock, George (Bradford, S.)||Galpern, Sir Myer|
|Blyton, William||Cullen, Mrs. Alice||George, LadyMeganLloyd (Crmrthn)|
|Boardman, H.||Darling, George||Ginsburg, David|
|Bottomley, Rt. Hon. A. G.||Davies, Harold (Leek)||Gourlay, Harry|
|Bowden, Rt. Hn. H. W. (Leics. S.W.)||Davies, Ifor (Gower)||Greenwood, Anthony|
|Boyden, James||Delargy, Hugh||Grey, Charles|
|Braddock, Mrs. E. M.||Diamond, John||Grimond, Rt. Hon. J.|
|Brockway, A. Fenner||Dodds, Norman||Hale, Leslie (Oldham, w.)|
|Broughton, Dr. A. D. D.||Donnelly, Desmond||Hall, Rt. Hn. Glenvil (Colne Valley)|
|Hamilton, William (West Fife)||Mapp, Charles||Silverman, Sydney (Nelson)|
|Hart, Mrs. Judith||Mason, Roy||Skeffington, Arthur|
|Hayman, F. H.||Mayhew, Christopher||Slater, Joseph (Sedgefield)|
|Healey, Denis||Mellish, R. J.||Smith, Ellis (Stoke, S.)|
|Henderson, Rt. Hn. Arthur (RwlyRegis)||Mendelson, J. J.||Snow, Julian|
|Herbison, Miss Margaret||Millan, Bruce||Soskice, Rt. Hon. Sir Frank|
|Holman, Percy||Milne, Edward||Spriggs, Leslie|
|Hooson, H. E.||Mitchison, G. R.||Steele, Thomas|
|Houghton, Douglas||Monslow, Walter||Stewart, Michael (Fulham)|
|Howell, Denis (Small Heath)||Morris, John||Stones, William|
|Hughes, Cledwyn (Anglesey)||Moyle, Arthur||Strachey, Rt. Hon. John|
|Hughes, Emrys (S. Ayrshire)||Mulley, Frederick||Strauss, Rt. Hn. G. R. (Vauxhall)|
|Hughes, Hector (Aberdeen, N.)||Neal, Harold||Stross, Dr. Barnett (Stoke-on-Trent, C.)|
|Hunter, A. E.||Oliver, G. H.||Swingler, Stephen|
|Hynd, H. (Accrington)||Oram, A. E.||Taverne, D.|
|Hynd, John (Atterclifle)||Oswald, Thomas||Thomas, George (Cardiff, W.)|
|Irving, Sydney (Dartford)||Owen, Will||Thompson, Dr. Alan (Dunfermline)|
|Jay, Rt. Hon. Douglas||Padley, W. E.||Thomson, G. M. (Dundee, E.)|
|Jenkins, Roy (Stechford)||Paget, R. T.||Thornton, Ernest|
|Johnson, Carol (Lewisham, S.)||Pannell, Charles (Leeds, W.)||Thorpe, Jeremy|
|Jones, Elwyn (West Ham, S.)||Parkin, B. T.||Tomney, Frank|
|Jones, Jack (Rotherham)||Paton, John||Wade, Donald|
|Jones, J. Idwal (Wrexham)||Pavitt, Laurence||Wainwright, Edwin|
|Jones, T. W. (Merioneth)||Pearson, Arthur (Pontypridd)||Warbey, William|
|Kelley, Richard||Plummer, Sir Leslie||Watkins, Tudor|
|Kenyon, Clifford||Popplewell, Ernest||Weitzman, David|
|Key, Rt. Hon. C. W.||Probert, Arthur||Wells, Percy (Faversham)|
|King, Dr. Horace||Pursey, Cmdr. Harry||White, Mrs. Eirene|
|Lee, Frederick (Newton)||Randall, Harry||Whitlock, William|
|Lewis, Arthur (West Ham, N.)||Rankin, John||Wilkins, W. A.|
|Lipton, Marcus||Redhead, E. C.||Willey, Frederick|
|Loughlin, Charles||Reynolds, G. W.||Williams, Ll. (Abertillery)|
|Mabon, Dr. J. Dickson||Rhodes, H.||Williams, W. R. (Openshaw)|
|MacColl, James||Roberts, Goronwy (Caernarvon)||Willis, E. G. (Edinburgh, E.)|
|MacDermot, Niall||Robertson, John (Paisley)||Wilson, Rt. Hon. Harold (Huyton)|
|Mclnnes, James||Robinson, Kenneth (St. Pancras, N.)||Winterbottom, R. E.|
|McKay, John (Wallsend)||Rodgers, W. T. (Stockton)||Woodburn, Rt. Hon. A.|
|Mackie, John (Enfield, East)||Ross, William||Woof, Robert|
|McLeavy, Frank||Royle, Charles (Salford, West)||Yates, Victor (Ladywood)|
|Mallalieu, E. L. (Brigg)||Shinwell, Rt. Hon. E.|
|Mallalleu, J. P. W. (Huddersfield, E.)||Silverman, Julius (Aston)||TELLERS FOR THE AYES:|
|Mr. Rogers and Mr. Lawson.|
|Agnew, Sir Peter||Chataway, Christopher||Glyn, Sir Richard (Dorset, N.)|
|Aitken, W. T.||Chichester-Clark, R.||Goodhart, Philip|
|Allan, Robert (Paddington, S.)||Clark, Henry (Antrim, N.)||Goodhew, Victor|
|Ashton, Sir Hubert||Clark, William (Nottingham, S.)||Gower, Raymond|
|Atkins, Humphrey||Clarke, Brig Terence (Portsmth, W.)||Grant, Rt. Hon. William|
|Balniel, Lord||Cleaver, Leonard||Grant-Ferris, Wg. Cdr. R.|
|Barber, Anthony||Collard, Richard||Green, Alan|
|Barlow, Sir John||Cooper, A. E.||Grosvenor, Lt.-Col. R. G.|
|Barter, John||Cooper-Key, Sir Neill||Gurden, Harold|
|Beamish, Col. Sir Tufton||Cordeaux, Lt.-Col. J. K.||Hamilton, Michael (Wellingborough)|
|Bell, Ronald||Corfield, F. V.||Harris, Frederic (Croydon, N.W.)|
|Bennett, F. M. (Torquay)||Costain, A. P.||Harris, Reader (Heston)|
|Bennett, Dr. Reginald (Gos & Fhm)||Coulson, Michael||Harrison, Brian (Maldon)|
|Berkeley, Humphry||Courtney, Cdr. Anthony||Harvey, Sir Arthur Vere (Macclesf'
|Bidgood, John C.||Craddock, Sir Beresford||Harvie Anderson, Miss|
|Biffen, John||Crowder, F. P.||Hastings, Stephen|
|Biggs-Davison, John||Cunningham, Knox||Heald, Rt. Hon. Sir Lionel|
|Bingham, R. M.||Dalkeith, Earl of||Hiley, Joseph|
|Birch, Rt. Hon. Nigel||Dance, James||Hill, J. E. B. (S. Norfolk)|
|Bishop, F. P.||d'Avigdor-Goldsmid, Sir Henry||Hinchingbrooke, Viscount|
|Black, Sir Cyril||de Ferranti, Basil||Hirst, Geoffrey|
|Bossom, Clive||Donaldson, Cmdr. C. E. M.||Hobson, Sir John|
|Bourne-Arton, A.||du Cann, Edward||Hocking, Philip N.|
|Box, Donald||Duncan, Sir James||Holland, Philip|
|Boyle, Sir Edward||Eden, John||Hollingworth, John|
|Bromley-Davenport, Lt. -Col. Sir Walter||Elliot, Capt. Walter (Carshalton)||Howard, John (Southampton, Test)|
|Brooke, Rt. Hon. Henry||Elliott, R. W. (Nwcastle-upon-Tyne, N.)||Hughes Hallett, Vice-Admiral John|
|Brooman-White, R.||Emmet, Hon. Mrs. Evelyn||Hughes-Young, Michael|
|Brown, Alan (Tottenham)||Errington, Sir Eric||Hutchison, Michael Clark|
|Browne. Percy (Torrington)||Erroll, Rt. Hon. F. J.||Iremonger, T. L.|
|Buck, Antony||Farey-Jones, F. W.||Irvine, Bryant Godman (Rye)|
|Bullard, Denya||Farr, John||James, David|
|Bullus, Wing Commander Eric||Finlay, Graeme||Jenkins, Robert (Dulwich)|
|Burden, F. A.||Fletcher-Cooke, Charles||Jennings, J. C.|
|Butcher, Sir Herbert||Fraser, Ian (Plymouth, Sutton)||Johnson, Dr. Donald (Carlisle)|
|Campbell, Sir David (Belfast, S.)||Freeth, Denzil||Johnson, Eric (Blackley)|
|Carr, Compton (Barons Court)||Galbraith, Hon. T. G. D.||Jones, Rt. Hn. Aubrey (Hall Green)|
|Carr, Robert (Mitcham)||Gammans, Lady||Kaberry, Sir Donald|
|Cary, Sir Robert||Gilmour, Sir John||Kershaw, Anthony|
|Channon, H. P. G.||Glyn, Dr. Alan (Clapham)||Kimball, Marcus|
|Kirk, Peter||Page, John (Harrow, West)||Stoddart-Scott, Col. Sir Malcolm|
|Leather, E. H. C.||Pannell, Norman (Kirkdale)||Studholme, Sir Henry|
|Leburn, Gilmour||Partridge, E.||Talbot, John E.|
|Legge-Bourke, Sir Harry||Pearson, Frank (Clitheroe)||Tapsell, Peter|
|Litchfield, Capt. John||Peel, John||Taylor, Frank (M'ch'st'r, Moss Side)|
|Lloyd, Rt. Hon. Selwyn (Wirral)||Percival, Ian||Taylor, W. J. (Bradford, N.)|
|Loveys, Walter H.||Peyton, John||Teeling, Sir William|
|Lucas, Sir Jocelyn||Pickthorn, Sir Kenneth||Temple, John M.|
|Lucas-Tooth, Sir Hugh||Pilkington, Sir Richard||Thatcher, Mrs. Margaret|
|MacArthur, Ian||Pitt, Miss Edith||Thomas, Leslie (Canterbury)|
|McLaren, Martin||Prior-Palmer, Brig. Sir Otho||Thomas, Peter (Conway)|
|Maclay, Rt. Hon. John||Profumo, Rt. Hon. John||Thompson, Richard (Croydon, S.)|
|Maclean, SirFitzroy (Bute&N.Ayrs.)||Proudfoot, Wilfred||Thornton-Kemsley, Sir Colin|
|McLean, Neil (Inverness)||Pym, Francis||Tiley, Arthur (Bradford, W.)|
|Macleod, Rt. Hn. Iain (Enfield, W.)||Quennell, Miss J. M.||Tilney, John (Wavertree)|
|Maddan, Martin||Redmayne, Rt. Hon. Martin||Touche, Rt. Hon. Sir Gordon|
|Maginnis, John E.||Rees, Hugh||Turner, Colin|
|Maitland, Sir John||Rees-Davies, W. R.||van Straubenzee, W. R.|
|Manningham-Buller, Rt. Hn. Sir R.||Renton, David||Vaughan-Morgan, Rt. Hon. Sir John|
|Markham, Major Sir Frank||Ridley, Hon. Nicholas||Vickera, Miss Joan|
|Marlowe, Anthony||Ridsdale, Julian||Vosper, Rt. Hon. Dennis|
|Marshall, Douglas||Robertson, Sir D. (C'thn's & S'th'ld)||Wakefield, Sir Wavell|
|Matthews, Gordon (Meriden)||Robinson, Rt. Hn. Sir R. (B'pool, S.)||Walker, Peter|
|Mawby, Ray||Robson Brown, Sir William||Walker-Smith, Rt. Hon. Sir Derek|
|Maxwell-Hyslop, R. J.||Rodgers, John (Sevenoaks)||Ward, Dame Irene|
|Maydon, Lt.-Cmdr. S. L. C.||Roots, William||Watkinson, Rt. Hon. Harold|
|Miscampbeil, Norman||Ropner, Col. Sir Leonard||Wells, John (Maidstone)|
