§ The Economic Secretary to the Treasury (Mr. Anthony Barber)
I beg to move, in page 52, line 48, after "this" to insert: "or the last foregoing".
This Amendment merely corrects an error in the drafting. If the Amendment were not passed it would be possible for 515 the Bill to operate in such a way that an individual might be treated as having disposed of property before his death in consequence of events which, in fact, did not occur till after he died.
§ Amendment agreed to.
Further Amendments made: In page 53, line 35, at end insert:
('shares' having for this purpose the same meaning as in that section)".
In page 54, line 13, leave out "(6)" and insert "(8)"—[Mr. Barber.]
§ Sir H. d'Avigdor-Goldsmid
I beg to move, in page 57, line 5, to leave out "earlier" and to insert "later".
The Temporary Chairman
With this Amendment can be taken the Amendments in page 57, line 6, leave out "later" and insert "earlier". and in page 57, leave out lines 7 to 9.
§ Sir H. d'Avigdor-Goldsmid
The purpose of these Amendments is to obtain clarification. They deal with the paragraph in this Schedule which is concerned with the sale of shares when a larger number than the amount sold are already in possession of the holder.
Suppose the holder of a large amount of shares in a certain company had acquired them before the relevant date, and subsequently bought more. If he were allowed to argue that any shares he subsequently sold came out of his pre-tax stock rather than those that were subsequently acquired, it would entirely neutralise the provisions of the Bill. That seems to me to be a perfectly good common sense view. I therefore cannot quarrel in any way with paragraph 8(6,a) which says that in describing the shares as sold they shall beidentified … with shares acquired within the six months preceding the disposal … rather than with shares not so acquired.…That seems to me to make perfect sense. It goes on to say:and with shares so acquired on an earlier date rather than with shares so acquired on a later …Therefore, provided they are caught by the six months period, the shares disposed of are equated with those bought at the earliest date.
We then go on in (b) to produce the different principle that subject to the foregoing, the shares disposed of are: 516shares acquired on a later date rather than with shares acquired on an earlier …It would seem to me that this requires clarification, because the intention is obscure.
The principle of "last in first out" is one that we understand, and so also is the principle of "first in first out". But here we have a provision where we have in sub-paragraph (a) the principle of "first in first out" followed by sub-paragraph (b) where we have the principle of "last in first out". I think the taxpayer ought to be able to make out his tax return without having to consult the Act in detail. For that reason I am asking my hon. Friend for clarification.
§ 7.15 p.m.
§ Mr. Barber
I am very happy to do my best to explain the purpose behind the rules which are laid down in paragraph 8 (6) of this Schedule.
The Amendments which my hon. Friend has on the Order Paper would, as he has indicated, alter the general rule which is laid down in this paragraph. The rules contained in paragraph 8, which apply to all assets which can be dealt in without identification as well as to shares, are needed for the reasons which my hon. Friend has mentioned. Indeed, I think they are obvious to the Committee and I need not go over that ground.
The general rule in sub-paragraph (6), on which my hon. Friend concentrated, is that shares disposed of are treated as coming, first, out of the earliest acquisition made within six months of the disposal and then out of succeeding acquisitions made within the six months.
Then there comes the rule which puzzled my hon. Friend, a rule which is required because shares bought outside the six months period might give rise to a charge, on a disposal, under the provisions of Clause 13 which we passed the other day. That rule is that among shares acquired outside the six months period a disposal is to be identified as being of the shares latest acquired. I quite agree that, on the face of it, it seems odd that one should have one rule which is applicable, broadly speaking, for dealings within the six months period and another rule for dealings outside the six months period.
The reason that it is necessary at all to have a rule for transactions outside 517 the six months period is that in connection with Clause 13 it is, as my hon. Friend will appreciate, necessary to compute the gain involved. In other words, whereas with sub-paragraph (6, a) one is concerned not only with the computation of the gain but also to see whether there is, in fact, a charge at all—in other words, whether the transaction has taken place within six months—so far as subparagraph (b) is concerned one has reached the position where the transaction is not within the charge under the normal provisions of Case VII but may be within the charge under Clause 13, and, if it is, it is necessary in order to compute the gain to identify which shares are being dealt with. Otherwise, if we have successive parcels of shares bought at different dates, it would not be feasible without this rule to determine the price at which the parcel of shares was bought.
The effect of the Amendments would be that the shares disposed of would be first identified with the latest acquired shares within the six months period. My hon. Friend has described the proposal and I will not go over the ground again. He summed it up by saying that his proposal was a general one of "last in, first out". The difference between the rule proposed by the Amendment and that laid down in the Bill can best be illustrated by way of an example which, although I have it before me in writing, as it is a simple one I hope will be intelligible to the Committee.
Suppose that in month I a man buys 100 shares in a company with the hope of making a speculative profit. In month 3 he sees that the shares are going up and so he decides to buy another 100. In month 6 he decides to sell part of the holding and to take the profit, but he thinks it would be worthwhile taking a chance on the other part in the hope that there would be a further appreciation. In month 6 he sells 100, and finally he sells the other 100 in month 8.
The rules in the Bill identify the shares which are sold in month 6, that is, the first sale, with those which were acquired in month 1, thereby leaving the shares bought in the third month to be identified with those sold in the eighth month. Consequently on each occasion there would be a transaction 518 within Case VII which would either give rise to a charge on profits or gain or give rise to a loss which might be relieved against other Case VII profits.
The rule proposed by the Amendments would identify the 100 shares which were sold in month 6 with those bought in month 3, so that on the sale in the eighth month, the second sale, there would be within the preceding six months no acquisition with which the sale could be identified and, therefore, Case VII would not apply to that sale. There would in that event, following my hon. Friend's Amendments, be no tax chargeable, but, of course, it also follows that, in the event of a loss being made, there would be no loss relief allowable against Case VII profits or gains.
It seems to me that in considering this matter there are really two relevant considerations. The first is really whether the scheme in the Amendments would result in a worthwhile simplification. It is perfectly clear that the administration of the Case VII provisions will inevitably involve a careful examination of the acquisitions and disposals in the case of assets such as shares; in other words, the amounts, the purchase price in each case, and the dates. That being so, it does not seem to me, having explained the purposes behind the scheme in the Bill as it stands at present, that the scheme contemplated in the Amendments would result in any significant saving of time, or simplification; although I agree with my hon. Friend that, on the face of it, it appears to be a tidier scheme because it involves one rule instead of two. Consideration in any event will have to be given to the various dates of acquisitions and disposals in order to identify shares disposed of, and there is no disagreement with my hon. Friend on that point. That being so, it seems to follow that there would in actual practice be little difference in the work required under the two schemes.
So I come to the final and, perhaps, the most important point, and that is the consideration of whether or not the scheme in the Bill, as compared with my hon. Friend's scheme, is fair. We did, obviously, at a very early stage give considerable thought to the best and fairest scheme of identification. Since 519 these Amendments appeared on the Notice Paper we have looked at the matter again. We still think that the rules in the Bill do more truly reflect the substance of what the taxpayer is doing in these cases, and I would stress again that the scheme in the Bill—I think this is very important—does not necessarily work to the advantage of the Revenue because, as I pointed out, a taxpayer can make a loss in the acquisition and disposal within Case VII which would qualify for relief; but if the Amendments were accepted and the transactions fell outside Case VII there would be no loss relief.
I suppose, to be frank with the Committee, that as between the schemes we have been considering the choice in the end must be a matter of judgment, but I do want to assure my hon. Friend that we have given the matter every consideration. All we want to do here is to produce a scheme which will be fairest to all concerned and one which will not impose an intolerable burden on those who keep these records. I hope that in the light of the explanation which I have given to my hon. Friend about the operation of this part of the Schedule in relation to Clause 13 he will not feel it necessary to press his Amendments.
§ Mr. Mitchison
The Government's answer savours a little of heads I win and tails you lose, and I must say that I listened to it with a trifle of bewilderment and a trifle of suspicion. We do not want to help people who are trying by manipulation of their purchases and sales to get out of the proper incidence of the Case VII levy or tax, but, on the other hand, one does want to be fair about it.
I must say that the remark which appealed to me most was that in which the hon. Gentleman the Economic Secretary said, at the end of his speech, that this was very much a matter of judgment. My trouble is that Treasury judgments always seem to work the same way: the Treasury always wins. Therefore, I look at them with some suspicion, but I am bound to say that I do see the hon. Gentleman's point. Sub-paragraph (b) really applies, as I understand it, only to Clause 13, and Clause 13 cases are very obviously the kind of cases to which we do not want to give any 520 adventitious help, and I appreciate that point.
