HC Deb 23 May 1962 vol 660 cc577-84

Question proposed, That the Clause stand part of the Bill.

Mr. Houghton

All I want to do is to ask for the explanation promised on this Clause.

Mr. Barber

The Committee will be familiar with the subject matter of this Clause because it was discussed at some length in Committee on the Finance Bill of last year, and my right hon. and learned Friend in his Budget statement referred—briefly, of course—to the matters covered by this Clause.

The Clause deals with a matter which arises out of provisions relating to double taxation relief Which were enacted in Section 17 of last year's Finance Act. That Section enabled double taxation agreements to be made with other countries, providing for credit to be given for—the Committee will understand the phrase—the tax spared in the other country; in other words, the tax which would have been charged in the other country but for the fact that there was special tax relief which that country granted with a view to promoting development there.

The provisions of the Income Tax Acts which deal with the deduction of tax from dividends do not, however, work properly in cases where a company gets credit for tax spared, and the present Clause is to remedy this defect. If the Committee wishes, I can go into some detail in explaining the way in which this defect has arisen and how it is cured by the Clause. But perhaps it would be helpful if at this stage I were simply to say that the general purpose of the Clause is to secure that on a payment of a dividend a company cannot deduct tax at a rate greater than the aggregate of the rates actually paid here and overseas—

Mr. Jay

Can the hon. Gentleman say whether as a result of the Clause the Exchequer will get more revenue or less? I take it that it gets more. Can the hon. Gentleman tell us how much?

Mr. Barber

I will try to ascertain the answer for the right hon. Gentleman. All I know is that at the moment there are only two cases—I think I am right in this—where we have double taxation agreements Which relate to tax spared because the provisions were enacted only last year and the amount of revenue is very small. I should have thought that it would have worked to the disadvantage of the Revenue, but perhaps I may look further into that.

Mr. Millan

Why does the hon. Gentleman say that he would have thought that this would have worked to the disadvantage of the Revenue? Does he not know? As I understand it, the purpose is to remedy some defect in last year's Finance Act under which some relief that was meant to be given had not in certain cases been given. Consequently, this must surely work to the disadvantage of the Revenue? Why does the hon. Gentleman say that he would have thought that was so?

Mr. Barber

I said that out of respect to the right hon. Member for Battersea, North (Mr. Jay) who took the view contrary to the view expressed by the hon. Member.

I was about to deal with the general purpose of the Clause. It is to secure that on a payment of a dividend by a company, the company cannot deduct tax at a rate greater than the aggregate of the rates actually paid here and overseas and that where it declares its dividends in a free of tax form, the net amount actually received is not grossed up at a rate in excess of the aggregate of the rates paid here and overseas. I think it will be agreed that this is desirable. If the Committee wishes me to explain it in greater detail, I shall be very happy to do so.

I gave my opinion to the right hon. Gentleman who asked me the question that there would be, I thought, some loss of tax. I understood that the right hon. Gentleman took a different view. I am informed that the Revenue will lose tax, because gross dividends will be lower. As I intimated to the right hon. Gentleman when I gave him a preliminary answer, it is not possible to give an estimate, but I am quite sure that at this stage at any rate it would be very small because the number of dividends to which the Clause would apply would be very small indeed. If on the other hand we enter into arrangements in the coming years with other countries to provide double taxation relief for tax spared, obviously the amount will be greater, but I should have thought that even then it would not have been very substantial.

Mr. Jay

From the hon. Gentleman's explanation he appeared to me to be implying that revenue would be gained rather than lost. He still does not seem to me to have explained why that is not so.

Mr. Barber

The person who will gain as a result of this will be the individual shareholder to whom the dividend is paid. If the right hon. Gentleman wishes it, I will explain it in a little greater detail.

Mr. Fletcher

Twice now the Economic Secretary has said that if the Committee desires he will explain in greater detail. Since what he has said so far is almost unintelligible, perhaps he will explain the whole thing in detail.

