Commons Sitting of 4 June 1964

Preamble
The House met at half-past Two o'clock
PRAYERS
[Mr. SPEAKER in the Chair]
PRIVATE BUSINESS
  PORT OF LONDON BILL
  As amended, considered; to be read the Third time.
ORAL ANSWERS TO QUESTIONS
  HOME DEPARTMENT

    Abortion
    Commander Keransasked the Secretary of State for the Home Department whether he will introduce legislation to bring up to date those Sections of the Offences Against the Person Act, 1861, which deal with abortion.
    The Secretary of State for the Home Department (Mr. Henry Brooke): I have no present plans for legislation on this subject.
    Commander Kerans: Would not my right hon. Friend agree that there are many establishments performing abortions, in many cases in appalling circumstances, and that this causes hardship to many young girls and a lot of misery in the homes? If my right hon. Friend wants details, the Abortion Law Reform Society can supply a considerable mass of details covering the last few years. Surely doctors in this country should have greater freedom, especially on eugenic and rape grounds, to perform abortions. It is over a hundred years since the last legislation on the subject was introduced. Surely it is a matter that the Government should consider now.
    Mr. Brooke: My hon. and gallant Friend knows that this is a highly controversial question. He has referred to
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    the views of doctors. I am sure that he is also aware that there is a very strong body of opinion in the medical profession in favour of leaving the law as it is.
    Mr. K. Robinson: Does the Minister's Answer mean that he is satisfied with the present Statute and with all the consequences that flow from it, or does it merely mean that the Government regard it as inexpedient to embark on such controversial legislation at this stage of this Parliament?
    Mr. Brooke: Certainly not the latter. I am never satisfied, but I have doubts whether it is now appropriate to introduce legislation to amend this Act.

    Electoral Law
    Mr. W. Hamiltonasked the Secretary of State for the Home Department if, in view of widespread dissatisfaction with the present state of the electoral law, he will initiate all-party discussions with a view to possible amendments.
    The Joint Under-Secretary of State for the Home Department (Mr. C. M. Woodhouse): My right hon. Friend has no evidence of widespread dissatisfaction, but he is considering certain proposals for electoral reform put forward by the parties and from other sources.
    Mr. Hamilton: Is the hon Gentleman aware that the provisions of the law as far as expenses are concerned are being deliberately flouted by the Tory Party, that the 1949 Act never intended that colossal sums of money should be spent in the way that they are being spent by the party opposite in the months preceding an election, and that action should be taken to stop this abuse of a democratic process?
    Mr. Woodhouse: I expected that the hon. Gentleman had some grievance on his mind, but I would remind him that it is the traditional practice that the electoral law should not be amended in the closing stages of a Parliament. I have given an indication that the whole subject is under review for action in the next Parliament.
    Sir Knox Cunningham: Would my hon. Friend, in order to avoid what is in practice a restriction of the franchise, consider giving postal votes to those away on holiday?
    Mr. Woodhouse: This is the subject of a Private Member's Bill which is now before the House and I do not think it is a matter that can be dealt with by way of Question and Answer now.
    Mr. Fletcher: May we take it, with regard to that Measure as well, that the Minister agrees that there should be no change in the electoral law in any respect in the closing stages of a Parliament?
    Mr. Woodhouse: I think that I have already made that clear.

    Marriage Laws, Scotland
    Mr. Vaneasked the Secretary of State for the Home Department whether he is aware of the damaging effect on respect for English marriage laws resulting from couples from foreign countries who travel across England to take advantage of the marriage laws in Scotland as highlighted by the marriages at Gretna Green; and whether he will consult the Secretary of State for Scotland with a view to agreeing the application of a code nearer to that of England in respect of persons not normally resident in Scotland, who wish to marry there.
    Mr. Woodhouse: I assume that my hon. Friend has in mind the marriage of minors to which parental consent is required in England but not in Scotland. I understand that from time to time consideration has been given to the possibility of amending the Scottish law on the lines of my hon. Friend's suggestion, but that no practicable method of preventing such marriages has been found which would not involve a fundamental and unacceptable alteration of the Scottish marriage law.
    Mr. Vane: Is my hon. Friend aware that that is not a very robust Answer? While not wishing to exaggerate, may I ask whether he is aware that this long-established local racket is now becoming a European scandal, that even the West German Government are beginning to consider it and that people concerned with moral welfare on both sides of the Border have long felt that this is a situation which should be changed? Whereas I am concerned with the shame which reflects on Scotland, I am concerned with such part of the shame as reflects on
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    England. This is happening just across our Border, and surely my hon. Friend will look at the matter again.
    Mr. Woodhouse: In so far as my hon. Friend's Question affects Scottish law, I must refer him to my right hon. Friend the Secretary of State for Scotland. With great respect to my hon. Friend, I am unable to see how it can bring English law into disrepute if foreign minors marry in Scotland.
    Mr. Fletcher: Would not the Joint Under-Secretary agree that if Europeans want to avail themselves of Scottish law at Gretna Green there is no need for them to go through England to do so?
    Mr. Woodhouse: It is also a misconception to link this practice exclusively with Gretna Green. It is exactly the same in any other part of Scotland.

    Lonsdale and Blake
    Lieut.-Colonel Cordeauxasked the Secretary of State for the Home Department what steps were taken to prevent any communication between Gordon Lonsdale and George Blake during the period when they were both imprisoned in Wormwood Scrubs Prison in 1961.
    Miss Baconasked the Secretary of State for the Home Department, in view of the further evidence now available regarding de association in Wormwood Scrubs Prison of Lonsdale and Blake, if he will make an investigation to see whether his instructions regarding these prisoners were fully carried out.
    Mr. Brooke: I would refer to the Answer I gave to my hon. Friend the Member for Tynemouth (Dame Irene Ward) on 14th May.
    Lieut.-Colonel Cordeaux: Can my right hon. Friend assure the House that there is no truth at all in the recent reports in the Sunday Times on this matter, including the statement that a senior Whitehall official had stated that there was an association between these two men? If he cannot give that assurance, will my right hon. Friend say whether he agrees with that particular senior Whitehall official that any information passed on by Blake to Lonsdale must now be out of date, including,