I feel rather puzzled about the matter from another point of view. The hon. Gentleman the Member for Walsall, South (Sir H. d'Avigdor-Goldsmid), who moved the Amendment, was perfectly right in saying that a great many taxpayers will not have had the advantage of hearing the Economic Secretary; they may not avail themselves of the advantage of reading his speech in HANSARD. They may be a little puzzled as to what this is all about, whether it is not another of those cases in which the Treasury cat has caught its own tail at last. It always derives nourishment from the process.
But there it is. I do not very much like it. I agree with the hon. Gentleman that it is probably a matter of judgment, and for my part I think that the balance of the argument was slightly in his favour, but I do say that something should be devised that would appear a little simpler to the ordinary person who has to send his returns so that he may know what is going to happen to him in the interval between sending them in and getting the assessment. People do like to be provident in advance, and this is, for many people, really singularly difficult to follow, though perhaps in this Committee we are a little bit accustomed to it.
I do hope that the Government will have a look at the mere matter of wording here to see if they can make it just a little simpler. I know it is not easy. Sometimes in these cases instances are given, and I dare say that when it comes to collecting and assessing the tax it may be possible to make the language of the Statute a little simpler in some such way as that. However, for myself I would not, on reflection, support the hon. Gentleman's Amendment, though I must say I have a very great deal of sympathy with the spirit which moved it.
§ Mr. Barber
May I make clear one point which may be relevant? I rather got the impression that the hon. and learned Gentleman the Member for Kettering (Mr. Mitchison) thought that the wording of sub-paragraph (b) was in some sense of an almost penal character in relation to Clause 13. I should like to assure the Committee that 521 in fact the sole purpose of it is simply to identify shares, because unless one did that one would not know what the original price of the shares was. I am sorry if I misled the hon. and learned Gentleman.
§ Mr. Mitchison
Not at all. I did not intend to give any such impression. I was merely considering the effect of the Clause and the reaction of the slightly harassed taxpayer to the somewhat—at first sight—illogical applications.
§ Sir H. d'Avigdor-Goldsmid
The hon. and learned Gentleman the Member for Kettering (Mr. Mitchison) has made my speech for me. Therefore, I think I should how and ask leave to withdraw the Amendment, but before doing so I should like to leave a thought with my hon. Friend, that if there were some reference in sub-paragraph (b) to Clause 13 I think it would make the task of the average taxpayer and the average back bencher a good deal easier. I beg to ask leave to withdraw the Amendment.
§ Amendment, by leave, withdrawn.
§ 7.30 p.m.
The Temporary Chairman
With this Amendment may be taken the one in page 59, line 18, leave out from "distribution" to end of line 20.
§ Mr. Mitchison
Thank you, Mr. Blackburn. The second Amendment is to similar effect.
The point that we desire to raise here—it may be that in a very complicated Schedule like this we have not tabled every consequential Amendment that we ought to have—is the question of what ought to be done about the timing of bonus shares. As we understand the Schedule at present—I repeat that it is complicated—it seems that if a bonus issue, to take perhaps the simplest case, is made by a company, the bonus shares are treated for the purpose of this tax as if they had been acquired when the shares to which the bonus rights attach were originally acquired.
The result may well be—I am trying to take fair instances—that a man who has had a holding in some company or another for three or four years gets a bonus issue and then sells it at a profit 522 and finds that he does not have to pay tax under Case VII because the bonus issue goes back to the date when the original shares were acquired. I trust I am putting the matter correctly. I hope that the Minister will correct me as soon as possible if I am not right, because one does not want to become more confused over what is a pretty confusing subject matter anyhow.
I take it that it will be said on behalf of the Government that what we are really dealing with is as follows. Someone buys originally what might be called a stake in a company, and that stake remains substantially, if not exactly, the same even if the capital of the company is increased. Then a bonus issue is made. What was originally perhaps 100 shares and has become 150 shares by reason of the bonus issue still represents a certain proportion of the total undertaking represented by the company. I imagine that that is the way in which it would be put by the Government.
Though that is perfectly sound, it seems to me that there is another point of view to be looked at. This is the question of the bonus recipient himself. He has had 100 shares in a company. He receives a letter about a provisional allotment or an allotment which, subject to payment or perhaps not subject to payment, will entitle him to some additional shares in the company. It is common practice nowadays that a document of that sort is usually, though not always, transferable. Therefore, the person is in a position not only to sell those shares immediately but to sell them for a period free of Stamp Duty. If he wants to reduce his stake in the company he now has an excellent opportunity of doing so, and in the ordinary course of Stock Exchange matters he will be able to get a little more for his new shares than for his old ones because the new ones will be transferable free of Stamp Duty. What he has acquired actually is a right which is on the face of it transferable. The immediate transfer is certainly not necessary but is clearly contemplated by the terms of the usual letter.
It seems to me very artificial to say as regards that transaction that the person has thereby not acquired an asset on the date that he received the letter but has acquired it at a certain time, perhaps a 523 couple of years, earlier when he bought the original shares. That is not actually the truth. The truth is that the asset, these disposable shares represented by the letter of allotment, was not in existence when he bought his original shares. It has been added to him afterwards.
If we go into the question of what exactly the shares represent, then we seem to be involving ourselves in matters which are really, I should have thought, beyond the scope of the Bill. The asset which the recipient of the letter is getting is, I repeat, in the case that I have taken, 50 new shares. There it is. Whether it is the case that they represent no more than a dividing up of his original stake in the company does not seem to me to be relevant to the point.
I should have said, therefore, that a very strong case had to be made out for treating these shares as having been acquired—to take the word out of the Bill—at a date when quite obviously they were not acquired. In fact, this statement seems to me to be one of those statutory fibs that it is occasionally necessary to put in somewhere, but hardly, I should have thought, in this case. Why not keep to the plain facts of the matter and treat the man as having acquired the new shares on the date he actually acquired them—on the date he got the letter?
I can see an argument the other way, and I have tried to put it, but it seems to me to be an argument directed to something quite outside the scope of the Bill. The Bill is concerned with the acquisition and disposal of chargeable assets, and this parcel of chargeable assets, or this chargeable asset, arrived with the post on Tuesday morning and the person opened the parcel and said "How splendid! The Ready Mixed Concrete Company has pupped already and I have made another bonus out of it."
This means, of course, that there must have been somebody who was deterred from "stagging" the issue by the Government's proposals. I am assuming that one or two people were frightened off and that the 6 million shares which were subscribed for represented not quite the whole of what might have been subscribed for if there had not been this tax. One must give the Government a 524 little credit sometimes—though rarely—for the fact that what they intend to happen does happen, and perhaps it happened here to a minor degree.
Therefore, taking the deterred "stag" of the Ready Mixed Concrete Company receiving his letter of allotment in a few weeks' time when the company, not discouraged by having sold its shares rather cheap last time, proceeds to make a bonus issue—they are doing all sorts of strange things in the City nowadays—and opening it on his breakfast table, surely none of us can deny that that is the moment when he acquires his chargeable asset? Consequently, I want to know why the Government propose that it shall be back-dated in this peculiar way.
I am sure that we shall be given some reason or another for it. The Treasury are wonderfully good at discovering reasons for inadequate statements, of which at first sight this appears to be one. I am sure that we shall be told something or other about it. I have been trying to guess what it will be. They have fertile brains and, I believe, a computer in the Treasury nowadays. [Interruption.] Perhaps they have not a computer; I do not know whether they have or not. At any rate, they have very fertile brains, and I feel that they must have found something or another as a good reason which I have been unable to imagine in the simplicity of my soul.
I therefore think that we might go back to the plain facts and have bonus shares treated as acquired on the date when they were acquired and not give them a sort of pre-natal existence as the Government desire and intend to give them, no doubt for purposes of their awn. There it is, with the plain man standing up unvarnished and simple at the Dispatch Box and saying to the Government, in awe and terror, "Please do not tell any unnecessary fibs."
Mr. Bruce Milan (Glasgow, Craigton)
I rise to support what my hon. and learned Friend the Member for Kettering (Mr. Mitchison) has competently and eloquently said, with particular reference not so much to bonus issues but to rights issues. There may be a theoretical case for saying that, with the issue of bonus shares, nothing 525 has changed except that denomination of the shares and the composition of the holding has been changed in some way. Ultimately, the thing is the same and no money has passed in the transaction. I still, I think, lean to the argument my hon. and learned Friend made, that bonus shares create a different situation, and that there are very strong arguments for treating the new holding as starting a different situation and working the date from the bonus issue.