|Montgomery, Fergus||Russell, Ronald||Williams, Dudley (Exeter)|
|More, Jasper (Ludlow)||Scott-Hopkins, James||Williams, Paul (Sunderland, S.)|
|Morgan, William||Sharples, Richard||Wills, Sir Gerald (Bridgwater)|
|Morrison, John||Shepherd, William||Wilson, Geoffrey (Truro)|
|Mott-Radclyffe, Sir Charles||Skeet, T. H. H.||Wise, A. R.|
|Nabarro, Gerald||Smith, Dudley (Br'ntf'd & Chiswick)||Wolrige-Cordon, Patrick|
|Neave, Airey||Smithers, Peter||Wood, Rt. Hon. Richard|
|Nicholson, Sir Godfrey||Spearman, Sir Alexander||Woodhouse, C. M.|
|Nugent, Rt. Hon. Sir Richard||Speir, Rupert||Worsley, Marcus|
|Oakshott, Sir Hendrie||Stevens, Geoffrey||Yates, William (The Wrektn)|
|Orr, Capt. L. P. S.||Steward, Harold (Stockport, S.)|
|Osborne, Sir Cyril (Louth)||Stodart, J. A.||TELLERS FOR THE NOES:|
|Mr. Noble and Mr. Batsford.|
§ 5.15 p.m.
§ The Attorney-General
I beg to move, in page 22, line 19, to leave out "twenty-eight" and to insert "twenty-six".
This is a drafting Amendment. Clause 15 (4) refers to a unit trust scheme… as defined in subsection (1) of section twenty-eight of the Prevention of Fraud (Investments) Act, 1958…The definition in fact appears in subsection (1) of Section 26 of that Act, and this Amendment puts the matter right.
§ Amendment agreed to.
§ Mr. Wade
I beg to move, in page 22, line 36, to leave out "on behalf of" and to insert:as agent and nominee for".It might be helpful if I first of all referred the Committee to the concluding paragraph, headed "Information", of the White Paper on the Taxation of Short-term Gains, which reads as follows:Provisions are included to enable the Revenue to obtain information from agents, etc., about transactions entered into by them on behalf of named persons. Persons who act on behalf of others (such as banks, estate 476 agents, solicitors and stockbrokers) will be under an obligation to state, in reply to Revenue enquiries, whether they have acted on behalf of a named person in acquiring or disposing of a chargeable asset or assets, and to give details, including dates of transactions and prices.The wording of the Clause differs somewhat from the wording in the White Paper. Subsection (5) states:Where it appears to the Commissioners of Inland Revenue that a person is or may be chargeable to tax under Case VII in respect of his acquisition and disposal of assets, they may by notice in writing served on any person require him …Then the subsection deals with the period allowed and goes on:… to furnish information in his possession with respect to the acquisition or disposal, being information as to matters specified in the notice …That seems to me to give very wide powers. It is in the nature of a general inquiry. I do not wish to help those who intend to evade their duty to pay tax as laid down by this Bill or any other legislation, but a principle is involved. We must ask ourselves to what extent we should go in interfering with the confidential relationship between bankers, solicitors, accountants and their clients. We should look with 477 some care at any legislation which will destroy that confidential relationship, because in the end it will ultimately not be to the benefit of the Inland Revenue itself.
§ The Attorney-General
On a point of order. This is a very narrow Amendment, seeking that the words "on behalf of" in line 36 should be taken out of the Bill and the words "as agent and nominee for" inserted. There is nothing in relation to that Amendment dealing with paragraph (b), to which the hon. Gentleman has referred. I thought the whole question of the scope of the powers taken by the Revenue to secure information arose on a later Amendment. It would be much more convenient to discuss the extent of those powers then and keep this discussion to the very narrow point raised by the Amendment. namely, the changing of these words.
§ The Temporary Chairman
I think the hon. Gentleman should confine himself to this Amendment. He can seek to raise this point on the next Amendment.
§ Mr. Wade
I am aware of the next Amendment, Sir Samuel, and it has my general approval, but the object of the Amendment which I am moving is, first, to draw attention to the wording, and, secondly, to try and bring the wording of this Bill more into line with the wording of the White Paper, from which I have quoted. I think my reference to paragraph (b) was only incidental to the extent to which the Commissioners of Inland Revenue should inquire. I quite agree that this Amendment affects the earlier words, and if it is your wish that some of the wider aspects which arise from my Amendment should be discussed on the later Amendment, I am quite willing to abide by your Ruling.
§ Mr. Wade
I will reserve presenting some of my views on the matter to the discussion of the later Amendment, which I feel sure will be called and on which there will be an opportunity for me to do so.
I hope I am in order, Sir Samuel, in pointing out that the wording in the White Paper is narrower than the word- 478 ing which appears in the Bill. It is my contention that the Bill goes considerably further. I would not entirely agree with the article with appeared in the Economist of 28th April on this point. I hope I shall be in order and be allowed to quote from that article on the point of the comparison between the wording in the White Paper and the wording in the Bill, to which my Amendment draws attention. The paragraph I wish to quote is as follows:This will be the costliest exercise to collect an exiguous revenue in the history of our tax administration. It is an effort that ought to have been put to better purpose, and Mr. Lloyd is wholly to blame for burdening Somerset House with it. His successors, we can be sure, will build on his bad foundation a bad capital gains tax.
§ The Temporary Chairman
I am waiting to hear how the hon. Gentleman will connect it with the Amendment.
§ Mr. Wade
I do not want to duplicate the debate, because I think I may have an opportunity on a later Amendment. I do not want to go too wide, but if I may I should like to be allowed to complete this quotation, which refers to this particular point. It continues:His successors, we can be sure, will build on his had foundation a bad capital gains tax.He is also to blame for allowing the Inland Revenue to attempt another dangerous (and tendentiously presented) foray into the remaining preserves of personal liberty.I recognise that, in using the words "agent or nominee", we may still give fairly wide powers to the Inland Revenue, but what I wish to know is why the wording which is contained in the White Paper—and even that may raise some rather dangerous problems—has been altered to this considerably wider wording now found in the Bill. Perhaps if I leave it at that, and give an opportunity for the learned Attorney-General to reply, I may reserve my general observations for the discussion on the later Amendment.
§ The Attorney-General
This is a very narrow Amendment. The wording of the Bill in paragraph (a) is—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;479 and the Amendment seeks to leave out the words "on behalf of" and to insert the words "as agent and nominee for." The hon. Gentleman, in referring to his own Amendment, by error said that the words were "agent or nominee", which, of course, alters the sense entirely.
The hon. Gentleman has said that there was a difference between the White Paper and what is in the Bill, and, of course, at the moment we are only considering the difference between the White Paper and this particular language in the Bill, because that is all that is raised by the Amendment. The passage which the hon. Gentleman read out from the White Paper made it quite clear that the White Paper was saying that the Revenue would be able to ask whether they had acted on behalf of a named person, and that we find the actual words "on behalf of" in the White Paper as they now are in the Bill.