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    I presume, details of the interrogation methods we ourselves used against Blake?
    Mr. Brooke: I have had extensive inquiries made and I have no reason to believe that any Whitehall official made any statement that Lonsdale and Blake had communicated. As I said in my previous Answer, strict instructions were given that they should be kept apart. The recollection of those concerned suggests that they were kept apart, but I cannot, at the end of three years, prove conclusively anything one way or another. I certainly can say that even if Blake had had any chance to communicate information to Lonsdale in those few weeks when they were in Wormwood Scrubs together, it is highly doubtful whether it would have been of any interest or assistance to the Russians.
    Miss Bacon: Was not the right hon. Gentleman's Answer rather evasive when he replied to me a few weeks ago saying that precautions were taken in accordance with instructions given to the Governor to prevent any communication between them? Is he aware that he did not, in fact, say that there was no communication? If there was no communication, what action will the right hon. Gentleman take in regard to the affidavits which were sworn by Mr. Andrews, who was in prison at the same time? Will the right hon. Gentleman state specifically whether or not there was any communication?
    Mr. Brooke: I have no reason whatever to believe that there was any communication. On my instructions, a number of members of the prison staff who were on duty at Wormwood Scrubs at the time have been questioned and they have all affirmed that to the best of their knowledge and recollection the Governor's instructions, which emanated from me, were carried out.
    The hon. Lady referred to someone who was at the time a prisoner at Wormwood Scrubs and who has made statements. He waited nearly three years before making those statements, which seems odd if he really had important knowledge to communicate. As he has been mentioned, I must say that he was a prisoner of a doubtful mental state who had been sent to Wormwood Scrubs for psychiatric investigation.
    Dame Irene Ward: Since nearly all these people's evidence seems unreliable, may I ask my right hon. Friend why, when those statements were made, it was necessary to wait for Questions to be asked in the House of Commons to refute them? Why did he not immediately come out and slap down the people who caused great anxiety among the public, remembering that it is the public who need to be reassured, not the House of Commons or even my right hon. Friend? Will he slap them down when they make these statements?
    Mr. Brooke: I try to show respect to the House of Commons. If I spent my time slapping down every false rumour or statement which appears in every newspaper I should be far too busy.
    Mr. Bowlesasked the Secretary of State for the Home Department now that Gordon Lonsdale has been released, what is to be the future of others who were sentenced to prison at the same time.
    Mr. Brooke: It is not in my mind to recommend any remission of the sentences in question.
    Mr. Bowles: Without in any way referring to the trial or the sentence, may I ask the right hon. Gentleman what were the principles on which the Government acted in the Lonsdale case? He appeared to us to be the ringleader of the whole matter. Is it fair to leave the other people in prison? Why is it that Lonsdale alone of the four or so was allowed to go back to his own country?
    Mr. Brooke: The Foreign Office statement on Lonsdale and Wynne made clear that the Government agreed to the exchange from humanitarian motives because of Mr. Wynne's physical condition. Surely Mr. Wynne's health since his return has confirmed the humanity of that decision. No similar circumstances arose in connection with Lonsdale's fellow spies.
    Lieut.-Colonel Cordeaux: Does not my right hon. Friend agree that these cases could not possibly be more dissimilar? Whereas Lonsdale in certain lights could be regarded as a patriot, the other people for whom the hon. Member for Nuneaton (Mr. Bowles) is appealing are no more than squalid, mercenary traitors.
    Mr. Brooke: Without expressing definite opinions on all that, I think that the House will agree that the case for the exchange of Lonsdale and Wynne fell entirely separately from the cases of the other four who had been convicted.

    Commonwealth Immigrants
    Sir C. Osborneasked the Secretary of State for the Home Department, in view of the fact that 300,000 Indians and Pakistanis who have no work permit, voucher or money are wanting to emigrate to Great Britain and of the difficulties of deciding how many people from overseas to admit, what recent communications he has had with Commonwealth governments regarding the maximum figure; what action he proposes to take when it has been reached; and if he will make a statement.
    Mr. Brooke: We are in touch with other Commonwealth Governments about the working of the control, but it is for us to decide the rate at which Ministry of Labour vouchers should be issued. As has been made clear on previous occasions, this is determined by what we consider to be the rate at which the United Kingdom can absorb immigrants. It is not affected by the number of applications pending.
    Sir C. Osborne: Can my right hon. Friend say, first, what is the maximum number of Commonwealth immigrants the Government consider this country can safely absorb and, secondly, since it is the working class people in the poorer districts of our great cities who must put up with the social consequences of this invasion, and since overwhelmingly they want it stopped, will not my right hon. Friend heed their cry and do something for them?
    Mr. Brooke: I want to make one thing absolutely clear. The Government were fully justified in bringing in the Commonwealth Immigrants Act when they did, despite the vigorous opposition of both the other parties. At the same time, my hon. Friend should bear in mind the fact that the number of Commonwealth immigrants unemployed is less than one-third of the number who were unemployed when the control came into force two years ago. I hope that he will trust my right hon. Friends and myself to
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    administer in a wise way these powers of control which Parliament has now given us.
    Mr. N. Pannell: Does not my right hon. Friend realise that if these 300,000 outstanding applicants and their dependants were allowed in in the next few years it would create a calamitous situation? If my right hon. Friend does not intend to allow them in, should he not state frankly that he will not do so and also state that those without jobs to come to or without special skills will not be considered as applicants until further notice?
    Mr. Brooke: The issue of vouchers is a matter for my right hon. Friend the Minister of Labour and not for myself. My hon. Friend has done right in drawing attention to the fact that there are now 300,000 people who have made application for vouchers to come to this country and that vouchers have not been issued to them. Had the Act not been passed I cannot see anything that could have stood in the way of all of them coming here.

    Immigrants (Foster-Homes)
    Sir C. Osborneasked the Secretary of State for the Home Department if he will investigate the baby farming which has developed amongst immigrants and the increase of foster-homes, many of which are dirty, unhealthy and dangerous, run by people willing to look after babies for £2 or £3 a week, with a view to taking steps to strengthen the Children Act 1958, which makes provision for the fostering of children; and if he will make a statement.
    Mr. Brooke: This is a problem to which I have been giving attention for some time, and about which I know that some local authorities are concerned. The provisions for the protection of children who are privately placed with foster-parents; were strengthened by the Children Act, 1958, and the powers now available to local authorities are a good deal more extensive than has been suggested. My Department and its inspectors will continue to keep in very close touch with the local authorities and their children's officers about the full and effective exercise of the statutory powers available to them.
    Sir C. Osborne: Is my right hon. Friend satisfied that the powers under the Children Act, 1958, are being fully employed, for is he not aware that in the last few weeks the Daily Mail has produced a series of articles giving the most appalling examples of baby farming? Surely my right hon. Friend should have this stopped and, once again, surely he will admit that this is another aspect of Commonwealth immigration which we must regret?
    Hon. Members: No.
    Sir C. Osborne: Oh yes, it is.
    Mr. Brooke: The articles published in the Press have not been wholly correct. It is not for me to issue instructions to local authorities as to the action they should take in this matter. I am quite satisfied that there are powers in the hands of the local authorities, which some of them are not exercising. They would be well advised to do so.
    Miss Bacon: Is the right hon. Gentleman aware that while we deplore baby farming, however it takes place, it is not confined to one section of the community? Is he further aware that if men had sufficient money so that their wives need not go out to work and if we had proper nursery schools and nursery classes it would not be possible for these baby farms to exist?
    Mr. Brooke: The fortunate thing is that under the Conservatives we have very high employment and very good wages. I am adressing myself to the main Question, which is whether there are children who are in the hands of foster-parents who are not fit to have them. My answer to that is that the local authorities have power to intervene in those cases, and I should like to see them doing so.
    Sir C. Osborne: On a point of order. In view of the unsatisfactory nature of my right hon. Friend's reply, I beg to give notice that I shall, with your permission, Mr. Speaker, raise the matter on the Adjournment.

    Regional Commissioners (Central and Local Government Services)
    Sir J. Maitlandasked the Secretary of State for the Home Department if he will designate the services, civil
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    defence, housing and local government, health services, transport services and other government or local government services, which are contained in the geographical areas for which regional commissioners are appointed in peace time; and to what extent these regions are self-contained.
    Mr. Brooke: In a national emergency regional commissioners would be appointed to take control, as necessary, of all services of central and local government and other bodies in their regions. Civil Defence plans are made on the assumption that, after a nuclear attack, the civil defence regions would have to be as self-contained as possible.