If there is an argument against that interpretation of bonus issues—and I am willing to concede that there is—I am not willing to concede that there is any argument so far as rights issues are concerned. They are in a different category. Rights issues are not something which accrue automatically to a shareholder. There is no compulsion on a shareholder to take up a rights issue when money has to be passed.
As I said, the bonus issue comes without passing money. The rights issue is something he has to pay for. Having had to pay for the rights shares, he has, in every sense of the word, acquired those shares at that particular time. Therefore, disposal of the shares subsequently ought to be dated for purposes of this taxation from the time the rights issue was made.
There is no case for saying that the rights issue should go back to the original acquisition of the shares, except perhaps theoretically the case that a rights issue naturally arises out of the holding of the original shares. That is a pretty flimsy theoretical point to be placed against the absolutely practical and essential point that money passes and that the rights issue really ought to be taken as being at the particular time when the money is passed.
§ Mr. A. P. Costain (Folkestone and Hythe)
Surely the practical application is that when shares give X rights or X bonus the price of the original holding almost inevitably drops. How does the hon. Gentleman reconcile the two figures?
§ Mr. Millan
That would depend to some extent on the price at which the rights issue was made. Rights issues are normally made at something less than the current market value, and therefore one would expect, at least theoretically, 526 the price of each individual share in the total new holding to come down. It depends a good deal on the price at which the rights issue is made.
Even if that is true, the Schedule is already complicated enough to be able to accommodate this one additional complication. In principle, what the Government are proposing to do about rights issues is essentially wrong, and I should be interested to know why they have chosen this way of doing it.
Perhaps, having done it for bonus issues, they thought that they must do it for rights issues for the sake of neatness. I was not aware that this Schedule was neat in other directions, however. A little asymmetry in this would not have been amiss and would have been much more in touch with the realities of the situation.
§ 7.45 p.m.
§ Mr. Barber
The hon. and learned Member for Kettering (Mr. Mitchison) is quite right in saying that there is something of a fiction involved in what is proposed here, but I assure him that the reason is simple. To proceed on the lines of his Amendment would be very unfair. I hope that when I have demonstrated how it would work in practice he will see the force of the argument in favour of the scheme in the Bill. As for his observations about bonus and rights issues, we looked at these various forms and came to the conclusion that, in this respect at any rate, they should be treated much the same.
The next Amendment, standing in the name of my right hon. and learned Friend the Chancellor of the Exchequer, is also concerned with paragraph 10 of the Schedule, and it might be for the convenience of the Committee, and it would certainly help me, to explain the issue between us on these Amendments if I were to say a general word about paragraph 10.
The Temporary Chairman
Is it the hon. Gentleman's intention that the Chancellor's Amendment should be discussed with these Amendments, or does he merely wish to make reference to it?
§ Mr. Barber
I was trying to help the Committee. Although it is not usual, I should like to refer to my right hon. 527 and learned Friend's Amendment—though not at length—and explain the normal workings of paragraph 10, while not going beyond these Amendments. This would also enable me to cut short my remarks on the next Amendment.
This paragraph is concerned with the reorganisation or reduction of a company's share capital, including bonus and rights issues in particular. The main scheme is that shares issued on the reorganisation or reduction of a company's share capital are treated as acquired at the same time as the original shares from which they flow. That is the fiction to which the hon. and learned Member referred. In other words, the taxpayer is treated as having a new holding acquired at the original date.
The cost of the new holding is the cost of the original shares, plus anything paid for the new shares. If there is then a chargeable disposal of part of the new holding, the total cost of that new holding is apportioned according to this new valuation. To ensure consistency of treatment, the taxpayer is treated as having paid the full subscription price for the new shares even if it has not yet been wholly paid, and there is a corresponding adjustment to the price he receives. That is to say, anything yet to be paid for the new shares is treated as added to the price, and the sale of the right to take up the new issue is treated in the same way as the sale of the new issue.
That is all I wanted to say in general about the workings of this part of the Schedule. I understand that the intention of the Amendments is simply that a person who gets a bonus or rights issue should, if he sells the issue, be chargeable by reference to the actual date of the issue and not to this fictional date, being the date of the acquisition of the original shares.
As I understand it, the proposal is that the chargeable gain should be the difference between what the issue cost him and what he gets for it, in other words, what would be, if there were not other considerations—which I shall mention—the common sense profit on the transaction. In the case of a bonus issue he would be charged on the full value and, in the case of rights, on the full value of the rights.
528 First, there is the question of the chargeable period, because of a change in date, and also the question of the amount of the charge. As far as the chargeable period is concerned, the true view is surely that if a person realises a new issue he is really realising part of his assets which flow from his original purchase of the shares in question. I give an example to make this clear.
If a man buys 100 shares in a company this year and receives a bonus issue of one for one in 1964, he really has the same interest in the company after the bonus issue has been made as before it, only it is now 200 shares instead of 100 shares. He is in no different case if he sells 100 of the 200 shortly after the bonus than if he sold 50 of the original 100 shortly before the bonus.
Similarly, in the case of a rights issue, there is generally, I should have thought, though it varies in degree, some bonus element combined with the taking of an additional stake in the company, because the rights flow from the original holding. So far as the amount of the charge is concerned, which is the other aspect of the hon. and learned Gentleman's Amendment, where there is a disposal within the time limit the Amendment would be clearly unfair. It we suppose, for example, to take a simple case, that a man bought 100 shares in a company at £1 each, and that while they are still standing at £1 he received a bonus of one for one so that each share becomes worth 10s., the 200 shares which he now has will have cost him £100 all told. If he sells 100 for £50 he makes no profit, but the Amendment would charge him on the full amount of £50. Even allowing for marginal differences which the hon. and learned Gentleman may have in mind, it would be clearly unfair to proceed in this way.
The hon. Member for Glasgow, Craigton (Mr. Millan) asked quite fairly whether we had given separate consideration to the position regarding rights issues. If instead of the bonus issue in the example which I have just given the person concerned was given the right to subscribe for one new share for 10s., bearing in mind that in that example the cost of the original share was £1, and if there had been no movement in the market valuation of the shares, he would finish up with 200 shares which had cost him 529 £150 in all—100 for which he had paid £1 each and 100 new shares which cost him £50. The effect of the rights issue at 10s. each would be to reduce the price of the shares after the issue from £1 to about 15s. each, so that if he now sells 50 of the new shares he will get £37 10s., or one-quarter of the total outlay bf £150 for the original shares and the subscription for the rights issue. He has thus sold one quarter of them.
In substance, however one looks at it, it is surely the case that this particular individual has made no profit, and certainly he has made no profit to the extent which would be charged if the Amendment in the name of the hon. and learned Gentleman were accepted, because the Amendment would charge him on the difference between the £37 10s. and the £25 which he subscribed for the 50 new shares. This seems to me to be unfair. I have explained the position, and it is, as the hon. and learned Gentleman said very fairly in his opening remarks, very complicated and extremely difficult to explain this sort of matter without giving examples. If I use examples which I have before me in writing, I do so because inevitably if one wishes to give examples off the cuff they come out much more complicated than if worked out beforehand.
I can only assume that the hon. and learned Gentleman, and I quite understand this, without the assistance which some of us in the Committee manage to obtain, has misunderstood the effect of the Bill as it stands, because I believe having considered the Amendment carefully, that it would certainly work out very unfairly to the taxpayer. I hope for these reasons that he will not press the Amendment.
§ Mr. Millan
Before my hon. and learned Friend the Member for Kettering (Mr. Mitchison) replies, may I take up the Economic Secretary on the question of the arithmetic? I am perfectly sure that what he said about the arithmetic and the effect of this Amendment if accepted must be wrong. All that we are intending to do with this Amendment, and the hon. Gentleman will perhaps correct me if I am wrong, is to change the date on which the transaction is to be taken to have started.
530 So far as the actual charge to the taxpayer is concerned, the effect of accepting the Amendment, arithmetically, would be nothing at all. Let me give one example. Suppose someone buys shares two months before bonus shares or a rights issue were granted and he then sold the bonus shares or rights issue right away, he would be chargeable under the Schedule as it is drawn. If we remove the time limit and instead of working from the date of the original holding, which is two months before the bonus issue, we work from the date of the bonus issue, how does it affect the arithmetic? It does not affect it at all.
The actual charge, if our Amendment is accepted, is bound to be the same charge as it would be if the Government proposals go through in the kind of case that I have mentioned, where, in fact, the disposal is chargeable because the original date was within a period of two or three months before the date of the bonus shares or rights issue. Therefore, I cannot believe, unless there is some additional reason which the Economic Secretary has not given, that our proposals would affect the arithmetic of this matter, as compared with the Schedule as it is at present. Therefore, I cannot believe that the Economic Secretary has given good reasons for rejecting our Amendment.