The substance of the matter is that if the Clause is amended as the hon. Gentleman seeks to have it amended, the Revenue could only ask the person if he had acted as agent and nominee in connection with the acquisition or disposal of assets, and so the Revenue would be restricted to finding out whether someone had acted as nominee. That would severely limit the field of inquiry, because a stockbroker who merely acts in buying or selling shares for a client does not act as nominee, and, indeed, in the great majority of cases persons who act on behalf of others in regard to the acquisition or disposal of assets do not do so as nominees.
The later Amendment, to which the hon. Gentleman referred, makes reference to the powers of the Revenue, and I do not think that I ought to say anything about it on this Amendment. If this Amendment were accepted, the power of the Revenue to obtain information would be so restricted as to be practically useless, and whatever may be the argument which we may have later as to the extent of the powers, if the Revenue is to have any powers, I suggest that these powers must extend, if evasion of liability under Case VII is to be prevented, to being able to ask persons whether they acted on behalf of a named taxpayer and not be confined only to asking persons whether they acted as nominees on behalf of a named taxpayer.
480 For these reasons, I hope the Committee will agree to reject the Amendment, if the hon. Gentleman indeed presses it, but I think that perhaps from what he said in moving it he was under some misapprehension as to the scope of the Amendment he was moving.
§ Amendment, by leave, withdrawn.
§ The Temporary Chairman
I think it will be for the convenience of the Committee if we discuss with this Amendment (No. 66) Amendments No. 86, in page 22, line 30, to leave out from beginning to end of line 46 and insert—(5) Where it appears to the Commissioners of Inland Revenue that a person is or may be chargeable to tax under Case VII in respect of his acquisition and disposal of assets, the High Court may on the application of the Commissioners of Inland Revenue order any person within such time, being not less than twenty-eight days as may be specified in the order,
- (a) to state whether he has acted on the behalf of the first mentioned person in connection with any acquisition or disposal of assets by that person;
- (b) if so, to furnish information in his possession with respect to the acquisition or disposal being information as to matters specified in the order which are relevant to the question whether the first mentioned person is chargeable as aforesaid by reference to the acquisition or disposal, or are relevant to the computation of the gain or loss to be treated for the purposes of Case VII as accruing to that person by reference thereto.Subject to rules of court the authority and jurisdiction of the High Court may be exercised by a judge of the High Court sitting in chambers and either in vacation or in term time.481 No. 68, in page 22, line 49, at the end, to insert—Nothing in this subsection shall be interpreted as giving the Commissioners of Inland Revenue wider powers to demand information from any person than are provided under section four hundred and fourteen of the Income Tax Act, 1952.No. 85, in page 31, line 29, at the end, to insert—Provided that nothing in this subsection shall impose on any bank the obligation to furnish any particulars of any ordinary banking transactions between the bank and a customer carried out in the ordinary course of banking business, nor upon any solicitor, accountant or any member of a recognised Stock Exchange to furnish to the Commissioners of Inland Revenue any information with respect to the affairs of a client being information gained by him in the course of carrying out his professional duties on behalf of such client.and No. 69, in page 31, line 29, at the end, to insert—Nothing in this subsection shall be interpreted as giving the Commissioners of Inland Revenue wider powers to demand information from any person than are provided under section four hundred and fourteen of the Income Tax Act, 1952.
§ 5.30 p.m.
§ Mr. Birch
This Clause is called supplementary, but it raises a question of considerable principle. As the hon. Member for Huddersfield, West (Mr. Wade) noticed, it raises the question of disclosure and the relations between banks and others and their customers. There has been a good deal of comment about this in the Press and some anxiety displayed, and the people whom I have found most anxious about it have been the clearing banks themselves. I understand that they have made representations through their usual channels, of which, no doubt, my right hon. and learned Friend the Chancellor of the Exchequer is aware.
What they are frightened of is what in banking terms is described as a breach of confidentiality between the bank and its customers. This confidentiality between banks and customers has been a hallowed tradition of our banking system and has, no doubt, been good for the country, good for the banks and equally good for our foreign banking business. Whether they are justified in it or not, the banks themselves think that these provisions will be damaging to their business both at home and 482 abroad, and if they think so themselves some weight should be given to that opinion.
It may be argued that there was a breach in the confidentiality between bank and customer in the provisions of the Income Tax Act, 1952, by which banks were obliged to furnish to the Revenue details of the deposit interest of their customers; but that case is not on all fours with this, because in the case of deposit interest the bank is a principal. It is not only the agent but the principal in that case, and if it makes that disclosure it is not making more of a disclosure than is contained in a dividend warrant. In fact, that disclosure is analogous to a dividend warrant, whereas in the case which we are now discussing the bank would be acting purely as an agent and not in any way as a principal.
The banks have no wish to protect people who are being fraudulent, and bank books can be and are inspected by the Revenue now—but only after a High Court Order. My Amendment seeks to bring in the provision that a High Court Order must also be obtained in connection with this new tax. If it is, the banks are perfectly willing that their books should be examined, because the High Court will not grant an order without sonic prima facie case that fraud or misbehaviour of some sort has occurred.
The important point to get hold of in this Clause is that it contains no mention of the word "fraud" or "concealment", or any similar term. It says:Where it appears to the Commissioners … that a person is or may be …liable to the tax.
After all we have heard about unit trusts, I cannot think that there is an adult in the British Isles who may not be liable to the tax. The vast majority of people may be liable. The Commissioners do not have to have a reason for thinking that someone is doing wrong. There does not have to be any allegation of fraud. This is purely a power to be able to fish without any real evidence to back up the Commissioners who need not have any reason to suppose that they will catch anything at the other end.
That is what has rather upset the banks in this matter, because once books 483 are open books are open. No doubt the Attorney-General will argue that the questions to be asked are fairly narrow, not very wide-ranging. But it is not easy to convince people that once the Inland Revenue can ask questions of one's bank of a quite wide-ranging nature it will not ask many more and get the answers. Once books are open they are open, and it is the view of the banks, strongly and sincerely held, that this procedure will damage their business very much and damage our banking position in the world.
I do not see any reason why the present system under the present law—quite apart from the Amendment—should not continue, so that in anything to do with the Income Tax Acts the Commissioners will have the power to apply to the courts, if they think that fraud is going on, to obtain power to examine the books. Those powers seemed amply sufficient and should be left in the hands of the Revenue, but should not be added to by the provisions of this so-called supplementary Clause.
§ Mr. Wade
I support the Amendments. My only reason for wishing to discuss this wider subject on the earlier Amendment was that I did not desire to be limited in any constructive proposal to advocating an application to the High Court. I do not think that that is the only procedure which may he followed. Secondly, I did not want to limit my remarks to banks, because I think that other professional men are concerned.
I have no desire to assist those who intend to evade or avoid paying taxes, but a principle is involved. We have to ask ourselves how far it is right to go in breaking this confidential relationship which affects not only banks but accountants and solicitors and probably stockbrokers.
§ Mr. Houghton
The hon. Member for Huddersfield, West (Mr. Wade) has spoken of breaking the confidential relationship. Surely the only question here involved is a communication of information to the Inland Revenue. There is no general breaking of the confidentiality. This is a disclosure of information to a particular authority for a particular purpose and on an extremely narrow basis. It is a mistake to convey the impression, as the right hon. Mem- 484 ber for Flint, West (Mr. Birch) did, that when books are open they are open as if everything were there for the world to see.
§ Mr. Wade
If the hon. Member for Sowerby (Mr. Houghton) will bear with me, he will see what I mean. He may not like the word "breaking" and may prefer "interfering", but there is some effect on this confidential relationship.
If the confidential relationship is affected in this way, the Revenue may be the loser in the long run, for the simple reason that there will be a reluctance to transact business through normal channels and there may be a reluctance to consult professional persons. It may be for the benefit of the Revenue to consider this provision rather carefully.
The right hon. Member for Flint, West (Mr. Birch) referred to banks. The Revenue already has some powers in this respect. Banks have to disclose interest. That is already covered by earlier Finance Acts. But, in general, if information is required from banks, some form of authority must be obtained from the courts. Where proceedings have actually been started, it is customary to make use of a subpoena served on the person at the bank who is able to provide the necessary information and bring the books to court. But there are other ways. The customer may be called upon to give, a letter of authority to the bank. That is a procedure which, I imagine, most banks would prefer, and I think that it would be preferable for the Revenue to follow that procedure.
A great deal of confidential information is given to a bank manager by his customers, and it is a good thing for this relationship to continue. I certainly would not like to see a practice growing up which would frighten the honest customer from disclosing his affairs to his bank manager. It is not only the bank manager who is affected but the solicitor also. I have here a letter from a solicitor written to my hon. Friend the Member for Bolton, West (Mr. Holt), which reads:I have had occasion to look at the Finance Bill, and particularly Chapter 2 thereof, comprising Sections 9 to 15 inclusive. I find in Section 15, subsection (5), that for the purpose of that Chapter 2, the Commissioners of Inland Revenue may by notice serve 'on any person', require him to give information in 485 relation to acquisition and disposal of assets (which includes land) within that Chapter. This clearly is wide enough to include Solicitors. So far as. I know, with the possible exception of wartime legislation, and, possibly, the Official Secrets Act matters, communication between a Solicitor and his Client, certainly in relation to property transactions, is absolutely privileged and cannot be made the subject matter of disclosure to any person or authority without the consent of the Clients. This applies even in criminal matters, and is surely the basis upon which a Solicitor can discharge his duty to advise the Client, knowing that the Client without fear or favour can make the full disclosure to him.In a later letter the same solicitor suggested that if there are to be these powers the words "Special Commissioners" might be inserted in the place of the word "Commissioners". I think that that is a point worth looking into. However, I will not pursue it.