    Victims of Crimes of Violence (Compensation)
    Mr. Prenticeasked the Secretary of State for the Home Department (1) what modifications he proposes to make to the scheme for compensating the victims of crimes of violence; and if he will make a statement;
    (2) if he will give the starting date for the scheme for compensating the victims of crimes of violence.
    Mr. C. Johnsonasked the Secretary of State for the Home Department if he is now in a position to announce the names of the chairman and other members of the Victims of Crimes of Violence Compensation Board; what are the terms and conditions of their appointments; and whether they are to be on a full-time or part-time basis.
    Mr. Fletcherasked the Secretary of State for the Home Department, in view of the criticisms made of the White Paper on Compensation for Victims of Crimes of Violence, when he proposes to issue a further White Paper outlining the scheme he now recommends.
    Mr. Brooke: My right hon. Friend the Secretary of State for Scotland and I have considered all the points made in the debates in this House and in another place on the White Paper on Compensation for Victims of Crimes of Violence. We intend to make a number of modifications to the scheme outlined in the White Paper, and I shall be making a further statement to Parliament about this very soon, and announcing at the same time the name of the chairman of

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    the compensation board and the date on which the scheme will come into operation.
    Mr. Prentice: Can the Home Secretary tell the House how soon "very soon" is, and when he expects to make his statement? Will he be issuing another White Paper, or some other details in writing of the scheme as modified? Is it not a fact that many aspects of the scheme were criticised very strongly on both sides of the House in the debate on 5th May? If I am right in thinking that there are to be modifications, ought not the House—and, indeed, people outside the House—to have the revised scheme in writing so that they can see what it involves?
    Mr. Brooke: It was not so much a question of the scheme being criticised as of the Government inviting suggestions from both sides of the House on a draft scheme, and welcoming them. I certainly think that in the light of those debates the scheme can he improved. I do not think that it will be necessary to issue another White Paper, but I am anxious to give to the House the proposed modifications in the scheme so that they will be on record in HANSARD. I shall certainly endeavour to make a further statement within the next two or three weeks.
    Mr. Johnson: In view of the Home Secretary's assurance that no scheme would be introduced except with the express approval of Parliament, does the right hon. Gentleman really think that a simple statement to the House—with, perhaps, a few supplementary questions—is sufficient? Ought he not to submit a White Paper showing clearly what is involved? On a minor point, in regard to the composition of the Board, has the right hon. Gentleman given any consideration to the criticism made that all the members should necessarily be lawyers?
    Mr. Brooke: No, Sir. I never made a statement that the scheme would not come into force until express approval had been given to it in all its details by Parliament. Indeed, I think that it is the wish of both sides of the House that the scheme should be brought into force as soon as possible. In the light of the valuable debates that have taken place, I would ask the hon. Member to
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    await my further statement with regard to any detailed modifications.
    Mr. Fletcher: The Home Secretary will surely realise that in our debate it became apparent that the White Paper is riddled with ambiguities. He himself was unable to explain, for example, the meaning of the basis, in paragraph 22 of the White Paper, on which compensation would be awarded. He had no clear idea what would be meant by the exclusion of any award for loss of expectation of happiness. Is he not aware that while we all share his anxiety that this scheme should be brought into operation as soon as possible, it is desirable that the ambiguities, and some inconsistencies, in the White Paper should be remedied by a new White Paper setting out precisely the basis on which Parliament has authorised the scheme?
    Mr. Brooke: I must rebut the hon. Gentleman's charges. It is perfectly true that we could have presented a White Paper not capable of amendment by Parliament, and asked Parliament to approve it or reject it. I should have thought that the whole House believed that we had done more sensibly and reasonably in presenting the White Paper and asking Parliament to debate thereupon. That debate brought to light some ambiguities and some possible improvements, and I am proposing to make a further statement to Parliament to indicate how far the Government feel able to go, and in a number of directions it will be found that we have met the points that have been raised in order to improve the scheme. Having said that, I do hope that I shall have the support of the whole House in getting this scheme in operation as soon as possible.

    U Aung Than (Visa)
    Mr. Wyattasked the Secretary of State for the Home Department why he will not allow U Aung Than a visa to visit this country.
    Mr. Brooke: I am not satisfied that U Aung Than has either an acceptable travel document or an acceptable motive for wishing to come to this country.
    Mr. Wyatt: While realising that the Home Secretary has no interest in civil

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    liberty—[HON. MEMBERS: "Oh."]—is it not, nevertheless, an extraordinary departure to refuse a political refugee a visa to come to this country simply because the dictator of Burma has asked the Foreign Office for the man to be refused one—[HON. MEMBERS: "0h."]—oh, yes, I have all the information. And hon. Members opposite need not smirk. This is a very serious matter—
    Sir H. Butcher: On a point of order, Mr. Speaker. Is it not a fact that all remarks addressed by any hon. Member are directed to the Chair; and that, therefore, suggestions to stop smirking should be immediately withdrawn?
    Mr. Speaker: Observations should be addressed to the Chair. Questions should not contain observations of any kind. Let us get on.
    Mr. Wyatt: I apologise, Mr. Speaker. Will not the Home Secretary look at this matter again, because the dictator of Burma asked the British Foreign Office to refuse this man a visa as a political refugee? He has 800 people under arrest, including most members of previous Governments. He simply does not want the man to come here, because he wishes to curb any kind of opposition that may be raised in Burma. If President Tshombe could be given a visa, although he had no travel document, why could not this man, who is a very good friend of the British, be given one?
    Mr. Brooke: The hon. Member says that he has all the information, but I appear to have a great deal more than he has. Mr. Tshombe was not able to come here until he had a travel document. My concern in this matter is quite simple. U Aung Than has not a travel document, and in those circumstances I am not prepared to agree to his admission.
    Mr. Wyatt: But does not the Home Secretary remember that when President Tshombe went to Spain he had no travel document, either? There is no rule whatever that prevents the Home Secretary giving someone a visa to come here merely because he has not a proper travel document—he can give the person one himself.
    Mr. Brooke: I am not responsible for what the Spanish authorities do—I have
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    quite enough to do controlling entry into this country—and it would be wholly wrong, and contrary to all precedent, if I were to agree to the admission into this country of a person who had no valid passport of his own country, and no acceptable travel document.
    Mr. Wyatt: On a point of order, Mr. Speaker. Owing to the very unsatisfactory nature of the reply, I shall seek to raise the matter on the Adjournment. It is one of the Home Secretary's usual flops.

    Harold Graham Dunsmore
    Lieut.-Colonel Cordeauxasked the Secretary of State for the Home Department if he will recommend the grant of a free pardon to Harold Graham Dunsmore, 15 Clarence Street, Nottingham, who was released from Rochester Borstal on his instructions on 9th May.
    Mr. Brooke: No, Sir. It would be contrary to long established practice to make such a recommendation in such circumstances as existed in this case.
    Lieut.-Colonel Cordeaux: As this young man was convicted of being in unlawful possession of three separate objects, and as subsequent investigation showed that he was in lawful possession of two of them, and the only possible evidence in connection with the third one supported his story that he had found the particular object—which was worth very little, in any case—would not my right hon. Friend agree that the young man's whole story ought to be believed? In that case, would he not think it a very obvious case for the recommendation of a free pardon, particularly as this young man has now served a sentence in a prison or borstal of six months for this offence and, for some astonishing reason, he was refused legal aid at the time of his appeal?
    Mr. Brooke: No, Sir. I admire the trouble that my hon. and gallant Friend has taken on behalf of this young man, but no one knows how the young man became the owner of the third of these objects. First of all, he said that he had bought it from a friend in Leeds. Later, he said that he had bought it from a friend in London. At his trial, he said that he had bought it from a friend in Nottingham. Subsequently, he said that

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    he had found it. I really cannot accept this as the kind of clear evidence needed before a free pardon is granted—that he was, beyond question, in lawful possession of the object.
    Lieut.-Colonel Cordeaux: On a point of order, Mr. Speaker, In view of the unsatisfactory nature of my right hon. Friend's Answer, I should like your leave to raise the matter later on the Adjournment.