If he asks us to reject it on principle and says that we have got our principles wrong, we can agree to differ about that, but it is quite wrong for him to say that we must also reject it because we have got our arithmetic wrong and that it would impose injustice on the taxpayer. If it does, exactly the same fault must be attributable to the Government's present proposals in the kind of case which I have mentioned, where, in fact, disposal becomes chargeable under the existing Schedule. If there is a fault of that kind, will the hon. Gentleman look at it from the point of view of the Schedule as it is at present drawn, because, bad tax as we think this is, we would not wish to perpetrate the kind of arithmetical injustice on the taxpayer which the Economic Secretary has described to us. I cannot believe from what he has said that he can be right about it. I therefore think that it becomes a matter of principle, and that 531 the Government's principle, so far as rights issues are concerned, though I concede a doubt regarding bonus issues, is certainly wrong, and that the principle that would be involved in accepting our Amendment is essentially right.
§ Mr. Mitchison
The Economic Secretary was a little rash in suggesting that I had misunderstood what this was all about and, therefore, was going to concede his point of view. I had hoped that he was going to produce a new argument in favour of what was in the Bill, but all he did was to trot out the same argument, in almost exactly the same language, which I attributed to him at the beginning of my speech.
One can go on inventing cases about this sort of thing, and one can find cases in which this, that or the other will happen, but when we come down to the fundamentals of the business I am still inclined to think that the real question is whether there is any reason for this proposal, and I am bound to say that I do not see it. We are not considering a person's stake in a company. We are considering, for the purpose of this Amendment, the date at which a person acquires certain chargeable assets. That is the language of the Bill, and that is the question to which we should direct our attention.
What the Government are doing is to say, "He acquired these chargeable assets, that is to say, the bonus or rights shares, when he acquired the original shares." He may have acquired a stake in the company equal in value to the shares he now has, if nothing else happened in the interval, but he certainly did not acquire shares which were not in existence at the time. It is introducing something quite outside everything else in the Bill if there is brought into existence for the purposes of taxation something which was not in existence at the time.
I look at it from another point of view. I agree that instances can be put the other way, but one is bound to look a little at what happens, and I take the instance of a bonus issue, while appreciating what my hon. Friend the Member for Glasgow, Craigton (Mr. Millan) said about rights issues, to which I shall return in a moment. Let us take a com- 532 pany which makes a bonus issue. Whenever that happens, as can be seen from the Stock Exchange prices given in the newspapers, in the next week there is a more than usually large number of transactions in those shares and in the new shares. The fact of the matter is that people take the opportunity to sell shares in the company when there is a bonus issue. There is a perfectly good reason for it, and I mentioned it earlier and I repeat it now—they can get a rather higher price than they would otherwise get for the new shares without having to pay Stamp Duty. That is what happens in effect.
What the Government are going to do is that in any case where the original shares were bought more than six months back, nobody is to pay tax at all on that disposal, at whatever price and in whatever circumstances. This is allowing a very large loophole indeed. It is letting off the great majority of people who get these bonus issues, because the great majority of them will be found to have held their shares for more than six months and therefore will get away with it, and I cannot think that this is right or fair.
I entirely agree with what my hon. Friend said about rights issues which make for a stronger case than bonus issues. I talked rather inaccurately about bonus issues with and without Payment, but I agree that my hon. Friend was right to make the technical distinction between the two.
There are all sorts of rights issues. I remember that a little time ago Vickers issued some shares by way of rights but, because the Government did something silly in the interval—I cannot remember exactly what it was—when the shares came out they were found to be worth much less than the price at which they were to be issued, that is to say, the rights were a minus quantity and the underwriters had to take the whole bunch of them and did so. I now remember that it was a change in the Bank Rate which caused it. One can get every variation from that down to the case where a consideration is purely nominal. There are all kinds of complications and all kinds of results can be produced from the sums.
If the Treasury wants a lesson in telling fibs, it had better tell a simple one 533 next time and not one as complicated as this. The facts here are so complicated that this is a case where—I say it with hushed voice—honesty is the best policy. I should like the Government to face up to the facts. If they think that the tax is in a bit of a mess, they might find a better way of getting it right than this. I could suggest several ways, but they would not be in order in this discussion. At the moment I am only considering this method of doing it. I think that it is the wrong one and contrary to the facts.
The balance of injustice will be caused by allowing people to sell off bonus
§ shares or rights issues at a considerable profit which will not be taxed because they bought the original shares more than six months before. With great respect to the Treasury experts, that is a thoroughly bad result and I propose, recognising as I do that there are difficulties on both sides of the matter, to stick to the truth and divide on the Amendment.
§ Question put, That the words proposed to be left out stand part of the Schedule:—
§ The Committee divided: Ayes 209, Noes 143.535
|Division No. 199.]||AYES||[8.5 p.m.|
|Agnew, Sir Peter||Emmet, Hon. Mrs. Evelyn||Maclean, SirFitzroy (Bute&N.Ayrs.)|
|Altken, W. T.||Errington, Sir Eric||Macleod, Rt. Hn. Iain (Enfield, W.)|
|Allan, Robert (Paddington, S.)||Farr, John||Maddan, Martin|
|Arbuthnot, John||Finlay, Graeme||Maginnis, John E.|
|Ashton, Sir Hubert||Fraser, Ian (Plymouth, Sutton)||Manningham-Buller, Rt. Hn. Sir R.|
|Atkins HumPhrey||Galbraith, Hon. T. G. D.||Markham, Major Sir Frank|
|Balniel, Lord||Gardner, Edward||Marshall, Douglas|
|Barber, Anthony||Gilmour, Sir John||Mathew, Robert (Honiton)|
|Barlow, Sir John||Glyn, Dr. Alan (ClaPham)||Matthews, Gordon (Meriden)|
|Barter, John||Goodhew, Walter||Mawby, Ray|
|Batsford, Brian||Gower, Raymond||Maxwell-Hyslop, R. J.|
|Baxter, Sir Beverley (Southgate)||Grant, Rt. Hon. William||Maydon, Lt.-Cmdr. S. L. C.|