§ Mr. R. T. Paget (Northampton)
Is the hon. Gentleman aware that the point which he is putting was put rather more succinctly some years ago by Mr. Sidney Stanley when he said that in these days of revenue snoopers the only safe place for a man to put his money was with his bookmaker?
§ Mr. Wade
That may well be so, but it is not a practice that I look upon with any great favour.
The intention of this Amendment is to provide that this information may only be obtained if, in the first place, an order has been granted by the court. That is one way, and, generally, I approve that principle. The alternative method is to go to the person in question and ask for a letter of authority to the bank or solicitor, or to whoever it may be. I see no objection to that.
Before concluding, perhaps I might make a general observation, as we are now reaching somewhere near the end of this debate on the capital gains tax. I believe that those who wish to avoid payment of the tax will not have much difficulty in so doing. I do not go quite as far as the article in the Economist which I have already quoted, but it is certainly clear that there has not been very much praise for these proposals. I hope that I am in order because I am about to conclude—
§ Mr. Wade
I am about to conclude, Sir Samuel, and I think that this is of some importance. I do not believe that hon. Members want to help people to avoid paying tax, but there is an attempt in this Amendment to hold the right kind of balance. I am sure that the powers given to the Inland Revenue should not be too wide. I think that is a fair point. The introduction of this tax is dealt with in seven very complicated Clauses, and it would be an interesting exercise to calculate the ratio of words to potential revenue. I calculate that in these Clauses there are 5,700 words.
§ Mr. Houghton
—and, associated with that, Amendments Nos. 86, 68, 85 and 69? Am I right about that? If we are discussing primarily Amendment No. 66, what it does is to propose to delete certain words after the word "disposal" in line 40, page 22 to the end of line 46, that is to say, to delete from paragraph (b) of subsection (5) words which extend the first two lines regarding the furnishing of information. Therefore, we are not in this Amendment considering whether a person shall be called upon to furnish information; we are merely considering what kind of information, defined here, he may be called upon to supply. Is that right?
§ 5.45 p.m.
§ The Attorney-General
It would be to the convenience of the Committee in this debate to discuss the points raised not only in this Amendment but in the other Amendments which you, Sir Samuel, said might be taken with it. That does not, of course, mean, I would respectfully submit, that one can go commenting as one likes upon the ratio between the number of words in the Bill and anything else.
§ Sir Kenneth Pickthorn (Carlton)
I still am not clear in my mind, Sir Samuel, which are the Amendments. It is rather a long list and I could not get it down the first time.
§ The Temporary Chairman
We are discussing Amendment No. 66 together with which we are considering Amendments Nos. 86, 68, 85 and 69.
§ Mr. Wade
I hope that you will bear with me for a moment, Sir Samuel. I think it is a revelvant point and I will put it quite briefly.
The purpose of this Amendment is to limit in some degree the powers of the Inland Revenue tin obtaining information in respect of the Capital Gains Tax. As far as the number of words in all these Clauses are concerned—I mentioned that there were 5,700 words—I have never found so many words which achieved so little as far as the Inland Revenue is concerned. I ask the Committee to consider whether it is right when introducing this very complicated new measure to grant at the same time these new powers which, I believe, will interfere with the normal confidential relationship between a person and his banker—I have no special brief; I am just interested as a general principle—his accountant, and, maybe, his solicitor—I have some interest here because I happen to be a member of that profession. Is it wise to give these powers which, I think, fundamentally affect that principle of confidential relationship? That is the underlying purpose of this Amendment and I hope that it will receive the support of other hon. Members.
§ Mr. Houghton
First, I think I ought to ask the Committee to make some allowance for me in this matter because for so many years I was a spokesman of the bureaucracy of the Inland Revenue Department. Therefore, I come to a question of this kind with a certain bias That being so, the Committee must make allowances for me.
I am a little puzzled as to what we are really discussing, because Amendment No. 66, to which I referred a moment ago, proposes to delete certain words from paragraph (b) of subsection (5). As amended, this part of the subsection would read: 488(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;(b) if so, with furnish information in his possession with respect to the acquisition or disposal.That would be the effect of this Amendment.
The point at issue on the Amendment is not the furnishing of information, because the Amendment proposes to leave in the Bill the requirement to furnish informationin his possession with respect to the acquisition or disposal".The point at issue in the Amendment must, therefore, be contained in the words that it proposes to delete, which are:being information as to matters specified in the notice which are relevant to the question whether the first-mentioned person is chargeable as aforesaid by reference to the acquisition or disposal, or are relevant to the computation of the gain or loss to be treated for purposes of Case VII as accruing to that person by reference thereto;I do not see how the words which it is proposed to leave out make any real mischief of the words that it is proposed to leave in.
I think that if a requirement is put in the Bill as to the furnishing of information in a person's possession there should be some explanation of what sort of information it is for which the authorities can ask, and this, it seems to me, is in the lines which the Amendment proposes to delete.
The right hon. Member for Flint, West (Mr. Birch) sits there writhing in some kind of mental agony. It is most distracting from this side of the Committee to see the tortures through which the right hon. Gentleman goes when someone other than himself is speaking. I ask him to bear with a point of view which may differ from his, and especially do I ask him to bear with lesser intellects than his own.
There are other Amendments associated with this one, and one of the important ones to which the hon. Member for Huddersfield, West (Mr. Wade) referred is the Amendment to page 22, line 30, which would require the Inland Revenue to apply to the High Court for an order to issue a notice for the supply of information under this Clause. It is 489 surely going much too far to suggest that a High Court order should be sought before someone who may have acted as an agent for someone else can be asked for a few particulars of what he did.
An application to the High Court would, I think, be appropriate if the Commissioners of Inland Revenue were asking for full disclosure of books and records and the laying bare of all particulars of this or that transaction. To have the power compulsorily to inspect books and records is very different from having the power to ask a person who may have acted as agent or nominee on behalf of some other person to render information which will enable the Inland Revenue to deal with any liability arising.
§ Mr. Wade
I endeavoured to make it clear that I did not regard application to the High Court as the only procedure that might be followed. I hope that there will be many cases in which the Inland Revenue will be able to obtain a letter of authority from the person concerned to the bank or to whoever it may be. I think that this would be the best procedure. I would not even object to special powers being given to the Inland Revenue if it had not already got them. Applying to the High Court is only one method that might be used.
§ Mr. Houghton
I am obliged to the hon. Gentleman. I have no wish to misrepresent his view on this matter.
The hon. Gentleman also suggested that it might be preferable for the Special Commissioners to be given this power. As I understand it, it is the Commissioners of Inland Revenue referred to in this Clause—which means the Commissioner of Inland Revenue—who are the body entrusted by letters patent with the administration of this whole range of taxes. It is not the local Commissioners and I think it should be made clear that it would not rest either with the local inspector of taxes. The Commissioners of Inland Revenue are mentioned here, not the surveyor or the inspector of taxes, and when powers are invested in inspectors of taxes the Act usually says so, so this is a matter in which the ultimate power rests with the Commissioners of Inland Revenue and they, from their central point, will be 490 able to decide what orders shall be issued, and they will be able to maintain a reasonable approach to the exercise of their powers and keep the matter under control. All this seems to be perfectly reasonable.
I know how sensitive many people are to this mystique regarding the confidential relationship between banks, solicitors, accountants, and the world at large, and the Inland Revenue in particular. I hope that the Committee will not think me biassed when I say that on the whole it is the richer people in Britain whose affairs can be kept confidential—the poor must always disclose their innermost private secrets for the benefit of bureaucracy. I hope that hon. Members will keep this matter in perspective. I am not seeking to work on anyone's emotions, but I feel that this question of confidentiality attaches to the possession of property rather than to other things in life.
Anyone applying to the National Assistance Board must produce evidence of his means. He must disclose his investments and produce his Post Office Savings Bank book. If he objects to doing this he is told, "You must not be so squeamish about your pride. This is your right. After all, before you can be given a benefit from the social service we must know what your resources are, and you should not be reluctant to disclose them."
Again, what about the confidential relationship between a worker and his employer? Goodness me, the worker not only has his pay disclosed, but has his tax taken off before he gets it. What is this nonsense about the confidentiality of people's affairs? For years before we had a tax deduction scheme all payments to a worker by way of overtime, bonuses, fees, or anything of that kind were disclosed to the Inland Revenue. This was done long before banks were required to disclose bank interests to the Inland Revenue, and I feel that if any harm is being done to banking or to professional life as an institution we ought to consider it, but that if we are concerned only with what may he conceived to be the right of the individual it has to be put in a much broader context.
If it were possible for tax to be deducted from capital at the source and 491 to leave the recipient to claim his relief and allowances from the Inland Revenue I should be in favour of doing it that way. After all, it is done that way with dividends. Poor people who are not liable to tax receive annuities or dividends with tax taken off at the standard rate and they have to claim repayment from the Inland Revenue.
When there is no means of deducting tax at the source, in the case of an employee the Inland Revenue writes to the employer without so much as a by-your-leave and asks for information about the earnings of that employee. The Revenue writes and asks for particulars of when an employee left, where he went, what he went to do, and any other information it needs to trace the taxpayer to his new employer. All this is a legitimate part of the duty of the Inland Revenue, and is accepted in the trade union movement and elsewhere. Tax cannot be taken off in that case. The nature of the activities enable many transactions to be undertaken without their coming to the notice of the Inland Revenue.