    Children (Remands to Prison)
    Mr. A. Brownasked the Secretary of State for the Home Department how many children, being persons under the age of 17, were remanded to prison instead of remand homes and remand centres during the period 1st January to 30th April, 1964.
    The Joint Under-Secretary of State for the Home Department (Miss Mervyn Pike): 213 persons under 17 were remanded to prison in this period.
    Mr. Brown: Is my hon. Friend aware that that figure seems slightly higher than the figure for the corresponding period last year? Is she aware that as long ago as July, 1960, the then Minister of State, Home Department, promised the House that steps would be taken to end this out-dated practice of remanding children to prison?
    Miss Pike: I assure my hon. Friend that the number does not show an increase. It is the general trend. We are not complacent about it. We are anxious to bring it down.
    Miss Bacon: Is the hon. Lady aware that in 1961 the then Home Secretary, now the Foreign Secretary, promised that we should very soon have many new remand centres opened? When will they be opened? Three years later very little appears to have been done.
    Miss Pike: There is a Question later on the Order Paper on this subject.
    Mrs. Braddock: Is the hon. Lady aware that many magistrates, myself included, when they sit in juvenile courts are informed by the clerk of the court before even the case starts that there are no vacancies in remand homes? Is she aware that the magistrates are left in the position, when there is no place of security, despite the fact that they do not
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    want children to be sent to prison, of having to send them there in many cases in order to avoid difficulties and to save the time of the police in looking for boys who do not come to court when they have been allowed to go home? This is a difficult matter which ought not to be allowed to continue any longer.
    Miss Pike: I think that the hon. Lady will be more than satisfied when she hears the Answer to a later Question.

    Young Offenders (Accommodation)
    Mr. A. Brownasked the Secretary of State for the Home Department what progress has been made in the provision of secure accommodation for young offenders, with particular reference to the provision of remand centres.
    Miss Pike: For borstals and detention centres I would refer my hon. Friend to paragraphs 43 and 44 of the White Paper on The War against Crime (Cmnd. 2296). There are three secure units in remand homes and three are being established in approved schools. Eight remand centres are under construction; all should be occupied in the next 12 months.
    Mr. Brown: Is my hon. Friend aware that four years ago the House was promised nine remand centres? Is she satisfied with the progress that has been made in the provision of these centres?
    Miss Pike: We are never satisfied, because we always want to go faster, but the Winchester centre will probably be opened next month with 40 places, Cardiff and Exeter about September with a further 40 places, and Leeds in October with 100 places. By the end of 12 months there should be 655 remand places in addition to the 300 at Ashford at present.
    Miss Bacon: Is the hon. Lady aware that the present Foreign Secretary, then the Home Secretary, said over three years ago that seven new remand centres were about to be opened? Why has it taken such a long time to get them opened? We have had only one opened in those three years.
    Miss Pike: I am sure that the hon. Lady knows of the difficulties in planning and opening these remand centres. We have got them going and in the next 12 months we shall have a very satisfactory record.

    Legal Aid (Departmental Committee)
    Mr. Hector Hughesasked the Secretary of State for the Home Department if he will extend the scope and terms of reference of the Departmental Committee he has appointed to examine and report on the arrangements and machinery for providing legal aid in criminal proceedings in such a way as to enable the Committee to consider and report on the costs of such proceedings and on the provision of compensation to persons injured or financially damaged by criminal acts.
    Mr. Brooke: I do not consider it advisable to extend and complicate the Committee's task in these ways. The Government is already, as the House knows, introducing a scheme for the compensation of victims of crimes of violence.
    Mr. Hughes: Does the Home Secretary realise that that Answer is just as complicated as the reference to the Committee, and gives no information whatsoever? Is he aware that great injustice may be done to a person who is charged and found not guilty and then has to pay his own costs and thereby may suffer great financial and other loss? Will the right hon. Gentleman see that the Committee provides for this?
    Mr. Brooke: I am sorry that the hon. and learned Member was not able to understand my transparently clear Answer, but the addition of these other questions, which he suggests, would entirely change the character of the task of the Committee whose members were selected to advise on legal aid.
    Mr. Hughes: On a point of order. In view of the unsatisfactory nature of the reply, I beg to give notice that I propose to raise the matter on the Adjournment at the earliest opportunity.

    Metropolitan Police Divisions
    Mr. MacCollasked the Secretary of State for the Home Department (1) in how many divisions of the Metropolitan Police parts of the new City of Westminster will be included;
    (2) what steps he is taking to bring the Metropolitan Police divisions into line with the new local government and petty sessional areas.
    Mr. Brooke: Under the present organisation of the Metropolitan Police District, parts of the new City of Westminster will be included in seven divisions. I am however examining proposals which the Commissioner has just submitted to me for a reorganisation of the divisions in the Metropolitan Police District, which would in general align the boundaries of police divisions and sub-divisions with those of the new local authorities defined in the London Government Act, 1963, and of the new petty sessional areas that will result from the Administration of Justice Bill.
    Mr. MacColl: Is the Home Secretary aware that that is a very satisfactory answer if he is going to bring it into operation when the Act comes into operation? Is he aware that the splitting up of boroughs between divisions is not only administratively bad for police arrangements but from the public relations point of view it creates a lack of direct contact between the police, the courts and the local authorities?
    Mr. Brooke: I have great sympathy with what the hon. Member has said. I think that he and I are at one on the purposes which we desire to achieve if possible.

    Cremation Regulations
    Mr. Holtasked the Secretary of State for the Home Department if he will introduce amending legislation at an early date to give discretion to coroners concerning cremation where an offence is alleged and prosecution is pending under Section 1 of the Road Traffic Act, 1960.
    Mr. Woodhouse: My right hon. Friend intends, in the course of the next month or two, to make new Cremation Regulations which will include a provision giving the coroner discretion to issue at any time after an inquest has been opened a certificate which will enable cremation to be authorised.
    Mr. Holt: While thanking the hon. Gentleman for that Answer, may I ask whether he is aware that in my constituency a boy died as a result of a car accident in January and that his body is still in cold storage because of an offence by his friend who was driving his car, which comes under Section 1

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    of the 1960 Road Traffic Act? This is highly embarrassing to all concerned. May I have an assurance from the hon. Gentleman that the amending Regulations which he intends to bring in within a month will take care of that kind of case?
    Mr. Woodhouse: I am aware of the very unhappy case to which the hon. Member refers. I think that he understands the circumstances in which the case arose under the existing law. It will certainly be taken care of in the new Regulations.
    Mr. Lubbock: Can the hon. Gentleman say whether the revision of the Cremation Regulations will provide for a maximum charge for death certificates in these cases? Will he also provide for only one death certificate to be issued in the case of cremation instead of two as at present?
    Mr. Woodhouse: Without notice, I could not give the hon. Member an answer on those two points, but they have both been considered in the review of the Regulations.
    Mr. Gresham Cooke: Will a certificate be necessary for the demise of the Liberal Party?
    Mr. Woodhouse: That is not a question for me.