|Beamish, Col. Sir Tufton||Grant-Ferris, Wg. Cdr. R.||Miscampbell, Norman|
|Bennett, F. M. (Torquay)||Green, Alan||More, Jasper (Ludlow)|
|Berkeley, Humphry||Gresham Cooke, R.||Morgan, William|
|Biffen, John||Grimond, Rt. Hon. J.||Morrison, John|
|Bingham, R. M.||Grosvenor, Lt.-Col. R. G.||Nabarro, Gerald|
|Bishop, F. P.||Gurden, Harold||Neave, Airey|
|Black, Sir Cyril||Hall, John (Wycombe)||Nicholson, Sir Godfrey|
|Bourne-Arton, A.||Harris, Frederic (Croydon, N.W.)||Noble, Michael|
|Box, Donald||Harris, Reader (Heston)||Oakshott, Sir Hendrie|
|Boyle, Sir Edward||Harrison, Brian (Maldon)||Orr-Ewing, C. Ian|
|Braine, Bernard||Harrison, Col. Sir Harwood (Eye)||Osborne, Sir Cyril (Louth)|
|Brooke, Rt. Hon. Henry||Harvie Anderson, Miss||Page, Graham (Crosby)|
|Brooman-White, R.||Hay, John||Page, John (Harrow, west)|
|Brown, Alan (Tottenham)||Heald, Rt. Hon. Sir Lionel||Pannell, Norman (Kirkdale)|
|Browne, Percy (Torrington)||Henderson, John (Cathcart)||Partridge, E.|
|Bryan, Paul||Hill, Mrs. Eveline (Wythenshawe)||Pearson, Frank (Clitheroe)|
|Buck, Antony||Hill, J. E. B. (S. Norfolk)||Peel, John|
|Bullard, Denys||Hirst, Geoffrey||Percival, Ian|
|Bullus, Wing Commander Eric||Hobson, Sir John||Pickthorn, Sir Kenneth|
|Burden, F. A.||Hocking, Philip N.||Pilkington, Sir Richard|
|Butcher, Sir Herbert||Holland, Philip||Pitt, Miss Edith|
|Carr, Robert (Mitcham)||Hollingworth, John||Pott, Percivall|
|Cary, Sir Robert||Hooson, H. E.||Prior-Palmer, Brig, sir Otho|
|Chichester-Clark, R.||Hughes-Young, Michael||Profumo, Rt. Hon. John|
|[...], Henry (Antrim, N.)||Hulbert, Sir Norman||Proudfoot, Wilfred|
|Clarke, Brig. Terence (Portsmth, W.)||Hutchison, Michael Clark||Rawlinson, Peter|
|Cleaver, Leonard||Iremonger, T. L.||Redmayne, Rt. Hon. Martin|
|Collard, Richard||Irvine, Bryant Godman (Rye)||Rees-Davies, W. R.|
|Cooper, A. E.||James, David||Renton, David|
|Cooper-Key, Sir Neill||Jenkins, Robert (Dulwich)||Ridley, Hon. Nicholas|
|Corfield, F. V.||Johnson, Dr. Donald (Carlisle)||Robinson, Rt Hn. SirRoland (B'pool, S.)|
|Costain, A. P.||Kaberry Sir Donald|
|Coulson, Michael||Kerans, Cdr. J. S.||Roots William|
|Craddock, Sir Beresford||Kershaw, Anthony||Ropner, Col. Sir Leonard|
|Cunningham, Knox||Kimball, Marcus||Royle, Anthony (Richmond, Surrey)|
|Currie, G. B. H.||Kirk, Peter||Russell, Ronald|
|Dalkeith, Earl of||Langford-Holt, Sir John||Scott-Hopkins, James|
|d'Avigdor.Goldsmid, Sir Henry||Leather, E. H. C.||Sharples, Richard|
|Deedes, W. F.||Legge-Bourke, Sir Harry||Shepherd, William|
|de Ferranti, Basil||Linstead, Sir Hugh||Skeet, T. H. H.|
|Donaldson, Cmdr. C. E. M.||Lloyd, Rt. Hon. Selwyn (Wirral)||Smith, Dudley (Br'ntf'd & Chiswlck)|
|Drayson, G. B.||Longden, Gilbert||Smithers, Peter|
|du Cann, Edward||Loveys, Walter H.||Spearman, Sir Alexander|
|Duncan, Sir James||Lubbock, Eric||Speir, Rupert|
|Eden, John||Lucas-Tooth, Sir Hugh||Stevens, Geoffrey|
|Elliot, Capt. Walter (Carshalton)||MacArthur, Ian||Steward, Harold (Stockport, S.)|
|Elliott, R. W. (Nwcastle-upon-Tyne, N.)||McLaren, Martin||Stoddart-Scott, Col. Sir Malcolm|
|Studholme, Sir Henry||Thorpe, Jeremy||Ward, Dame Irene|
|Talbot, John E.||Tiley, Arthur (Bradford, W.)||Wells, John (Maidstone)|
|Taylor, Frank (M'ch'st'r, Moss Side)||Turner, Colin||Williams, Paul (Sunderland, S.)|
|Taylor, W. J. (Bradford, N.)||van Straubenzee, W. R.||Wills, Sir Gerald (Bridgwater)|
|Teeling, Sir William||Vane, W. M. F.||Wilson, Geoffrey (Truro)|
|Temple, John M.||Vaughan-Morgan, Rt. Hon. Sir John||Wise, A. R.|
|Thatcher, Mrs. Margaret||vickers, Miss Joan||Wolrige-Gordon, Patrick|
|Thomas, Leslie (Canterbury)||Wade, Donald||Wood, Rt. Hon. Richard|
|Thomas, Peter (Conway)||Wakefield, Sir Wavell||Worsley, Marcus|
|Thompson, Kenneth (Walton)||Walder, David|
|Thompson, Richard (Croydon, S.)||Walker, Peter||TELLERS FOR THE AYES:|
|Thornton-Kemsley, Sir Colin||Walker-Smith, Rt. Hon. Sir Derek||Mr. Rees and|
|Mr. Michael Hamilton.|
|Ainsley, William||Holman, Percy||Probert, Arthur|
|Allen, Scholefield (Crewe)||Houghton, Douglas||Pursey, Cmdr. Harry|
|Bacon, Miss Alice||Hoy, James H.||Randall, Harry|
|Baxter, William (Stirlingshire, W.)||Hughes, Cledwyn (Anglesey)||Redhead, E. C.|
|Beaney, Alan||Hughes, Emrys (S. Ayrshire)||Rhodes, H.|
|Bence, Cyril||Hunter, A. E.||Roberts, Goronwy (Caernarvon)|
|Bennett, J. (Glasgow, Bridgeton)||Hynd, H. (Accrington)||Robertson, John (Paisley)|
|Benson, Sir George||Hynd, John (Attercliffe)||Robinson, Kenneth (St. Pancras, N.)|
|Blyton, William||Irving, Sydney (Dartford)||Rogers, G. H. R. (Kensington, N.)|
|Boardman, H.||Janner, Sir Barnett||Ross, William|
|Bottomley, Rt. Hon. A. G.||Jay, Rt. Hon. Douglas||Royle, Charles (Salford, West)|
|Bowden, Rt. Hn. H. W. (Lelcs, S.W.)||Jenkins, Roy (Stechford)||Short, Edward|
|Boyden, James||Jones, J. Idwal (Wrexham)||Silverman, Julius (Aston)|
|Braddock, Mrs. E. M.||Jones, T. W. (Merioneth)||Silverman, Sydney (Nelson)|
|Brockway, A. Fenner||Kelley, Richard||Skeffington, Arthur|
|Broughton, Dr. A, D. D.||Kenyon, Clifford||Slater, Joseph (Sedgefield)|
|Callaghan, James||King, Dr. Horace||Smith, Ellis (Stoke, S.)|
|Castle, Mrs. Barbara||Lawson, George||Soskice, Rt. Hon. Sir Frank|
|Chapman, Donald||Lee, Miss Jennie (Cannock)||Spriggs, Leslie|
|Collick, Percy||Lewis, Arthur (West Ham, N.)||Steele, Thomas|
|Craddock, George (Bradford, S.)||Loughlin, Charles||Stones, William|
|Crossman, R. H. S.||MacColl, James||Strachey, Rt. Hon. John|
|Cullen, Mrs. Alice||MacDermot, Niall||Stross, Dr. Barnett (Stoke-on-Trent,C.)|
|Darling, George||Mcinnes, James||Swain, Thomas|
|Davies, Harold (Leek)||McKay, John (Wallsend)||Swingler, Stephen|
|Delargy, Hugh||McLeavy, Frank||Taverne, D.|
|Diamond, John||Mallalieu. J. P. W. (Huddersfield, E.)||Thomas, George (Cardiff, W.)|
|Dodds, Norman||Mapp, Charles||Thompson, Dr. Alan (Dunfermline)|
|Ede, Rt. Hon. C.||Mason, Roy||Thomson, G. M. (Dundee, E.)|
|Edwards, Rt. Hon. Ness (Caerphilly)||Mendelson, J. J.||Thornton, Ernest|
|Edwards, Robert (Bilston)||Millan, Bruce||Wainwright, Edwin|
|Evans, Albert||Milne, Edward||Warbey, William|
|Finch, Harold||Mitchison, G. R.||Watkins, Tudor|
|Foot, Dingle (Ipswich)||Monslow, Walter||Wells, Percy (Faversham)|
|Foot, Michael (Ebbw Vale)||Morris, John||White, Mrs. Eirene|
|Forman, J. C.||Moyle, Arthur||Wigg, George|
|Fraser, Thomas (Hamilton)||Mulley, Frederick||Wilkins, W. A.|
|Galpern, Sir Myer||Neal, Harold||Willey, Frederick|
|George, LadyMeganLloyd(Crmrthn)||Noel-Baker, Francis (Swindon)||Williams, LI. (Abertillery)|
|Ginsburg, David||Noel-Baker,Rt, Hn. Phllip (Derby, S.)||Williams, W. R. (Openshaw)|
|Gourlay, Harry||Oliver, G. H.||Willis, E. G. (Edinburgh, E.)|
|Hale, Leslie (Oldham, W.)||Oswald, Thomas||Winterbottom, R. E.|
|Hall, Rt. Hn. Glenvil (Colne Valley)||Owen, Will||Woof, Robert|
|Hamilton, William (West Fife)||Panned, Charles (Leeds, W.)||Yates, Victor (Ladywood)|
|Hart, Mrs. Judith||Parkin, B. T.||Zilliacus, K.|
|Hayman, F. H.||Paton, John|
|Healey, Denis||Pavitt, Laurence||TELLERS FOR THE NOES:|
|Henderson, Rt. Hn. Arthur (RwlyRegis)||Pearson, Arthur (Pontypridd)||Mr. Ifor Davies and Mr. Grey.|
|Herbison, Miss Margaret||Pentland, Norman|
§ 8.15 p.m.