Mr. Barber

I am sorry if I have been unintelligible. Perhaps if the hon. Member has an opportunity of reading my remarks in the morning in HANSARD they will be clear to him. I am not being sarcastic but I do not think he was here during the greater part of our earlier deliberations today, when there was some suggestion from the Opposition Front Bench that one or two Treasury Ministers were deploring arguments at too great a length. However, if the Committee wishes me to do so I will certainly explain this matter, and I hope it will then be clear.

Under the existing Income Tax law, a United Kingdom company is entitled to deduct Income Tax at the standard rate from dividends which it pays. I am sure that the hon. Member knows that already. If it declares its dividends free of tax the actual net amount received has to be grossed up at the standard rate. That again, I think, is self-evident. That must be done in order to arrive at the amount of the dividend which has to be included in the shareholder's total income for tax purposes. I am sure he knows that as well.

The taxpayer's total income is relevant for the computation of Surtax liability. In other words, the gross amount of the dividend is the amount which, after deduction of tax at the standard rate, equals the net amount which is actually received. These rules apply even though the company has not paid United Kingdom Income Tax at the full rate because it has received credit for overseas taxes.

Where it has actually paid the overseas taxes, this is quite right. It is right because the aggregate of the rates at which it will be charged both here and in the country overseas will not in any circumstances be less than the United Kingdom standard rate. But where credit is allowed for tax spared overseas—as it can now be under last year's legislation—the result may be wrong because the company may well have paid less tax in total, both overseas and in this country, on its profits than our standard rate of Income Tax.

It would, of course, be anomalous for a company to deduct tax at a rate higher than the aggregate rates at which it had paid tax here and overseas. Moreover, in the other case I referred to in my opening remarks, what I might call the "free of tax" case, grossing up at the full United Kingdom rate would produce an excessive gross amount.

In an extreme case, if a company distributed the whole of its profits to its shareholders, and the amounts received were grossed up at the full standard rate, the aggregate on which Surtax would be chargeable in the case of shareholders would be greater than the whole income of the company. For this reason, we thought it right, on further consideration, to introduce this Clause. At the outset, I made some observations to explain in brief terms what the general purpose is. I hope, having dealt with the matter in stages, that it is now a little clearer.

I had intended, when I first considered this Clause, to deal with it at some length, but then I found that considerable interest had been taken in the matter during the passage of last year's Finance Act, and, as the subject matter was therefore not new and many points had been raised then, I dealt with it rather briefly tonight. I did not intend discourtesy to the Committee.

10.30 p.m.

Mr. Houghton

I am very much obliged to the Economic Secretary for going to all that trouble. To assist him in giving that explanation he had in front of him a sheet of paper and on that paper was written a full description of the meaning and purpose of this Clause. That description was prepared for him by the Board of Inland Revenue, and it is one of hundred of pages of explanatory memoranda provided by the Board to Treasury Ministers. We see them walking about with big wads of papers under their arms. Those papers are the Inland Revenue briefs on the Finance Bill. There is no secret about this.

Why cannot a memorandum which can be given to the Minister explaining the purpose of the Clause be given to Members of the Committee? If we had such a memorandum in front of us and then did not understand it we should draw on the resources and understanding of the Minister for further verbal explanation. I am sorry to be so insistent about this. I know that I am being a nuisance to hon. and right hon. Members opposite and probably to the Committee as a whole, but someone has got to make a stand on this question of proper facilities for Members of Parliament to do their job.

I make this plea not only on behalf of the Opposition. Hon. Members opposite are in just the same difficulty as we are, and it really is not suitable for us to conduct our business in the House of Commons in 1962 as if we were dealing with the relatively simple legislation of the Income Tax Act of 1842. What was good enough for Gladstone is not good enough for us. I hope that these remarks which I have been making for thirteen years will bear fruit one day. It will be the only monument erected to me for services in the House and I shall be proud of it because it will enable the Committee to do its job with some degree of coherence and intelligence which will facilitate the work of Parliament..