    Seaside Resorts (Hooliganism)
    Sir T. Mooreasked the Secretary of State for the Home Department what plans he has for dealing with the hooliganism which recently wrecked the peace of seaside towns.
    Sir W. Teelingasked the Secretary of State for the Home Department (1) if he will introduce legislation to enable the fines imposed on hooligans to go towards the cost of repairing the damage they have caused;
    (2) if he will make arrangements to prevent repetition over the August Bank Holiday of incidents at seaside resorts, such as those that occurred at Whitsun, by drafting Metropolitan Police to a camp on Sussex Downs ready to go to any emergency call along the coast over Bank Holiday periods.
    Sir J. Edenasked the Secretary of State for the Home Depart-
    1238
    ment (1) whether he will now introduce legislation to restore the use of judicial corporal punishment as a means of dealing with persons convicted of wanton destruction of property and of deliberately causing physical injury to others;
    (2) what special steps he is taking to prevent further outbreaks of youth gang fighting such as that which occurred at a number of seaside resorts recently; and if he will make a statement.
    Mr. N. Pannellasked the Secretary of State for the Home Department what steps he is taking to counteract mass hooliganism by young people, particularly at seaside resorts on public holidays.
    Mr. David Jamesasked the Secretary of State for the Home Department (1) whether he will introduce legislation empowering the courts to deprive juvenile hooligans who invade seaside resorts of their vehicles and driving licences if convicted of any breach of the peace;
    (2) if he will introduce legislation to create a more serious offence, capable of carrying much heavier penalties, for those who persistently wreck the peace, cause wanton damage or molest peaceful citizens.
    Mr. Lipton askedthe Secretary of State for the Home Department if he will take steps to strengthen the powers of the police to deal with outbreaks of juvenile hooliganism.
    Mr. Brooke: I will, with permission, answer this Question and Questions Nos. 27, 23, 29, 33, 40, 41, 42 and 46 at the end of Question Time.

    Preventive Detention
    Mr. Doddsasked the Secretary of State for the Home Department if he will make a statement on the result of the consideration he has given to the report of the Government Advisory Council recommending the abolition of preventive detention.
    Miss Pike: The Advisory Council on the Treatment of Offenders recommended that preventive detention should be abolished and that the powers of the courts to deal with persistent offenders by long sentences of ordinary imprisonment should be strengthened. These recommendations, which would require

    1239
    legislation, raise difficult issues, and my right hon. Friend has not yet completed his consideration of them. My right hon. Friend will make a statement as soon as possible.
    Mr. Dodds: I thank the hon. Lady for what she has said, but will she endeavour to persuade her right hon. Friend to make a decision as soon as possible, as many people were very upset when a man who had committed petty offences was recently sentenced to eight years preventive detention?
    Miss Pike: I can only repeat that my right hon. Friend is looking at this as a matter of urgency.

    Henry Scudder
    Mr. Doddsasked the Secretary of State for the Home Department if he will now make a statement on the case of Henry Scudder, who was sentenced to nine years' imprisonment at the Central Criminal Court on 12th May, 1960, in respect to which a petition has been sent to him by a firm of solicitors as well as a letter dated 1st May, 1964, by the honourable Member for Erith and Crayford suggesting inquiry into the possibility of a miscarriage of justice.
    Miss Pike: Inquiries are in progress, and I am not yet in a position to make a statement.
    Mr. Dodds: Will the hon. Lady try to get something done in this case? Is not she aware that there is substantial evidence that the man has not had a square deal at all? Does she know that he has been granted legal aid to take proceedings for negligence or breach of contract against the solicitors who should have represented him, and that he has been in prison for four years?
    Miss Pike: Again, I assure the hon. Gentleman that we realise the urgency of this matter.

    River Thames (Hooligans)
    Mr. Gresham Cookeasked the Secretary of State for the Home Department if, in order to deal with the problem of hooligans on the banks of the Thames, he will take steps to set up a joint river police force operating from Teddington Lock up to Lechlade, Gloucestershire, with power to apprehend offenders com-
    1240
    mitting acts of vandalism from the banks of the river.
    Mr. Brooke: The Commissioner of Police of the Metropolis accepts the desirability of extending his river patrols to the stretch between Teddington Lock and Staines, and is in consultation with the Thames Conservancy with a view to making arrangements for this. In the upper reaches of the river, offences are usually committed from along the river banks and adjoining recreation grounds, and can most effectively be dealt with by policemen on foot, rather than by boat patrols. The riparian police forces already co-operate with one another to whatever extent is necessary, and I do not think there is a need to set up a new force.
    Mr. Gresham Cooke: Will my right hon. Friend bear in mind that the throwing of bottles from the banks, the shooting of air guns from the banks and other acts of hooliganism cannot always be dealt with by foot police because of the lack of such police on the banks? Would it not be better either to give powers to the Thames Conservancy navigation officers to go on the banks from a boat or to set up the joint police force which I have suggested?
    Mr. Brooke: No. Sir. I know my hon. Friend's sincere concern about all this, but it seems to me that someone throwing bottles or shooting an air gun from the bank is much more likely to be caught by a policeman on the bank than by a policeman in a boat.

    Young Men (Prison Sentences)
    Mr. Boydenasked the Secretary of State for the Home Department how many young men under 21 years of age were sent to prison during 1963; and how these figures compare with 1962, 1961, and 1951.
    Miss Pike: As the Answer consists of a table of figures, I will, with permission, circulate it in the OFFICIAL REPORT.
    Mr. Boyden: Is there not a general deterioration? Will the hon. Lady consider much more active steps among magistrates, with Her Majesty's judges, to discuss the situation which these figures reveal so that more concerted steps can be taken to keep young men out of prison?
    Miss Pike: We do regard this as a matter of urgency, and we are keeping magistrates in consultation with us all the time.
    Sir T. Moore: Will my hon. Friend remember that, on both sides of the House, we all intensely dislike the fact that young people can still be sent to prison? As I have frequently suggested, would not a good spanking on the behind meet the case far better?
    Miss Pike: That is a much wider question.
    Following are the figures:

    MALES UNDER 21 YEARS RECEIVED UNDER SENTENCE OF IMPRISONMENT: 1951, 1961 AND 1962

    Year

    In default of payment of fine

    Without the option of payment of fine

    Total

    6 months and under*

    Over 6 months

    1951

    114

    833

    323

    1,270

    1961

    427

    1,863

    739

    3,029

    1962

    468

    1,467

    756

    2,691

    * Detention centres, as an alternative to imprisonment for 6 months and under, were available to certain courts in 1961 and 1962.

    Figures for 1963 are not yet available.

    Detention Centres
    Mr. Boydenasked the Secretary of State for the Home Department how effective detention centres have been so far in checking criminal tendencies in young men under 21 years of age.
    Miss Pike: Reconviction figures for detention centres are given on page 52 of the Statistical Tables to the Prison Commissioners' Annual Report for 1962; I consider them encouraging, but evaluation of the effects of penal treatment is a complicated matter on which research is continuing. I refer the hon. Member to Part VI of the recent handbook The Sentence of the Court.
    Mr. Boyden: Have not detention centres now passed beyond the bounds of an experiment and become a stable part of the penal system, and is it not a fact that there are too few of them and there are difficulties in recruiting staff? What is the Home Office doing about it?
    Miss Pike: I think that we all agree with the hon. Gentleman that these centres are proving very valuable. At present, with the opening of an additional centre at Usk in Monmouthshire last month, there are now 15 centres in operation. Further measures are in hand.