§ Mr. Barber
I beg to move, in page 59, line 32, to leave out from "Where" to the end of line 36 and to inserton a reorganization of a company's share capital a person receives or becomes entitled to receive in respect of any shares a provisional allotment of shares in or debentures of the company, then unless he neither accepts the allotment nor disposes of his rights before or after the making of the allotment, those rights shall be treated in relation to him and in relation to any person acquiring them directly or indirectly from him as if they were the shares or debentures to which they relate".536 The purpose of the Amendment is to correct two anomalies which have come to light. You will remember, Mr. Blackburn, that in relation to the previous Amendment I went into the operation of paragraph 10 in some detail in the hope that it would save time in dealing with this Amendment.
The alterations to the Bill which are effected by the Amendment relate to two classes of person. First, to a person who has been provisionally allotted a new issue of shares by way of a rights issue 537 or a bonus issue and sells his old shares before taking up his new allotment. Secondly, to a person who buys in the market the right to take up shares, exercises that right, and then sells the shares. I should like to consider briefly the effect on each of these types of person in turn because it is easier to deal with them independently.
First, ate case of the shareholder who has received a provisional allotment to a bonus issue or a rights issue. A sale of rights to take up the new issue is treated in the same way as a sale of the new shares, and the reason for this is that in substance it makes no difference whether a man takes up and then sells his shares, or simply sells the rights to take up the shares. In either case the market price of the old shares would have been reduced because of the bonus issue or the value of the rights attaching to the rights issue, and some part of that value will have been transferred to the new shares, or, if not, taken up, to the rights to take them up.
But a man who finds himself with an enlarged holding as a result of a bonus issue or a rights issue and wishes to realise part of it can sell some of the old shares—the original shares that he had or just as well sell the new shares or the rights. It really makes no difference to him. If he sells the old shares after the rights have been exercised and the new shares are taken up, the rules in the paragraph that we have been considering, about apportioning the total cost of the holding between the old and the new shares, apply. But as the paragraph is drafted they do not apply if the person sells the old shares before taking up the new ones. Obviously the same rules must apply in each case, and the Amendment achieves this in the
§ case of a shareholder who has received a provisional allotment to a bonus issue or a rights issue.
§ The second category that I mentioned was the treatment of a person who exercises a right to take up new shares. The intention was that the six months' period in relation to a sale of shares acquired through the exercise of rights bought in the market should run from the date of the purchase of the rights. Special provision, which is lacking in the Bill as drafted, is needed to secure this result, because, in relation to a sale of shares taken up under the rights the exercise of the rights would be the acquisition, from which the six months' period would run.
§ The Amendment secures that in each case a six months' period in respect of the sale of shares will run from the date of the acquisition of the rights. This was the original intention, and I think that this is clear from the wording of the White Paper dealing with this matter, and again this is corrected by this Amendment.
§ Mr. Mitchison
With much of what the hon. Gentleman has said I think we could all agree, but this raises the same point as that we were discussing on the last Amendment. It raises it in a new context, but it still requires the rights to be treated as if they were the shares or debentures to which they relate. We are opposed to that. We lost the last Division. We hope to win the next and to eject the Government.
§ Question put, That the words proposed to be left out stand part of the Schedule:—
§ The Committee divided: Ayes 142, Noes 207.539
|Division No. 200.]||AYES||[8.20 p.m.|
|Ainsley, William||Castle, Mrs. Barbara||Foot, Dingle (Ipswich)|
|Allen, Scholefield (Crewe)||Chapman, Donald||Foot, Michael, Ebbw Vale)|
|Bacon, Miss Alice||Collick, Percy||Forman, J. C.|
|Baxter, William (Stirlingshire, W.)||Craddock, George (Bradford, 8.)||Fraser, Thomas (Hamilton)|
|Beaney, Alan||Crossman, R. H. S.||Galpern, Sir Myer|
|Bence, Cyril||Cullen, Mrs. Alice||George, LadyMeganLloyd (Crmrthn)|
|Bennett, J. (Glasgow, Bridgeton)||Darling, George||Ginsburgh, David|
|Benson, Sir George||Davies, Harold (Leek)||Gourlay, Harry|
|Blyton, William||Delargy, Hugh||Greenwood, Anthony|
|Boardman, H.||Diamond, John||Hale, Leslie (Oldham, W.)|
|Bottomley, Rt. Hon. A. G.||Dodds, Norman||Hall, Rt. Hn. Glenvil (Colne Valley)|
|Bowden, Rt. Hn. H.W. (Leics. S. W.)||Ede, Rt. Hon. C.||Hamilton, William (West Fife)|
|Boyden, James||Edwards, Rt. Hon. Ness (Caerphilly)||Hart, Mrs. Judith|
|Brockway, A. Fenner||Edwards, Robert (Bilston)||Hayman, F. H.|
|Broughton, Dr. A. D. D.||Evans, Albert||Healey, Denis|
|Callaghan, James||Finch, Harold||Henderson, Rt. Hn. Arthur (Rwly Regis)|
|Herbison, Miss Margaret||Milne, Edward||Skeffington, Arthur|
|Holman, Percy||Mitchison, G. R.||Slater, Joseph (Sedgefield)|
|Houghton, Douglas||Monslow, Walter||Smith, Ellis (Stoke, S.)|
|Hoy, James H.||Morris, John||Soskice, Rt. Hon. Sir Frank|
|Hughes, Cledwyn (Anglesey)||Moyle, Arthur||Spriggs, Leslie|
|Hughes, Emrys (S. Ayrshire)||Mulley, Frederick||Steele, Thomas|
|Hunter, A. E.||Neal, Harold||Stones, William|
|Hynd, H. (Accrington)||Noel-Baker, Francis (Swindon)||Strachey, Rt. Hon. John|
|Hynd, John (Attercliffe)||Noel-Baker, Rt. Hn. Phillp (Derby, S.)||Stross, Dr. Barnett (Stoke-on-Trent.C.)|
|Irving, Sydney (Dartford)||Oliver, G. H.||Swain, Thomas|
|Janner, Sir Barnett||Oswald, Thomas||Swingler, Stephen|
|Jay, Rt. Hon. Douglas||Owen, Will||Taverne, D.|
|Jenkins, Roy (Stechford)||Pannell, Charles (Leeds, W.)||Thomas, George (Cardiff, W.)|
|Jones, J. Idwal (Wrexham)||Parkin, B. T.||Thompson, Dr. Alan (Dunfermline)|
|Jones, T. W. (Merioneth)||Paton, John||Thomson, G. M. (Dundee, E.)|
|Kelley, Richard||Pavitt, Laurence||Thornton, Ernest|
|Kenyon, Clifford||Pearson, Arthur (Pontypridd)||Wainwright, Edwin|
|King, Dr. Horace||Pentland, Norman||Warbey, William|
|Lawson, George||Probert, Arthur||Watkins, Tudor|
|Lee, Miss Jennie (Cannock)||Pursey, Cmdr. Harry||Wells, Percy (Faversham)|
|Lewis, Arthur (West Ham, N.)||Randall, Harry||White, Mrs. Eirene|
|Loughlin, Charles||Redhead, E. C.||Wilkins, W. A.|
|MacColl, James||Rhodes, H.||Willey, Frederick|
|MacDermot, Niall||Roberts, Goronwy (Caernarvon)||Williams, LI. (Abertillery)|
|McInnes, James||Robertson, John (Paisley)||Williams, W. R. (Openshaw)|
|McKay, John (Wallsend)||Robinson, Kenneth (St. Pancras, N.)||Willis, E. G. (Edinburgh, E.)|
|McLeavy, Frank||Rogers, G. H. R. (Kensington, N.)||Winterbottom, R. E.|
|Mallalieu, J. P. W. (Huddersfleld, E.)||Ross, William||Woof, Robert|