We are proud of this institution. We say that it is a model to the world and we bring adults and school children round it every day of the week. But we sit here bewildered by the complexities of the Clause. [An HON. MEMBER: "Where are the hon. Gentleman's hon. Friends?"] The probability is that my hon. Friends have gone home because they cannot grapple with the complexities of the Bill and because they see no point in sitting here unable to make a contribution. However, I must not strain your patience a moment longer, Sir William. I have made my protest, and not for the first time..

I see that the Chancellor has taken his seat. Without going over the ground again, I remind him that I am once more asking for assistance to be given to hon. Members on obscure Clauses of the Finance Bill. We had a White Paper on Clauses 9 to 15, and I am sorry that we have not had any detailed explanation prepared for us on this matter.

Mr. Fletcher

I support what my hon. Friend the Member for Sowerby (Mr. Houghton) has said. I feel very strongly about this and my only regret is that the Chancellor did not arrive a few minutes earlier, in time to hear the protest made by my hon. Friend. It is no use hon. Members opposite complaining about thin attendance on either side of the Committee. The reason why there is a thin attendance during the various stages of the Finance Bill is because of the difficulty which hon. Members experience owing to the failure of the Government to present the Bill with a proper Explanatory Memorandum. I hope that the Chancellor will really take note of this. It puts hon. Members in an intolerable position if they have to try to understand complicated Clauses like Clauses 17, 18 and 19 without the facility of a short explanatory statement.

It would have been quite easy for the brief which the Economic Secretary read, though only after a good deal of pressure because, first, he rather apologised for not reading it, to have been made available to hon. Members. The hon. Gentleman seemed to hesitate to read the brief, or only to be prepared to read it if pressed to do so. I beg him to appreciate that it is not only in the interest of hon. Members but of the public generally that explanations of these complicated Clauses should be on record somewhere. It is because of the failure to provide the Committee with such information at an earlier stage that we must insist on it being communicated to the Committee so that it will at least appear in HANSARD. How much better it would have been if we could have been provided with an explanatory statement on this and other Clauses.

Obviously, some Clauses do not lend themselves to explanatory memoranda, but this bunch of Clauses deals with highly technical amendments to existing legislation and requires explanation in simple language. As my hon. Friend the Member for Sowerby (Mr. Houghton) has said, the briefs are prepared. There is no secret about that. The Minister does not have to pretend to be a genius when he gets up to explain what it is all about. He only reads what has been provided for him and which could equally well have been circulated to the Committee and printed in a White Paper, or in some other form.

It is intolerable that Members should be subjected to this nuisance and inconvenience and delay on having to deal with Finance Bills of this kind. Finance Bills are tedious enough in all conscience and take up a good deal of Parliamentary time, and it is an abuse of the Government's privileged position that they should keep these memoranda up their sleeves until the last minute and then read them out between ten and eleven o'clock, expecting hon. Members to understand them and be able to comment on them and say whether they are right or wrong.

A great deal of Parliamentary time would be saved and a great deal of assistance would be given to those members of the public who are interested in these matters if memoranda of the kind which are made available to the Treasury were made available generally in some printed document for hon. Members before Clauses of this kind were reached. I support my hon. Friend's protest and hope that the Chancellor of the Exchequer will do something about it.

Mr. Mitchison

Agreeing as I do with the protests which have just been made on public grounds, I should like to add my support to the plea on personal grounds.

I run the risk every year of being treated as a witch doctor whose intentions are undoubtedly malevolent and whose knowledge is always exaggerated. I find it as difficult as anybody else to follow the Clauses of these Finance Bills, but people suppose that because I get up and talk about them, I understand them. I usually do not!

Question put and agreed to.

Clause ordered to stand part of the Bill.