  ASSOCIATION OF SUPERVISORY STAFFS, EXECUTIVES AND TECHNICIANS (LETTER)
  Mr. J. Silvermanasked the Prime Minister what communication he has recently received from the general secretary of the Association of Supervisory Staffs, Executives and Technicians about discrimination against members of trade unions; and what were the terms of his reply thereto.
  The Prime Minister (Sir Alec Douglas-Home): The general secretary of the Association wrote to me on 2nd March. He said that many firms made it a condition of promotion that employees should join the Foremen and Staff Mutual Benefit Society and that this Society had a rule preventing its members from being members of trade unions. The general secretary suggested that the matter should be dealt with by an amendment of the Fair Wages Resolution. My reply stressed the importance which the Government attach to the principle that employees should be free to join trade unions, and explained that the principle is already applied to Government contractors by the Fair Wages Resolution which also provides a procedure for dealing with any difficulty.
  Mr. Silverman: Will the right hon. Gentleman consider this matter further? He will realise that the Fair Wages Clause and the powers of the Industrial Court as they exist now cannot deal adequately with discrimination against trade unionists as exercised by this employer-promoted association and that what is wanted is either an amendment in legislation or an amendment in the Fair Wages Clause? Will he and his colleagues, therefore, either introduce legislation themselves or give support to the legislation proposed by my hon. Friend the Member for Gloucester (Mr. Diamond) and myself?
  The Prime Minister: The hon. Gentleman has raised a fairly wide question.

  1243
  There is an independent tribunal procedure which, I think, should be used in cases of difficulty of this kind. I should like to know a good deal more about that independent procedure and why it is not more used before I could agree to any legislation on this.
  Mr. Grimond: Has the Prime Minister noticed that the real value of many salaries has declined since before the war? As junior supervisory staff are aften excluded from wage negotiations today, is it not advisable that they should play a more active part in industry and that they should be encouraged to organise to make their claims known?
  The Prime Minister: That is an entirely different question. The question to which I was directing myself was whether, by certain action taken by employers, employees are prevented from joining trade unions.
  Mr. Prentice: Is the right hon. Gentleman aware that the House yesterday unanimously gave leave to my hon. Friend the Member for Gloucester (Mr. Diamond) to introduce a Bill relating to this point? In view of the right hon. Gentleman's replies, will the Government give facilities for the speedy passage of the Bill during this summer Session?
  The Prime Minister: I should like to hear what the hon. Gentleman says on the introduction of the Bill.
  Hon. Members: He said it yesterday.
  The Prime Minister: I should like to read what he said on the introduction of it.

  SOUTHERN RHODESIA
  Mr. Stonehouseasked the Prime Minister what reply he has sent to the letter of the Salisbury Christian Action Group calling for a constitutional conference on the future of Southern Rhodesia at which all political groups of the Colony could be represented and over which a British Minister should preside.
  The Prime Minister: My right hon. Friend the Commonwealth and Colonial Secretary will reply to the letter from the Salisbury Christian Action Group, but as I said in the House on 30th April,
  1244
  such a conference could not be held without the consent and co-operation of the parties concerned.
  Mr. Stonehouse: Does the Prime Minister agree that this country retains the ultimate responsibility for constitutional change in this territory and that it is important to get such changes by agreement? Is he aware that this group, which is supported by black and white Rhodesians, is putting forward a point of view which has very wide support, including that of a former Prime Minister, Mr. Todd? Will the right hon. Gentleman give it his own consideration?
  The Prime Minister: We are considering any way in which we can help to solve the Southern Rhodesia problem. If a constitutional conference is to be convened, it cannot be done without the consent of the main parties in Southern Rhodesia.
  Mr. Bottomley: Have approaches been made to the Prime Minister of Southern Rhodesia about the holding of a constitutional conference? Secondly, bearing in mind the comments of the United Nations mission, which has just left this country, will the Prime Minister consider sending out a Minister to stress to the Prime Minister of Southern Rhodesia the importance of seeing that the Africans have their rights?
  The Prime Minister: From inquiries I have made, I do not think that agreement could be reached on a conference at this time, but I do not want to exclude anything which might lead to a solution of the problem.
  Mr. K. Lewis: As there seems to be such interest opposite in the Commonwealth and in a Minister going out to Southern Rhodesia, might it not have been better if the Leader of the Opposition had gone to a Commonwealth country instead of electioneering on a visit to Russia?
  Mr. Stonehouseasked the Prime Minister what representations he has received from Commonwealth Prime Ministers regarding Britain's responsibilities towards Southern Rhodesia.
  The Prime Minister: None, Sir. There have been exchanges on a Government to Government basis and these have

  1245
  been dealt with in the normal way by my right hon. Friend the Commonwealth Secretary.
  Mr. Stonehouse: Is it not the case that there has been an appeal to the Prime Minister and his colleagues to intervene to secure the release of Mr. Nkomo? Would not the right hon. Gentleman agree that there could not possibly be any agreement on a development in the political position in Rhodesia or a lasting peace unless Mr. Nkomo is released? Would the right hon. Gentleman use his influence to help to secure his release?
  The Prime Minister: I do not think that it would help anybody to go into this kind of question in any detail now. There have been representations that Mr. Nkomo should be released and we want to see complete racial tolerance in Southern Rhodesia, but I would rather not carry these supplementaries any further.
  Mr. Woodburn: Is the Prime Minister aware that for a great many years, and certainly up to the time of Sir Roy Welensky, the leaders of the white Government in Southern Rhodesia had never even spoken to or seen the leaders of the African people? Would it not make some contribution if the people governing the country met the people that they wanted to govern?
  The Prime Minister: We want to see the maximum contact between the Europeans and Africans in Southern Rhodesia. It would have been helpful also if the Africans had worked the Constitution.

  CHANCELLOR OF THE DUCHY OF LANCASTER (SPEECH)
  Mr. Liptonasked the Prime Minister whether the public speech of the Chancellor of the Duchy of Lancaster near Devizes on 12th May on pension increases represents the policy of Her Majesty's Government.
  The Prime Minister: Yes, Sir.
  Mr. Lipton: Will the Prime Minister have a look at that part of the speech of the Chancellor of the Duchy of Lancaster in which he said that the Government had budgeted for further pension increases? Would the right hon. Gentle-
  1246
  man be good enough to say what budgetary provision has been made, what further pension increases the noble Lord was talking about and when these further pension increases will be put into effect?
  The Prime Minister: I do not think that I would give this information to the hon. Member. He knows quite well that we said at the last election that we would ensure that pensioners continued—[Interruption.] This is what the hon. Member is asking about; he might listen to the answer. We said that pensioners would continue to share in the good things which a steadily expanding economy will bring. That applies to the future as to the past.
  Earl of Dalkeith: Is my right hon. Friend aware that in this same speech reference was made to the Opposition's pension scheme? Has my right hon. Friend any details of the cost of this scheme in terms of enormously increased contributions or higher taxation?
  The Prime Minister: I do not think that it is for me to answer that, but I remember the speech of the hon. Lady the Member for Lanarkshire, North (Miss Herbison) and I have refreshed my memory of what she told the Labour Party Conference. She said that the Labour Party's scheme was based on
  "detailed and rigorous, technical, financial and actuarial advice".
  I take it that hon. Members opposite would like to see the figures as much as we should.
  Mr. Callaghan: Does not the Prime Minister realise that this hint was given on the eve of the poll in the Devizes by-election? Will he please answer this question: is it true that budgetary provision has been made for further pension increases? If so, is he holding them back for electoral reasons until we get nearer the election? Would it not be a very cynical device on the part of the Government, who have already raised the money in the Budget for this purpose, to withhold paying the additional pensions to which the Chancellor of the Duchy of Lancaster referred?
  The Prime Minister: I think that the hon. Member will find that we do not need any cynical device to win the next election.
  Mr. Callaghan: Will the Prime Minister address his mind to the question? Has there ever been an occasion when a senior Minister has said, "We have budgeted for further pension increases"? Cannot the Prime Minister tell us whether this is so or whether it was merely a device for getting a few extra votes at Devizes? If it is true, when will the Government pay the increase?
  Hon. Members: Answer.
  The Prime Minister: I am not in the least reluctant to answer. The whole of our economic policy is directed to accumulating wealth—[HON. MEMBERS: "Answer."]—I will answer in my own way—which we then intend to share with the old-age pensioners and others with fixed incomes in this country. Provided our economic policies proceed, we certainly shall in future, as we have in the past, be able to increase old-age pensions.
  Mr. H. Wilson: Will the Prime Minister now say whether he agrees with the statement that budgetary provision has been made, or will he stand straight up and repudiate his right hon. Friend?
  The Prime Minister: I am glad to see the right hon. Gentleman back. [HON. MEMBERS: "Answer."] I gave the answer in my original reply. It is, "Yes, Sir.".
  Mr. Lipton: On a point of order. In view of the completely unsatisfactory nature of the reply, I beg to give notice that I will raise this matter on the Adjournment.