Nothing I have said is intended to convey the suggestion that I am in favour of making the Inland Revenue the all-seeing eye with its finger in every poke so that we cannot do anything without the Inland Revenue being told about it. Nevertheless, there are reasonable safeguards against evasion which it is possible for this Committee to take, and I think this is one of them. I have no hesitation in sticking my neck out over this because I believe it is necessary for these powers to be in the Bill, to be reasonably used by the Commissioners of Inland Revenue—as I am sure they will be.
We do not want to lose the good will of the tax-paying public. That I regard as indispensable to the efficient administration of the tax system. There is a great deal in our Income Tax system which relies on voluntary disclosure. If this matter were pressed too far there could be a reaction on the part of taxpayers, who would say, "If that is how you conduct your business, you must find out yourselves what you want to know." That sort of thing would be very bad for the Inland Revenue. If the taxpayer were pressed in that way it would lead him to some kind of non- 492 payment strike. He would feel so resentful that when the Inland Revenue sent him a demand note he would not pay, and when he got the final demand note he would not pay. These things are done by taxpayers with obsessional grievances against the Revenue.
This provision is not likely to press matters too far. With wisdom and experience, both of which I am sure will be brought to bear on the administration, I do not think there is anything in the provision in the Bill to which the Committee, the taxpayers or anyone can take exception.
§ Sir Henry d'Avigdor-Goldsmid (Walsall, South)
The hon. Member for Sowerby (Mr. Houghton) has made his move from the back benches to the Front Opposition Bench without impairing his vigour, but also without displaying that touch of mellowness which we appreciate in hon. Members of the Front Bench. In addressing the Committee in the last few days he has been a little less than gracious to my right hon. Friend the Member for Flint, West (Mr. Birch), who made his sole contribution to the debate a few minutes ago. No doubt the hon. Member for Sowerby felt that he was scoring an important point, but he was, in fact, being rather blind and rather deaf to the amount of time which he personally has spent in contributions to this Measure and the amount of speeches which we have sat through. I do not wish to say much about the Liberal contribution. It is nice to have one and we have not had many. All I say about it is that I do not believe it advanced matters very much further.
The hon. Member for Sowerby must take this also. At one stage in one of his speeches he taunted hon. Members on this side of the Committee for speaking from prepared briefs. There is not the same expertise common to hon. Members on this side as he personally enjoys. Matters would not be raised at all in this House if they were always left to be raised by experts. If he can criticise the wording of these Amendments, that is an example of the lack of expertise and also of the desire to probe, to obtain knowledge and clarification. I do not think that the hon. Member's strictures are in this case remotely justified.
493 The object of my speech is simply to ask my right hon. and learned Friend the Attorney-General to tell us why he considers the provisions of Section 414 of the Income Tax Act, 1952, no longer sufficient for the purposes of this Measure. If the Committee will bear with me for a few minutes, I shall go through these provisions and draw attention to them. Under Section 414 (3, a) the Commissioners may require information relating:to transactions with respect to whichthe individual person:is or was acting on behalf of others.Paragraph (b) refers to transactions which the Commissioners think they should be investigating, even though those transactions may not themselves be liable to tax. Thirdly, there is the provision as to whether the subject of the inquiry is taking part in:transactions of a description specified in the notice.I look forward to my right hon. and learned Friend enlightening me on whether that is sufficient. Under Section 414 little protection is given under subsection (4) to solicitors and under subsection (5) to banks. My right hon. Friend mentioned banks, but I think the provision in regard to solicitors is worth mentioning also because it is very relevant.
The subsection says that a solicitor shall not be considered to have taken part in a transaction simply by virtue of having given advice. He cannot be compelled to disclose that advice except with the consent of his client. Without the consent of his client he can be compelled only to state that he has been acting in the matter and to furnish the names and addresses of the clients, also the names and addresses of the transferor and transferee, the names and addresses of bodies corporate and, in the case of a settlement, the names and addresses of the settlor and the recipient.
Under subsection (5) a bank is under no obligation to furnish particulars of any ordinary banking transactions between a bank and a customer carried out in the ordinary course of banking business, unless the bank is acting on behalf of the customer in connection either with the formation or management of a body corporate or in connection 494 with the creation or execution of a trust in a settlement.
Since 1952 I have not heard that these powers have proved insufficient for the Revenue, or that that has been brought to the notice of the House in any way. I ask whoever is to reply to this debate whether the powers granted under the 1952 Act are no longer considered suffficient and, secondly, if they are to apply, not only to Case VII but to all matters arising under Income Tax law in future. I think the Committee is entitled to a reply on those questions.
§ Mr. Glenvil Hall (Colne Valley)
I hope that my hon. Friend the Member for Sowerby (Mr. Houghton) will not mind when I say that his enthusiasm for the service he once adorned is not entirely reciprocated by some of the rest of us. The Inland Revenue, like the rest of mankind, is composed of some who are very good, some who are good and some who are not so good. That naturally applies to us all.
The question arises whether the powers which these words we are now discussing give to the Inland Revenue are essential. Like the hon. Member for Walsall, South (Sir H. d'Avigdor-Goldsmid), I shall await with interest what the Attorney-General has to say on that. If they are essential I would accept them, but I am glad that this matter has been raised because they are sweeping powers and unless they are absolutely necessary it would be a pity for this Committee to give any Government Department such powers as are envisaged.
Although I have tried, I still cannot envisage the circumstances in which the Inland Revenue would approach the individuals mentioned in the subsection. What information will the Commissioners go on? It seems that it must in all eases be a kind of fishing expedition.
§ The Attorney-General indicated dissent.
§ Mr. Glenvil Hall
I am glad to see the right hon. and learned Attorney-General shake his head. If that is the case, what information will the Commissioners go on? So many thousands and thousands of transactions take place every year on the Stock Exchange that unless individual stockbrokers or stock jabbers are asked to make a periodical 495 return, I do not see how the Inland Revenue will be able to pick out the people to approach. For that reason alone I await with interest what the Attorney-General has to say.
I am sure that I am speaking for many hon. Members when I say that the provisions of the Clause are exceedingly sweeping. The Inland Revenue now possesses considerable powers under other enactments, and it would be a pity to add to them unless it was essential. I shall wait with interest to be told whether it is necessary for these powers to be given to the Inland Revenue.
§ Mr. du Cann
I entirely agree with the right hon. Member for Colne Valley (Mr. Glenvil Hall) in supporting what my hon. Friend the Member for Walsall, South (Sir H. d'Avigdor-Goldsmid) said. He asked why these additional powers were required. I also agree with my right hon. Friend the Member for Flint, West (Mr. Birch) when he said that an important matter of principle is involved here. That is felt both in the Committee and outside. The case has been very well deployed, and I do not want to add to it except to cover one or two matters of detail.
It is now clearly established that we are discussing no less than five Amendments, one of which makes the suggestion that information should be given to the subject when an investigation of this sort is conducted. I hope that my right hon. and learned Friend will think that a proper suggestion to make, and will comment upon it. I hope that he will also find himself able to comment on the fact that these Amendments cover not only Clause 15 but Clause 20. Perhaps he will explain precisely what is involved, in this limited context, in the provisions of Clause 20 as drafted.
We have talked a good deal about banks, and solicitors have also been mentioned. But there are many other classes of agent. Stockbrokers and accountants have not been mentioned, and other professions can be added. I hope that my right hon. and learned Friend will not take the view that this is a narrow matter, merely affecting banking people.
§ Mr. du Cann
I beg the hon. Member's pardon. I did not hear him. The general point is none the less valid. Banks are in a special category, but there is a wide class of agents in general.
No hon. Member would object to giving the Inland Revenue—whether its servants be good, bad or indifferent—such powers as may be appropriate to deal with any tax evasion. On the other hand, every hon. Member, perhaps excepting the hon. Member for Sowerby (Mr. Houghton)—if I may pull his leg—who declared a special prejudice in the matter, would be adverse to giving the Inland Revenue powers which amount to snooping in any sense. To those who drafted and tabled the Amendments it seemed that the point amounted to this. Nobody objects to the police having powers to search the house or flat of a suspected wrongdoer, but we believe it right that the police should first be obliged to obtain a search warrant for the purpose. The suggestion that a High Court order should be obtained is analogous to that situation. We think that it is the right way to go about things.
It cannot be right to give the Inland Revenue exhaustive powers unless, on the other hand, there are certain safeguards. There is one difficulty. One does not usually wish the examination of a persons' private affairs to take place in the spotlight of publicity which an application for a court order would necessarily involve. A very important point of principle is involved here, which affects many people.
It may be, as the hon. Member for Sowerbry indicated, that the Amendments are not necessarily the best which could have been tabled. None the less, I hope that my right hon. and learned Friend will assure us, above all, that these powers will never be used irresponsibly, and that, perhaps on Report, he will consider carefully writing such safeguards into the Bill as will ensure not only that that position can never arise but that it will be seen never to be able to arise.
§ 6.15 p.m.
§ Mr. Bellenger
If what the hon. Member for Taunton (Mr. du Cann) has said is all that the supporters of the Amendment want there should not be much 497 difficulty in obtaining from the Attorney-General the assurances that have been asked for. I rise only to put a point of view which is not entirely in agreement with that expressed by my hon. Friend the Member for Sowerby (Mr. Houghton). The strictures made upon my hon. Friend's speech by the hon. Member for Walsall, South (Sir H. d'Avigdor-Goldsmid) were a little unfair—although the hon. Member may not perhaps have understood the context of my hon. Friend's remarks in relation to applications for public assistance. We know only too well the exhaustive inquiries that are made in these cases. I do not always advise my constituents in the way that my hon. Friend the Member for Sowerby apparently does. Whether the authorities be the Commissioners of Inland Revenue or those who adjudicate in matters of public assistance they are entitled only to sufficient information as will enable them to do their job. I can well understand my hon. Friend's emotion when he speaks about public assistance, but we can carry that too far.