|Mapp, Charles||Royle, Charles (Salford, West)||Yates, Victor (Ladywood)|
|Mason, Roy||Short, Edward||Zilliacus, K.|
|Mendelson, J. J.||Silverman, Julius (Aston)|
|Millan, Bruce||Silverman, Sydney (Nelson)||TELLERS FOR THE AYES:|
|Mr. Ifor Davies and Mr. Grey.|
|Agnew, Sir Peter||de Ferranti, Basil||Irvine, Bryant Godman (Rye)|
|Aitken, W. T.||Donaldson, Cmdr. C. E. M.||James, David|
|Allan, Robert (Paddington, S.)||Drayson, G. B.||Jenkins, Robert (Dulwich)|
|Arbuthnot, John||du Cann, Edward||Johnson, Dr. Donald (Carlisle)|
|Ashton, Sir Hubert||Duncan, Sir James||Kaberry, Sir Donald|
|Atkins, Humphrey||Eden, John||Kerans, Cdr. J. S.|
|Balniel, Lord||Elliot, Capt. Walter (Carshalton)||Kershaw, Anthony|
|Barber, Anthony||Elliott, R. W. (N'castle-upon-Tyne,N.)||Kimball, Marcus|
|Barlow, Sir John||Emmet, Hon. Mrs. Evelyn||Kirk, Peter|
|Barter, John||Errington, Sir Eric||Langford-Holt, Sir John|
|Batsford, Brian||Farr, John||Leather, E. H. C.|
|Baxter, Sir Beverley (Southgate)||Finlay, Graeme||Legge-Bourke, Sir Harry|
|Beamish, Col. Sir Tufton||Fraser, Ian (Plymouth, Sutton)||Linstead, Sir Hugh|
|Bennett, F. M. (Torquay)||Galbraith, Hon. T. G. D.||Lloyd, Rt. Hon. Selwyn (Wirral)|
|Berkeley, Humphry||Gardner, Edward||Longden, Gilbert|
|Biffen, David||Gilmour, Sir John||Loveys, Walter H.|
|Bingham, R. M.||Glyn, Dr. Alan (Clapham)||Lubbock, Eric|
|Bishop, F. P.||Goodhew, Victor||Lucas-Tooth, Sir Hugh|
|Black, Sir Cyril||Gower, Raymond||MacArthur, Ian|
|Bossom, Clive||Grant, Rt. Hon. William||McLaren, Martin|
|Bourne-Arton, A.||Grant-Ferris, Wg. Cdr. R.||Maclean, SirFltzroy(Bute&N.Ayrs.)|
|Box, Donald||Green, Alan||Macleod, Rt. Hn. Iain (Enfield, W.)|
|Boyle, Sir Edward||Gresham Cooke, R.||Maddan, Martin|
|Braine, Bernard||Grimond, Rt. Hon. J.||Maginnis, John E.|
|Brooke, Rt. Hon. Henry||Grosvenor, Lt.-Col. R. G.||Manningham-Buller, Rt. Hn. Sir R.|
|Brooman-White, R.||Gurden, Harold||Markham, Major Sir Frank|
|Brown, Alan (Tottenham)||Hall, John (Wycombe)||Marshall, Douglas|
|Bryan, Paul||Hamilton, Michael (Wellingborough)||Mathew, Robert (Honiton)|
|Buck, Antony||Harris, Frederic (Croydon, N.W.)||Matthews, Gordon (Meriden)|
|Bullard, Denys||Harris, Reader (Heston)||Mawby, Ray|
|Bullus, Wing Commander Eric||Harrison, Brian (Maldon)||Maxwell-Hyslop, R. J.|
|Burden, F. A.||Harrison, Col. Sir Harwood (Eye)||Maydon, Lt.-Cmdr. S. L. C.|
|Butcher, Sir Herbert||Harvie Anderson, Miss||Miscampbell, Norman|
|Carr, Robert (Mitcham)||Hay, John||More, Jasper (Ludlow)|
|Cary, Sir Robert||Heald, Rt. Hon. Sir Lionel||Morgan, William|
|Clark, Henry (Antrim, N.)||Henderson, John (Cathcart)||Morrison, John|
|Clarke, Brig. Terence (Portsmth, W.)||Hill, Mrs. Eveline (Wythenshawe)||Nabarro, Gerald|
|Cleaver. Leonard||Hill, J. E. B. (S. Norfolk)||Nicholson, Sir Godfrey|
|Collard, Richard||Hirst, Geoffrey||Noble, Michael|
|Cooper, A. E.||Hobson, Sir John||Oakshott, Sir Hendrie|
|Cooper-Key, Sir Neill||Hocking, Philip N.||Orr-Ewing, C. Ian|
|Corfield, F. V.||Holland, Philip||Osborne, Sir Cyril (Louth)|
|Costain, A. P.||Hollingworth, John||Page, Graham (Crosby)|
|Coulson, Michael||Hooson, H. E.||Page, John (Harrow, West)|
|Craddock, Sir Beresford||Hornsby-Smith, Rt. Hon. Dame P.||Pannell, Norman (Kirkdale)|
|Currie, G. B. H.||Hughes-Young, Michael||Partridge, E.|
|Dalkeith, Earl of||Hulbert, Sir Norman||Pearson, Frank (Clitheroe)|
|d'Avigdor-Goldsmid, Sir Henry||Hutchison, Michael Clark||Peel, John|
|Deedes, W. F.||Iremonger, T. L.||Percival, Ian|
|Pickthorn, Sir Kenneth||Smith, Dudley (Br'ntf'd & Chiswick)||Vane, W. M. F.|
|Pilkington, Sir Richard||Smithers, Peter||Vaughan-Morgan, Rt. Hon. Sir John|
|Pitt, Miss Edith||Spearman, Sir Alexander||Vickers, Miss Joan|
|Pott, Percivall||Speir, Rupert||Wade, Donald|
|Prior-Palmer, Brig. Sir Otho||Stevens, Geoffrey||Wakefleld, Sir Wavell|
|Profumo, Rt. Hon. John||Steward, Harold (Stockport, S.)||Walder, David|
|Proudfoot, Wilfred||Stoddart-Scott, Col. Sir Malcolm||Walker, Peter|
|Rawlinson, Peter||Studholme, Sir Henry||Walker-Smith, Rt. Hon. Sir Derek|
|Redmayne, Rt. Hon. Martin||Talbot, John E.||Ward, Dame Irene|
|Rees-Davies, w. R.||Taylor, Frank (M'ch'st'r, Moss Side)||Wells, John (Maidstone)|
|Renton, David||Taylor, W. J. (Bradford, N.)||Williams, Paul (Sunderland, S.)|
|Ridley, Hon. Nicholas||Teeling, Sir William||Wills, Sir Gerald (Bridgwater)|
|Robinson, Rt. Hn. Sir R. (B'pool, S.)||Temple, John M.||Wilson, Geoffrey (Truro)|
|Roots, William||Thatcher, Mrs. Margaret||Wise, A. R.|
|Ropner, Col. Sir Leonard||Thomas, Leslie (Canterbury)||Wolrige-Gordon, Patrick|
|Royle, Anthony (Richmond, Surrey)||Thompson, Kenneth (Walton)||Wood, Rt. Hon. Richard|
|Russell, Ronald||Thompson, Richard (Croydon, S.)||Worsley, Marcus|
|Scott-Hopkins, James||Thornton-Kemsley, Sir Colin|
|Sharples, Richard||Tiley, Arthur (Bradford, W.)||TELLERS FOR THE NOES:|
|Shepherd, William||Turner, Colin||Mr. Chichester-Clark and Mr. Rees.|
|Skeet, T. H. H.||van Straubenzee, W. R.|
§ Proposed words there inserted.
§ 8.30 p.m.
§ Mr. Graham Page (Crosby)
I beg to move, in page 63, line 21, to leave out from "expenditure" to the end of line 24 and to insert:in respect of which he has received an allowance under section one hundred and one of the Income Tax Act, 1952. The Amendment comes in that part of the Schedule which is headedAdditional provisions as to computation of gains".The Amendment is to sub-paragraph (3), which deals with the deduction of expenses from a gain which has accrued from the acquisition and disposal of land. As the paragraph stands, it provides that one can deduct from the gain made on the disposal of land the expenditure incurred, but one shall make no deduction for expenditure which could be taken into account under Section 101 of the Income Tax Act, 1952. That Section deals with claims for relief from Schedule A by reason of repairs and maintenance.
The offending word in the paragraph is the word "could". I have endeavoured to make the position more definite by providing that a person who acquired and disposed of land should not deduct any expenditurein respect of which he has received an allowance under section one hundred and one of the Income Tax Act, 1952.I can best explain the position by taking an example. Let us suppose that a taxpayer buys a house—not for his own occupation—for £3,000 and that the net annual value for Schedule A purposes is £50. Let us also suppose that he then spends £1,000 on repairs, after which he 542 sells the house for £4,200. He has bought it for £3,000, has spent £1,000 on repairs, and has sold it, at a slight gain, for £4,200.
The whole of that £1,000 spent on repairs could, under some circumstances, be taken into account against his Schedule A assessment, but only the amount of his Schedule A assessment will be set against those repairs so that, the net annual value being £50, he will be able to use up only £50 of that £1,000 spent on repairs in each of the following five years. As I read the Clause, that means that there is a possibility of his having made an actual gain in cash of only £200, plus what he has received by relief against Schedule A, whereas he will be charged for a gain of £1,200. He will be unable to take into account his expenditure on repairs because that can be taken into account against his Schedule A assessment, and to that extent it is excluded as a deduction under the terms of paragraph (3).