  CONCESSIONARY FARES (OLD PEOPLE)
  Mr. Dribergasked the Prime Minister what representations he has received from the Borough Council of Leyton, supported by the Borough Council of Barking and other local authorities in metropolitan Essex, on the subject of concessionary fares for old people using public transport; and what reply he has returned thereto.
  The Prime Minister: The Council asked for legislation to allow concessionary fares for all old people on all public transport. It was told that my view is as expressed in the House on 28th April.
  Mr. Driberg: Has the Prime Minister at least taken the trouble to look into the particular anomalies pressed on his attention on that occasion by my right hon. Friend the Leader of the Opposition and also by one of his own back-bench supporters, because they are very serious and real anomalies? If I may say so, he did not quite seem to grasp the point on that occasion.
  The Prime Minister: I grasp the point now and I have repeated the reply which I gave last time. This raises the whole problem of whether benefits for old-age pensioners should be in cash or in kind. I said quite clearly then that the Government believed that the right method of helping the elderly was to help them with cash. This view seems to be supported by the journal of the old-age pensioners' association. At any rate, at best they are not agreed on this matter.
  Mr. Montgomery: Could my right hon. Friend please look at this matter again? I think that there are terrible anomalies throughout the country, and I am sure that there are many places in the United Kingdom—Newcastle is one—where old people are losing their concessionary fares because of a change of route or a change of bus. Genuine hardship is felt by many of these people and I should be grateful if my right hon. Friend could look at this matter again.
  The Prime Minister: The hon. Member's Question was directed to the national position because that was the subject of the letter sent to me by the Leyton Council. However, if there are anomalies which are eroding the spirit of the 1955 Act, I am willing to examine them.
  Mr. H. Wilson: Does not the Prime Minister yet realise that the spirit of the 1955 Act, which was an interim Measure, was to allow these concessions to continue on routes in force in October, 1954? Since that is now nearly 10 years ago and there are many more housing estates, routes and old-age pensioners losing the concession, it is nonsense to talk about eroding the spirit of the 1955 Act. If the right hon. Gentleman thinks that the matter should be dealt with by monetary provision and not by routes, why did the Government find time in 1955 to legislate in respect of those particular routes, and would not the logic of the right hon.

  1249
  Gentleman's position be—which we would oppose—that he should repeal the 1955 Act or, as we say, bring it up to date?
  The Prime Minister: As I said to my hon. Friend the Member for Newcastle-upon-Tyne, East (Mr. Montgomery), if old people are suffering, which was not the intention of the 1955 Act, then I will examine those anomalies. But on the general proposition I must stand absolutely firm on what I said, namely, that cash is the right way to deal with this matter rather than by giving concessions.
  Earl of Dalkeith: Would not my right hon. Friend agree that the granting of concessionary fares would create a great many more anomalies, for the simple reason that a large number of pensioners would not be able to derive benefit from them? Surely, it is much better to follow the Government's present method of frequently increasing pensions generally.
  The Prime Minister: Yes, Sir; I think that that is true. That is why my examination of anomalies must be very limited.
  Mr. Short: The Prime Minister has always been under the misapprehension that public money is involved in this. Is he aware that this would not cost the Exchequer or any rate funds throughout the country anything? There is a great deal of evidence that it is good business to give old people cheap fares in off-peak hours. What is wrong with this? Would not the Prime Minister agree even to this?
  The Prime Minister: It could, in certain circumstances, certainly increase expenditure from the rates. The London Transport Board, for instance, has a scheme about which I should like to speak to the hon. Member for Barking (Mr. Driberg), because it could apply to his constituency. One cannot generalise and say that this would not add to public expenditure or rates.

SEASIDE RESORTS (HOOLIGANISM)
The Secretary of State for the Home Department (Mr. Henry Brooke): I will, with permission, now make a statement
1250
in reply to Questions Nos. 26, 27, 28, 29, 33, 40, 41, 42 and 46, arising out of the hooliganism at certain seaside resorts at the Whitsun weekend.
In comparison with the millions of young people who enjoyed that fine holiday weekend in sensible ways, the total numbers involved were not large, but their behaviour was thoroughly foolish and irresponsible, and they spoilt the holiday for many others. The situation was kept in hand by skilful and well organised action on the part of the police forces, and I am certain that if further outbreaks occur the police will be equal to dealing with them.
Effective machinery exists for mutual assistance between police forces, where necessary; I am keeping in close touch myself with the plans now being concerted between the chief constables most likely to be concerned, for coping with any recurrences of seaside hooliganism. It would not be wise to disclose these plans in geographical detail, but I give the assurance that the importance of being able to muster large forces of police quickly wherever trouble threatens is thoroughly recognised by all.
I feel certain the House would wish to join with me in paying tribute to the admirable behaviour of the police, in difficult circumstances, in the areas affected at Whitsun.
The courts have, in general, taken a stern view of those who have come before them charged with hooligan offences in holiday places, and I have no doubt of the salutary deterrent effect of sharp sentences in such cases.
As a nation we have to try all the harder to probe deep into the causes of feckless behaviour by young people, and remedy or eradicate them. More and more systematic study and genuine research are needed into the true reasons why groups of boys and girls break away into selfish behaviour that is offensive to the mass of ordinary decent people. The Advisory Committee on Juvenile Delinquency which, with the Secretary of State for Scotland, I recently appointed to consider and advise on delinquency and on measures for its reduction will, I hope, have a significant contribution to make.
There is evidence that a great number of the young people who contributed