My hon. Friend referred to his original vocation. I look upon all these gentlemen, including my hon. Friend—although he has now apparently seen the error of his ways—with a good deal of suspicion. It is not merely a case of a taxpayer wanting to defraud the Inland Revenue; it is often a case of his being afraid that the Inland Revenue will make him pay to the last penny, as it can if it wants to. I agree that it does not always act like Shylock, but the taxpayer is liable to say, "Why should I lay bare every fact of my personal relationships in respect of Income Tax?" It is up to the Inland Revenue to decide whether a person should be a taxpayer and, if he should be, how much he should pay. For that purpose the Commissioners are entitled to ask the taxpayer to make a voluntary declaration of his income.
But there are many gentleman about—some of them are called stags—who, without much capital, can make considerable profits. Until stockbrokers put a bar on bouncing cheques, and made then encashable when applications were made for new shares, these stags could make tax-free profits without putting down any capital. Nowadays. during the time between the lodging of 498 the application and allocation of the shares and their first regisration the stag can get off with quite a lot of profit without declaring it.
I cannot see how the Commissioners can know about that, even if they have a suspicion of it, unless they ask for the information. Their proper purpose should be to ask the taxpayer, the individual they suspect to have made a taxable income, to declare it. If the taxpayer does not declare it—and many of them do not—the Commissioners are entitled to take steps to see whether the individual has made a profit.
It is incumbent upon estate agents and those who manage property—and property capital gains will be taxable under the Bill—to declare to the Inland Revenue periodically the commissions that they undertake for individuals or corporations. I cannot see that there is much difference in asking, for example, a stockbroker to say whether a certain client, whom the Inland Revenue suspects to have made a substantial sum of money by dealings in stocks and shares has, in fact, done so, and asking that stockbroker or other agent acting on behalf of the individual taxpayer to declare the nature of the transactions in which he has been engaged on behalf of that taxpayer.
Like my right hon. Friend the Member for Colne Valley (Mr. Glenvil Hall) and, indeed, my hon. Friend the Member for Sowerby, who in his concluding remarks had, as it were, an arrière-pensée about the powers of the Inland Revenue, I do not want the Inland Revenue to pursue taxpayers or individuals unduly. All that I want is for the Inland Revenue to have adequate powers.
So far as I can understand the arguments advanced by hon. Members opposite, they seem to think that the Inland Revenue has adequate powers under a previous Finance Act, Perhaps the Attorney-General will tell us if that is so. If it has not, and I presume that it has not otherwise these provisions would not be incorporated in the Bill, it will be up to us to see whether hon. Members are right in their suspicion that the Inland Revenue is not only to get its just due—its pound of flesh—but the blood connected with it. I think that the Committee would be justified in saying, "You do not go as far as that; 499 all you are entitled to do is to pursue your job adequately and no more than that."
§ Mr. John Howard (Southampton, Test)
I hope that when my right hon. Friend replies to the debate on this group of Amendments he will throw some light on the position of the agent, that is to say, the adviser to the taxpayer. Accountants and solicitors have been mentioned. I should disclose my interest in that I am an accountant. The fact that there is need for clarification is quite clear from a leading article in the Accountant dated 12th May. In that article the leader writer referred to the comments of the Chief Secretary to the Treasury when he was discussing Clause 15 (5). I quote what it said:If the Inland Revenue thinks that a false return has been made it can ask for simple factual information, that is to say particulars of purchases or sales in which the agent concerned has acted on behalf of a named client.The Accountant went on to comment:… it does seem that there is at present no intention to have the Inland Revenue asking accountants and other tax advisers about advice they have given in relation to short-term transactions. That being so. one is tempted to ask why Clause 15 (5) has been so worded as to give power to require information from any person who has acted on behalf of the taxpayer 'in connection with any acquisition or disposal of assets by that person'. The phrase in connection with' is just about as wide a phrase as could possibly be used, and would certainly cover the giving of advice in relation to the transaction.I think that makes it clear that the accountancy profession has some qualification about its obligations under this Clause.
There is a further point, since it is assumed that these powers are rather wide, in that extensive information may have to be extracted by a small practitioner, either a solicitor or an accountant. The question arises who is to pay the cost of obtaining that information. A managing clerk may be engaged on securing the information over some weeks. Is it the Inland Revenue or the taxpayer client who pays? Again, a client may refuse to pay or he may not even be a client at the time that the information is required, and in either case he may have issued no instructions either to his accountant or to his solicitor.
500 If the powers under the Clause are to be retained in this wide form it would seem only fair that the professional adviser should be given the right to charge the Inland Revenue if his taxpayer client does not issue him with the necessary instructions to get the information. If the inquiry which the Inland Revenue had instituted was justified, presumably the Inland Revenue could take powers to recoup its costs and pay off the legal adviser of the taxpayer, apart from any penalties or tax demanded. I hope that my right hon. and learned Friend will be able to throw light on this because it is of very real concern to practitioners, particularly the small practitioner.
§ Sir K. Pickthorn
I think that every hon. Member who has spoken in the debate so far has been an expert witness of one kind or another. This debate, which is admittedly an extension of an exception to a general principle of English law and life, ought to be discussed by those who are not experts in the technicalities involved. Therefore, I do not promise that I shall not try, later on, to make a much longer speech and to ask a good many questions.
For the moment I want to say only one thing. I agree wholly with those of my hon. and right hon. Friends who have supported these Amendments, except on one point. More than one of them, I think, asked for assurances from the Front Bench. My own belief and experience is that Ministerial assurances about legislation are always deceptive and often really insulting. The business of the Treasury Bench in passing this kind of legislation is to assure us, as honestly as it is capable, that words we are being asked to put in the Statute will have such and such effect and no further.
I hope very much that the Governmental reply we get to these Amendments will make it quite clear to us what a person is, what information is, what relevant is and why, especially, paragraph (b) has to be so very tortuous in its verbiage, and because of or in spite of the questions which I put in my last sentence, he will also explain to us how it is that the words, if passed, will have the minimum effect upon the freedom of the individual and, for that matter, upon the superfluous work which may be 501 imposed on any person whether or not a banker, a solicitor, average adjuster or whatever it may be.
§ 6.30 p.m.
§ Mr. John E. Talbot (Brierley Hill)
I should not attempt to cover all the points so well made were I not aware of the great concern that the Council of the Law Society, the governing body of the solicitors' branch of the legal profession, feels about this matter. We are now, in principle, breaching something which has been a feature of English law for hundreds of years; that communications between solicitor and client and also, of course, between client and learned counsel, are privileged, and that the privilege is that of the client and not of the solicitor or counsel.
I wander whether the Committee appreciates sufficiently that every day of the week inspectors of taxes are writing to solicitors and accountants for information, and getting it, and that there is no need to suppose that either of those professions will enter into a conspiracy with their clients in order that tax evasion may take place? Certainly in the case of the solicitors, they are officers of the court, and it is their duty as such to support the law in all its aspects. I think that we may regard it as unthinkable—except in the odd case of the man who fails to discharge his professional duty—that any solicitor would conspire with a client in order to evade taxation.
The distinction is perfectly well understood between what is evasion and what is avoidance. It is lawful, and I hope that it always will be, for a man to consult a professional man and obtain advice about how not to incur a liability. But this seeks to take the matter one degree further. It invites the imposition of a liability by Parliament directly on the professional man at the moment that he acts on behalf of his client, and it is his duty to supply information that the client gives to him. But we are going such a stage further in this matter as will have grave long-term effects upon the reputation of the professional man as regards his client.
If under this Bill the solicitor is to act as an unpaid spy for the Inland Revenue in these matters, can we explain, with any hope of it getting 502 across to the ordinary man and woman, why a solicitor should not also be the spy of the Inland Revenue in any other matter? I feel that here we are making a very dangerous inroad into a long-established principle. I sincerely hope that the Government will have second thoughts about this matter. I want them to think whether it is really necessary to impose this code whereby a professional man is under a direct personal responsibility to report to the Revenue what his client is doing.
There are ample powers in the Income Tax Acts for getting information from the proper person—the taxpayer. It may be that the taxpayer will want help from some professional source, but it is quite another thing to ask a professional man, under the penalties of the Income Tax Acts, to disclose facts about somebody who may not be a client and who may have an explanation to give in relation to the facts which is wholly unknown to the professional man. There is grave danger that incorect information will be given by the use of the powers in this Bill.
I wish to refer to the Amendment in the name of my right hon. Friend the Member for Flint, West (Mr. Birch), to which I have added my name, to the effect that the person giving the information, if he must give it, should be under a statutory liability to tell the person concerned what he is doing and what he has done. I know of several cases where grave embarrassment has been caused by banks making returns of interest to the Inland Revenue without telling the customer. I sincerely hope that under these arrangements, or such arrangements as one hopes may be modified as a result of the almost unanimous feelings of doubt expressed by this Committee, any such information will not be disclosed without direct notification to the person affected.