If my hon. Friend the Economic Secretary feels that I have a good point, it may be that my Amendment should also exclude the possibility of such a person's having received it as an allowance under Schedule A and then claiming it again. The Amendment might have to go a little further. However, I have raised the point, and I ask my hon. Friend whether my reading of the Clause is right, and, therefore, whether it needs some amendment.
§ Mr. Talbot
I support what my hon. Friend the Member for Crosby (Mr. Graham Page) has said. The purpose of his Amendment is to permit the continuance of the type of transaction which, although it produces profit for the 543 originator, is, nevertheless, of social value. I mean the acquisition of a house which has decayed and which rejuires a considerable amount of repair. The original buyer of the house has spent money on repairs and has then resold it. It is perfectly possible, as my hon. Friend explained, that such a transaction, if carried out under the Bill as it now is, will produce a loss because the repair is not a repair of the annual type with which we are familiar in dealing with Schedule A, and the expenditure incurred is designed to fit the property for the purpose of sale. In other words, it is virtually the creation of a fresh asset.
In these circumstances, I ask the Economic Secretary to look again at this Clause with a view to seeing that the revenue does not have to suffer two types of deduction, and I suggest that the taxpayer should have the option whether he will treat this type of expenditure as a capital expenditure in relation to the capital gain or have it dealt with as part of his general liability in relation to Schedule A.
§ Mr. Barber
I am grateful to my hon. Friend the Member for Crosby (Mr. Graham Page) and my hon. Friend the Member for Brierley Hill (Mr. Talbot), who are both concerned in practice with this sort of matter, for raising this point.
The reason for the somewhat surprising words, on the face of it, which appear in paragraph 15 (3) of this Schedule was because of the way in which Schedule A relief in respect of expenditure incurred on maintenance and so on can be passed on from one owner to another owner of property. I need not go into the details except to tell the Committee that the reason for the wards was, broadly speaking, to prevent a person who had carried out a Case VII transaction and incurred expenditure there also getting taxation relief from the expenditure by way of deduction in computing his Case VII gains as well as getting maintenance relief.
The fact that the purchaser can get tax relief for the vendor's maintenance expenditure will, of course, be reflected in the price of the property, so the vendor gets that much more for it. Even so, I can see the force of my hon. 544 Friend's argument that the rule, as it now appears in the Bill, may be too harsh. So far as the vendor is concerned, his profit will have been reduced by the amount of expenditure which he thought it necessary to lay out in putting the property into repair. So by denying him relief for this expenditure the Bill charges him on more than he in fact makes.
To remedy the matter simply by accepting the Amendment would, I think, result in an undue amount of generosity because it could have the result that taxation relief was given twice over for the same expenditure, once against the Case VII liability of the person who bought, repaired and then resold the house, and, secondly, by way of maintenance relief to the person who bought the house. Consequently, while I cannot advise the Committee to accept the Amendment, my hon. Friend is certainly on to a point which needs further consideration. I suggest to him that perhaps my right hon. and learned Friend should look at this point between now and the Report stage to see whether we can so amend the Bill as to deal in a satisfactory way with this problem. Having said that, I hope that my hon. Friend will seek leave to withdraw the Amendment.
§ Mr. Mitchison
Since the advice of the Government to the Committee is not to press this Amendment but to wait and see what the Government will bring forth, we are willing to wait and see. I agree with the hon. Gentleman that this Amendment, as drafted, would open the door to getting Case VII relief first and then since I think the period is up to six years for maintenance claims—for getting it under a maintenance claim later. I am sure, however, that that is a drafting point. But we on this side of the Committee must not be taken to agree with what the Government are saying. We would rather read what has been said in the debate and, above all, see what the Government finally bring forward, if anything.
§ Mr. Graham Page
It was not my intention that the taxpayer should obtain relief twice over. My hon. Friend the Member for Brierley Hill (Mr. Talbot) expressed it very well when he said that the taxpayer should have the option. I am grateful to my hon. Friend the 545 Economic Secretary for saying that he will look at this matter and, with that assurance, I beg to ask leave to withdraw the Amendment.
§ Amendment, by leave, withdrawn.
§ Question proposed, That the Schedule, as amended, be the Ninth Schedule to the Bill.
§ Sir H. d'Avigdor-Goldsmid
In this debate we say goodbye for the time being to Case VII. It is not a very fond farewell, and not a very long one. We have dealt throughout Case VII with a tax not yet operative, and of which no one yet has any experience. Therefore, to a great extent this has been "played by ear". It is only right that we should congratulate the right hon. and hon. Members on the Government Front Bench on the skilful way in which the Clauses have been drawn and on the very small number of Amendments which they have attracted. But my right hon. and hon. Friends had better remember that these are still very early days. I cannot help feeling that by this time next year there will be matters arising on Case VII of special urgency, and about which we shall have further arguments to advance. I do not wish to say more about that now, but to draw the attention of my hon. Friend to one small matter which is the subject of a starred Amendment which you, Sir William, have not called.
The point has arisen because of the necessity to play this by ear, and, these being complicated matters, such points do not rise immediately to the eye but take a good deal of delving to produce. In paragraph 12 of this Schedule, dealing with company amalgamations, it is laid down on broad lines that where the company issues shares or debentures in exchange for the shares or debentures of another company, the newly issued shares arc treated as if they had been acquired by their receivers at the same time as they originally bought the shares in the old company.
A point arises under Section 206 of the Companies Act, 1929, where it may be desirable for one reason or another—for the capitalisation of shares—for one company not to issue shares to the other company taking over, but to cancel the shares in the old company and then, after cancellation, to undertake to issue further shares in the new company. This 546 is, no doubt, a subject which will be familiar to the hon. and learned Gentleman but I am afraid that it is unfamiliar to me. The point, on which I touch in the Amendment which you, Sir William, did not call, is that the word "exchange" is not an apt word to appear in such an Amendment as would cover this particular eventuality.
For that reason, I tabled a group of Amendments suggesting the use of the word "substitution" for the word "exchange", which I was legally advised would cover this point. I agree that it is of seemingly minor interest, but I have knowledge of one transaction in which it has featured, and company rearangements under Section 206 of the Companies Act, 1948, are not so uncommon. There seems to be no conceivable reason why we should take action in the House of Commons to discourage them per se. For that reason, I hope that my hon Friend in replying will be able to make some reference to the point I have made.
§ 8.45 p.m.
§ Mr. Barber
In a sense, my hon. Friend the Member for Walsall, South (Sir H. d'Avigdor-Goldsmid) has given me notice of this point by tabling Amendments which appeared on the Notice Paper this morning. He has very clearly explained the main purpose of paragraph 12. He has pointed out one way in which he considers that the paragraph is defective. It is important, in view of a particular case which may be covered by what I shall say, that I should make clear what my understanding of my hon. Friend's point is. I understand him to be saying that in some cases a company amalgamation can be effected by way of a scheme of arrangement under Section 206 of the Companies Act, 1948, whereby the existing shares in, say, company B are not acquired by company A but, as my hon. Friend put it, are cancelled and company B issues new shares to company A, it being procured as part of the scheme that company A issues shares to those persons whose shares in company B have been cancelled. It is necessary, in view of what I now propose to say, that I should get that clearly on the record, because we have since this morning carefully considered the point which was set out in the Amendments.
547 We certainly accept in principle that the provisions of paragraph 12 should be extended to cover shares issued under amalgamations of the type which I have described effected by way of a scheme of arrangement under Section 206 of the Companies Act. Having said that, I hope that my hon. Friend will be satisfied, even though on this occasion he has no opportunity of withdrawing his Amendment.
§ Mr. Mitchison
If I may introduce a discordant note into the harmonious self-congratulation which is proceeding between one hon. Member and another on the benches opposite, I want to say that I shall not repeat all that we have said about this tax which we are now leaving. It was conceived, whether by way of evasion or avoidance, to dodge the question of a proper capital gains tax. It consists, in effect, of a net—that is to say, a number of holes with bits of string around them. We have found one Treasury fib already in the middle of it. I have not the least doubt that, if we worked carefully through the incredibly complicated morass of the Ninth Schedule, we should find quite a number of others.
It will be dodged. Of course it will be dodged. The hon. Gentleman was right in saying that further legislation will be needed. All I can say as we leave it is that I think it will be dodged rather more than any of the other provisions of the Income Tax Acts with which we have to deal annually by way of avoidance Clauses.
§ Mr. Barber
Having spent last Sunday reading the Ninth Schedule, I am most grateful to the hon. and learned Gentleman for his generosity.
§ Question put and agreed to.
§ Schedule, as amended, agreed to.
§ Tenth Schedule agreed to.