§ Mr. Gower
As has been indicated, this Clause, without the proposed Amendments, goes very far and cuts right across the relationship between solicitor and client. Like other hon. Members, I have to declare an interest in that I am a solicitor. The Clause outs right across the long-established relationship to which I have referred. 503 But the hon. Member for Sowerby (Mr. Houghton) did not regard that relationship as of any importance. He seemed to suggest that the relationship between the taxpayer and his adviser was something the importance of which had in the past been hopelessly exaggerated. That can hardly be the view of my right hon. Friend. I am sure that he regards this relationship as of tremendous importance.
I can well imagine that had a Labour Government sought such powers as these there would have been an uproar from the Opposition benches. So there is a formidable onus on the Government to establish the absolute need for these very wide-ranging powers. I shall expect, as I am sure will my hon. Friends, a very convincing answer about why the powers referred to by my hon. Friend the Member for Walsall, South (Sir H. d'AvigdorGoldsmid) are in some way inadequate. I cannot see why they should be inadequate. If my right hon. and learned Friend insists on retaining the Clause in its present form I hope that we may be told about it.
§ The Attorney-General
I have listened with interest to the views expressed during this debate. I think it is common ground that there is considerable concern, and not in this Committee alone, that the powers that this subsection gives to the Inland Revenue are too wide and oppressive. My hon. Friend the Member for Taunton (Mr. du Cann) said that he would support such powers as are appropriate to deal with tax evasion. I hope to be able to persuade him that the powers taken in this Clause are necessary and do not go beyond what is necessary.
I think it right and proper that any Clause of this kind conferring these kinds of powers on the Inland Revenue, or upon any other body, should be subjected to close and critical examination. I hope that I may begin my reply on the basis that the Committee accepts the proposition that there must be, somewhere or other, some power in the Revenue to find out the facts if evasion of liability under Case VII is to be avoided. I hope that that will be accepted, although I know it has been suggested in some quarters, but not in the debate today, that no power of inquiry is needed; and that all the 504 Revenue need do is to raise an assessment and leave it to the taxpayer to challenge it. I will deal with that point later.
I should like to proceed on the basis that the Revenue should have some power of inquiry so as to check up in appropriate cases the returns which are made in order to prevent tax evasion. In his Budget statement my right hon. and learned Friend the Chancellor of the Exchequer said that the Revenue would rely primarily upon the ordinary Income Tax return which will include a section for the report of chargeable matters under Case VII, and that is so. The first step will be the return by the taxpayer. But where the Revenue has reason to doubt the accuracy of the return, either on account of an omission from the return of a Case VII transaction—the Revenue may think that one should have been included but there is no entry of one at all—or if it has reason to doubt the accuracy of the return as to the extent of the gain from the transaction, or the losses claimed to be set off against the transaction, it seems to me reasonable that the Revenue should have power to make inquiries, limited to those matters alone, for the purpose of checking the returns and preventing evasion.
I hope that I have been able to carry the members of the Committee with me so far. I want to turn now to the subsection in question and say a little about what it does and what it does not do.
§ Mr. J. Howard
Before my right hon. and learned Friend goes on to that, may I ask who is to decide the extent of these inquiries and whether they are relevant?
§ The Attorney-General
I want to take this matter in order. I will come to deal with how it will be operated. Recognising the need for a power I want now to come to subsection (5) and see what it does and does not do. Judging by some of the remarks which have been made about the subsection, there is a considerable misconception about its effect.
First, paragraph (a) limits the inquiry to an inquiry to a personto state whether he has acted on behalf of the first-mentioned person in connection with any acquisition or disposal of assets by that person".505 The first point to be noted there is that the inquiry must be made in relation to a named person. That is a very important limitation. It will not be open to the Revenue to direct a general inquiry to banks, stockbrokers and solicitors asking for a return from them of all Case VII transactions effected by them for clients. That will not be possible.
There are plenty of precedents on the Statute Book giving the Inland Revenue power to ask for returns. Under Section 27 of the Income Tax Act, 1952, a return can be required from any employer of the names of all his employees and of the payments made to them. That power was first given in 1907. The power now extends to payments to directors and employees and in respect of expenses and benefits in kind to directors and highly-paid employees as well.
Under Section 20 of the Finance Act, 1956, Inspectors of Taxes are given power—I ask hon. Members to note that this power is given by that Act, not to the Commissioners of Inland Revenue, that is to say, what one might ordinarily call the Board of Inland Revenue, but to Inspectors—to call for returns of payments of any kind for services rendered by persons who are not employees. Under Section 22 of the Income Tax Act, 1952, a person who receives taxable income on behalf of another may be required to render a return of it. Such income would include fees and royalties received by literary agents on behalf of authors, and income received on behalf of a person by solicitors and other professional men. Solicitors can be called upon to make a return.
The point I want to make clear is that the Revenue is not seeking here to get any power to call for returns. All it seeks to have is power to make inquiries in relation to named persons. I want to emphasise that this power will not be exercised in relation to names selected haphazardly. I hope that it will not be thought that I am giving an assurance which is either deceptive or insulting, to take the words of my hon. Friend the Member for Carlton (Sir K. Pick-thorn). It will in fact be exercised only—I think that this deals with the point raised by my hon. Friend the Member for Southampton, Test (Mr. J. Howard) 506 —when the Revenue, doubting the accuracy of the return made by the taxpayer, thinks it reasonable to check the return. When I say "the Revenue", I refer to the Board of Inland Revenue.
§ The Attorney-General
No, not the inspector. The contrast between the 1956 Act, and what we propose is very significant. We are saying here that the Commissioners of Inland Revenue, the Board, will be able, first, to make under paragraph (a) the inquiry in relation to a named person of any other person, "Have you acted for so-and-so in connection with any acquisition or disposal of assets by him?"
My hon. Friend the Member for Southampton, Test suggested that the phrasein connection with any acquisition or disposal of assets by that personin paragraph (a) is so wide as to enable the Inland Revenue to inquire what advice had been given. I ask my hon. Friend to read the words again because, in my submission, it is perfectly clear under paragraph (a) that all that can be asked in the first place is, "Have you acted on behalf of Mr. X in connection with any acquisition or disposal of assets by him?" There is no power to ask under that provision, "What advice have you given Mr. X? What were his instructions to you?" The first stage is, "Have you acted for him in connection with anything of that kind?"
I turn to paragraph (b). This is a very important provision, because it defines what information can be sought. The information that can be sought falls under two heads specified in the paragraph—information … relevant to the question whether the first-mentioned person"—that is, the named person—is chargeable … by reference to the acquisition or disposal, or … relevant to the computation of the gain or loss.I feel that some of the fears expressed may be due to the use of the word "relevant" in these two places. The Amendment would remove the word in question because, as the hon. Member for Sowerby (Mr. Houghton) pointed out, the Amendment would delete all 507 the words after "disposal" in line 40. Some of the fears may have arisen about what the word "relevant" really covers. There may be fears that it covers more than is necessary for the Revenue to obtain.
I ask the Committee to consider what it is that the Revenue would want to obtain in order to check the accuracy of a return under Case VII. First, all that the Revenue would want would be factual information—not advice; not what was said by a client to his solicitor or by the solicitor to his client; not what was said between a banker and his customer; not what was said between a stockbroker and his client. What the Revenue would want to ask would be this, for instance. "Did you on behalf of Mr. so-and-so buy some shares, Or did he buy through you some shares and sell them within six months?", or, "Did you on his behalf or acting for him buy an interest in land for him and sell it within three years?" That is the kind of factual information which is required to determine chargeability. Was an asset bought? When was it bought? What was it bought for? That would come into the computation of gain or loss. When was it sold? What was the price received? What are the expenses to be deducted from the price received?
Again, the Revenue will want under the second head factual information to determine quantum, to determine the amount of the gain and the amount of any losses sought to be set off against it. The Committee will remember that losses from previous years under Case VII can be set off. That is factual information which will be required in, I would suggest, a very narrow and limited field.
§ K. Pickthorn
My right hon. and learned Friend has said several times that this is what the Inland Revenue will want, or that this is the information that it will require. Can he assure us that the Bill as drafted means that not only is that all that it will want but all that it will be entitled to ask for?
I am rather hesitant, after what my hon. Friend has said, about giving him any assurance at all but, despite his threatening words, I will say this to him, because I was about 508 to come to it. I will consider closely between now and Report whether what is sought for by the Revenue can be more closely defined. I want to make it quite clear that the aim of the Revenue in this Clause is to be able to check upon the facts so as to ascertain liability or non-liability to a Case VII charge and, if there is any question of liability to a Case VII charge, to ascertain the facts from which the tax liability can be properly computed.
The power to obtain information is intended to be, and should be, and in my view is, limited by this Clause to that, but, as I have said to my hon. Friend, and I will repeat it, I think that the difficulty may have arisen in people's minds because of the use of the word "relevant," and determining, perhaps, what is meant and covered by "relevant". Therefore, if one can, between now and Report, find words that spell out with a greater degree of precision what is "relevant", perhaps one can go a good way to allaying the fears expressed by my hon. Friend. Whether or not one can do that I do not know at the moment, but I will give the assurance that I will certainly consider it, and will try to do so before that stage comes—
§ Mr. Glenvil Hall
I am sure that the Committee will be very grateful for that assurance. Will the right hon. and learned Attorney-General, at the same time, consider whether he can tighten the wording to make it quite clear that it is Commissioners and not individual inspectors of taxes who can demand the information; that it has to be done at the instigation of the Board?
§ The Attorney-General
I think that is already clear from line 30, where it says:Where is appears to the Commissioners of Inland Revenue…It does not say General Commissioners —when we refer to them we generally use that word—and it does not say Special Commissioners. Commissioners of Inland Revenue is common form for the Board. But it must not be thought that when we say we give the powers to the Board, the inspector is meant. The inspector, as far as I am aware, is always specifically referred to. But I shall come to that point in a moment, because it is a matter of some importance—
§ Mr. Callaghan
As a layman, when I read paragraph (b) I thought that the Amendment in line 40 would, in fact, make the powers of the Revenue wider. I had interpreted the words from "being information" onwards as limiting the sort of information the Revenue could ask for. Is that the Attorney-General's view?
§ The Attorney-General
I entirely agree, if one takes that Amendment by itself. I intended to mention that. It was obviously not the intention of my hon. Friends in moving the Amendment to remove the words of limitation in paragraph (b) as to the kind of information that could be obtained but, by a later Amendment, they seek to attract Section 414, which contains certain restrictions in regard to solicitors and bankers. I intended to deal with that, but I want to make the following point.
The right hon. Member for Colne Valley (Mr. Glenvil Hall) talked about sweeping powers and wide-reaching powers, but what is sought here is considerably less than a power to secure a return of all transactions. It is far less than the power given in the 1952 Act to the Commissioners to serve a notice on any person who has held securities requiring him to give them such particulars as they may require to deal with bond washing, and to inform them of the interest paid on securities. One sees how much wider and further that goes than does this.
Having said all that about the Clause and what it is intended to achieve, I submit to the Committee that the powers sought are necessary, and do not go beyond what is necessary, in order to secure a proper check. One cannot tell how often the Board will require to use these powers; I should myself think that it would not be necessary on many occasions, because the fact that the Board possesses these powers, if the Committee gives them, is a great sanction for securing an accurate return by the taxpayer in the first place, but those powers should, I think, be there.
As I said a moment ago, it has been suggested that it is not necessary for the Revenue to take any new powers; that all that it is necessary to do is to levy the assessment and let the taxpayer appeal against it; and that if the assessment is wrong the taxpayer can, 510 and will, appeal against it. Sir Robert, it is one thing to raise an assessment where one knows that a man is carrying on a trade, or a profession or an activity; it is quite another thing to raise an assessment out of the blue when one really does not know whether he has or has not engaged in a chargeable transaction. There would be no basis for estimating the gain for the purposes of the assessment, and if he appealed, and asserted that he had not made a gain under Case VII, the Revenue would not be able to challenge that unless it had powers to obtain information from others. That brings us back to the question: should the Revenue have power to obtain that information? I do not think that it would have sufficed to have relied on the assessment-making powers.
It was asked by my hon. Friend the Member for Walsall, South (Sir H. d'Avigdor-Goldsmid), "Why not attract the powers contained in Section 414? Why are those powers not sufficient?" The Amendment we are now considering seeks to attract those powers. It really will not suffice to attract Section 414, as becomes apparent when we examine it. The Section confers on the Special Commissioners wide powers to obtain…such information as they think necessary …that is pretty wide—to counter the avoidance of tax by the transfer of assets abroad. They can call for information from any person about transactions in which he has acted on behalf of others where they think it proper to investigate the transaction. It is true that subsection (4), to which my hon. Friend referred, limits the information which can be given by solicitors to giving the name of his client, and the names and addresses of transferors and transferees, of certain bodies corporate and of settlors and beneficaries under certain trusts, but that information would not suffice for the purposes of Case VII.
Despite what my hon. Friend the Member for Brierley Hill (Mr. Talbot) said, I think that there is no question of the invasion of a client's privilege of communication with his solicitor, or the invasion of the privilege that exists between solicitor and counsel. There is no question here of ascertaining what was the advice given by the solicitor, or the instructions given by the client. All that is required is, as I have indicated. 511 factual information of the character I have mentioned.
In regard to banks, subsection (5) of Section 414 makes it clear that no obligation is imposed by that Section on banks…to furnish any particulars of any ordinary banking transactions… carried out in the ordinary course of banking business …It may well be that banks would regard the purchase and sale of shares on behalf of their customers as an ordinary banking transaction carried out in the ordinary course of banking business, but I am not sure that the Inland Revenue would accept that or that the courts would agree with it. However that may be, I do not think that we would want any uncertainty about the position and I do not think that the purchase and sale of interests in land could be so regarded.
Hon. Members should bear in mind the strictly factual and limited character of the information that is necessary and will be required by the Inland Revenue and I must say that I do not think that the securing of this information could probably be said to constitute a great inroad into the confidential relationship between banks and customers and solicitors and clients. I ask the Committee to consider these questions. I recognise, as I think we all do, that there is real public interest in maintaining the confidential relationship between banker and customer and solicitor and client, but could the drawing of a distinction between banks and solicitors on the one hand and estate agents and other professional men on the other with regard to the provision of information of the character required here possibly be justified? I do not see how it could be.
If solicitors and banks were relieved of the duty to give this limited information then all those who sought to escape Case VII liability would go to them and to no one else. I wish to emphasise that I share the concern that has been expressed by my hon. Friends about seeing that the Inland Revenue does not get more power than it really needs. This is the right approach we should have to the question of giving more powers. I share their anxiety that 512 financial confidential relationships should be maintained. Nevertheless, we should bear in mind the strictly limited factual information that can be obtained.
I do not think that the Revenue can really work with any less such information, and I do not feel that, so long as it is limited to this factual information, the principle of confidentiality is materially affected. I ask the Committee to bear in mind that these powers are to be vested in the Commissioners. I myself have heard no complaint of the exercise by inspectors of their powers under the Statute of 1956 but it is a further safeguard to secure the proper use and to prevent abuse of these powers that they should be vested in the Commissioners of the Inland Revenue.
I have dealt at same length with the various points that have been raised, but there are two further matters with which I should lake to deal. The first concerns the point raised by my right hon. Friend the Member for Flint, West (Mr. Birch) when he urged, in a short but clear speech, that the power of asking any agent for information should be exercisable only on an order from the High Court. I really think that that is asking too much at this stage because there is really no precedent for it. He sought to base that proposition on the fact that under the Bankers Books Evidence Act one can get copies of a customer's bank account.
The right hon. Member for Flint, West said twice in his speech that once books are open, books are open. But we are not seeking here and we do not want to get the books open or to get a copy of the whole account to determine whether or not there is chargeability under Case VII and the extent of liabibity involved. The Revenue is asking for much less than that.
It is true that in legal proceedings one can rely on that Act. It is still a question for argument whether the raising of an assessment amounts to a legal proceeding. I should be more inclined to agree with my right hon. Friend if there was anything in the nature of a roving commission being entrusted to the Inland Revenue. When one studies paragraphs (a) and (b) one sees that the inquiry must be directed only to a named person and limited to the two heads I have mentioned.
513 The second point with which I wish to deal concerns the Amendment in the name of the right hon. Member for Flint. West in page 22, line 46, where it is suggested that we should, in the Statute, place an obligation on the person who is asked for the information to inform his client of the fact and to supply those particulars to the client. I see the point of that but I do not think that it is wise to accept that proposition as it stands because accepting the Amendment as it is, imposing that legal obligation, would expose the agent—the stockbroker, solicitor or banker—to a prosecution for a penalty if he failed to take that step.
It would be much better to leave it—without putting an obligation on the solicitor or banker to communicate—to their common sense to do so. I feel sure that the vast majority of them, if they had an inquiry of this kind from the Inland Revenue about a transaction of this kind in a particular period, would feel it their duty to report it to the person concerned.
I hope that I have dealt with all the points that have been raised. I feel that it is wrong to say that the Revenue is asking for more powers than are necessary. I will certainly see if we can alter the wording of paragraph (b) to make it clearer what is covered by the word "relevant" in each place but I feel that the need for power to inquire is established. While saying that I hope that my hon. Friends, who obviously have given this matter great consideration and, as a result, have put forward this series of Amendments, will realise that we will consider most carefully the views that have been expressed by them and the suggestions they have put forward, for we share with them the feeling and belief that it is not desirable in the public interest to make an infringement in the principle of confidentiality.
If we must make a breach at all, in the greater public interest—perhaps to prevent wholesale tax evasion—it must be limited to the narrowest possible limit. l do not feel that merely asking for this factual information can be said to be a breach of the client's privilege when he instructs a solicitor, or that it is a breach of the confidentiality that exists and should exist between banker and customer. We shall consider what 514 has been said but I cannot go further than what I have said at this stage.
§ Mr. Birch
I thank the Attorney-General for what he has said although, at the end of the day, I fear that we have not got much more than an undertaking to attempt to define the word "relevant". On the other hand, that may be of some use. A great many people have read much more into the Clause than the Attorney-General said it means. As they are mostly professional people, that would seem to indicate that something might be done about the drafting. I do not necessarily say that I will not return to this matter on Report. It is all very well to say that it is not an unlimited right to fish but, according to the Bill as at present drafted, one does not even have to suspect that someone is defrauding the Revenue. It would seem, therefore, that it goes a very long way. Having said that, I beg to ask leave to withdraw the Amendment.
§ Amendment, by leave, withdrawn.
§ The Temporary Chairman (Mr. F. Blackburn)
The next Amendment selected is that in the name of the right hon. Member for Flint, West (Mr. Birch), in page 22, line 46, at end insert:(c) the person in question shall supply to the person on whose behalf he has acted full particulars of the information he has furnished to the Commissioners of Inland Revenue under paragraph (b) of this subsection.
§ Mr. du Cann
We have already had some discussion on this Amendment and the Attorney-General gave an undertaking within the last few minutes to look at the series of Amendments relating to Clause 15. In the circumstances, my hon. Friends and I have no wish to move the Amendment.
§ Clause, as amended, ordered to stand part of the Bill.