1251
to the Whitsun troubles at Brighton and Margate went there in the first instance as spectators rather than with the intention of doing any harm. It is easy for older people to condemn the whole lot of these young people out of hand. I would not do that, but we are entitled to ask them all to remember that behaviour which may seem amusing to them can develop into an unfair and intolerable intrusion upon the pleasures of other people, and, therefore, they ought to cease to encourage the perhaps few black sheep among them. We shall all do well to remember that there are exhibitionists and troublemakers who thrive on publicity.
I have given consideration to all the suggestions that have been made for providing the courts with new powers for dealing with these hooligans—for example, by confiscating their vehicles or by disqualifying them from driving or by reintroducing corporal punishment. I do not think that any of these provides the answer.
There would be formidable difficulties, for instance, in relating offences to the vehicles which offenders have used to come to the area concerned. It is not the case that the courts lack powers to deal with hooligans. There is a variety of offences with which they may be charged, and some of the recent sentences have shown that the courts can deal with them severely.
There is one respect in which I want to ask Parliament to widen and strengthen the powers of the courts. Section 14 of the Criminal Justice Administration Act, 1914, empowers magistrates' courts dealing with cases of malicious damage to order the offender to pay compensation up to the amount of the damage, but use cannot be made of that Section if the damage exceeds £20.
I propose that the £20 limit should be raised to £100 and that the maximum fine which can, in addition, be imposed under the Section should also be raised from £20 to £100.
I believe that the principle of exacting restitution for damage done, along with the possibility of a substantial fine, is very important, and that this will help
1252
to reassure the public as well as to deter the hooligans. The necessary legislation will be introduced forthwith.
Sir T. Moore: While I think that the whole House will agree with the tribute which my right hon. Friend has paid to the hard-pressed and ever-patient police, and while welcoming the statement which he has just made as far as it goes, may I ask him to think again concerning two of the alternatives which he has mentioned?
As Vespas or motor cycles, or whatever they are, are the methods by which these young idiots get to their place of destruction, surely it might be thought wise to confiscate their licences or disqualify them for, say, five years. The other suggestion which I ask my right hon. Friend to reconsider is whether a spot of physical punishment would not be a very useful deterrent, but, in any case, not to send these people to prison, because that makes criminals.
Mr. Brooke: I respect my hon. Friend's views on the subject of corporal punishment. I hope that he will respect mine.
We have to bear in mind that the majority of those who took part in the troubles at Whitsun did not arrive by road. Probably in each case the majority of them arrived by train, if they were not local.
The real trouble is that possession of a scooter, a motor bike, a van or a car, and using it to get to a place can facilitate the commission of a great many crimes of various sorts. It would be extremely difficult to have a particular penalty attached simply to crimes of hooliganism when the person concerned could be proved to have come, not to the place, but to the neighbourhood, by a motor vehicle. The difficulties are too great to encourage us to seek a solution along those lines.
Sir W. Teeling: In thanking my right hon. Friend for much that he has said this afternoon, may I ask, in regard to my two Questions, whether the first part of his statement refers to the police forces coming on to the Sussex Downs, as in Essex and elsewhere, at the Bank Holiday to ensure that the ordinary citizen can have a decent holiday? If that is so, can my right hon. Friend assure us that he will authorise payment for the services

1253
of police forces which go to the aid of the towns to be made from the Common Services Fund, which, I gather, is visualised in Clause 13 of the Police Bill, which is now going through Parliament?
Will my right hon. Friend also bear in mind that any punishments that the magistrates can inflict for offences such as obstructing the police are limited to fines of £5 under the Prevention of Crimes Act which dates as far back as 1912? Will my right hon. Friend please do something very much to increase this figure?
Mr. Brooke: If a police force sends for reinforcements from other forces, it will come to an arrangement as to the cost of the operation. I hope that my hon. Friend will not press me to disclose the plans that have been made to ensure that there will be plenty of reinforcements available wherever trouble breaks out, because I think that if I were to disclose these plans it might encourage certain youngsters to see whether they can circumvent them.
I hope, from what my hon. Friend said in the last part of his supplementary question, that he will thoroughly approve of the Bill which I hope to present tomorrow, which will substantially increase both the compensation that can be made payable by the court and the fine which the court, if it thinks fit, can inflict.
Sir J. Eden: Is not the present system for dealing with this type of trouble altogether too cumbersome and ponderous? While I do not wish in any way to get the matter out of perspective, may I ask my right hon. Friend whether he would not agree that there are two ways in which we should tackle the problem? One is the short-term cure and the other is the long-term prevention.
In regard to the former, is it not important to emphasise that this type of breach of the peace cannot be got away with without some form of punishment and that short, sharp corrective measures are necessary? As for the longer-term question, the one with which we must be primarily concerned, is it not important that the whole House should emphasise the need For less indulgence and greater discipline throughout the stages of the upbringing of the child from early youth onwards?
Mr. Brooke: I have a great deal of sympathy with what my hon. Friend has said in the latter part of his supplementary question. I would only add that I think that the responsibility lies on the young people themselves as well as upon the parents, on the schools and on all those who come into contact with them, including the media of publicity.
As regards the short-term problem, I have not heard any criticism suggesting that the sentences imposed on some of these troublemakers last time were too light, and I hope that, with the new powers which I am inviting Parliament to give, it will be possible to make absolutely clear to everybody that this sort of hooliganism does not pay.
Mr. N. Pannell: May I ask my right hon. Friend whether there is any truth in the suggestion that at Whitsuntide sections of the Press exacerbated the situation by interviewing some of these young people before they arrived at the scene of action and that this, by inflating their egos, stimulated them to undesirable activity?
Mr. Brooke: I have heard rumours and stories of that character, but I am sure that on a future occasion we can rely on the responsibility of the Press, which, I am sure, deplores these disgraceful scenes as much as Parliament itself.
Mr. David James: I agree with my right hon. Friend that most of these young people are no more harmful than we were in our youth, but does he not agree that the danger lies not in their youth or behaviour, but in the large numbers involved and in the danger of crowd psychosis developing? Will he bear in mind that the reason why I and others suggested the removal of driving licences or cars was to cut down their mobility? Would he seek other means, such as making sure that they have to report to their local police station several times daily, to make certain that the real troublemakers cannot congregate at the scene next time?
Mr. Brooke: I cannot estimate whether these young people behave worse than my hon. Friend did when he was their age. I entirely agree with him that the new feature in all this is the mobility. There have always been gangs of young people who have misbehaved themselves on public holidays and at other times, but

1255
now it is easier for them to get to a seaside place and create a scene there.
I have very carefully considered my hon. Friend's suggestions about doing something regarding their vehicles or their driving licences, but I really do not think that that is the right approach to a solution.
Mr. Lipton: I note that the Home Secretary has now decided to introduce legislation, which he refused to do when I suggested it to him as recently as 16th April—it will be found in column 584 of the OFFICIAL REPORT for that day—but will the right hon. Gentleman take notice of the following, which arises from his remark that this behaviour is amusing to the young people but not to others?
Will he take note of the fact that the trouble very frequently starts by these young people, for want of a better phrase, trying to "take the micky" out of the police, and that this is very provocative and imposes a very considerable strain on the police and that nothing can be done about this under the law as it is at present? Will he take that into account, because it has been noticed as a very frequent feature of the trouble which has taken place?
Mr. Brooke: I think that the hon. Gentleman is right. On the last bank holiday weekend very little was seen of the young people attacking other members of the public, and they were mostly fighting among themselves, if they were fighting at all, or trying to score off the police.
As regards the merit and the responsibility for the legislation that I shall introduce, no doubt the hon. Gentleman will be able to lay claim, if he thinks he can, to some of the merit on the Second Reading of the Bill, but I really think that it is mine.
Miss Bacon: Is the right hon. Gentleman aware that, although it is very important to deal firmly with the troublemakers of 1964, it is equally important to take steps to prevent further trouble in future years? Can he say now whether or not he will have consultations with his right hon. Friends so that they can very quickly put into operation the Reports of such valuable Committees as the Wolfenden Committee and the Albemarle Committee, which might have prevented some of this happening?
Mr. Brooke: I entirely agree with what the hon. Lady says about the importance of looking ahead. One of my principal motives in setting up the new Advisory Committee on Juvenile Delinquency is to ensure that we can focus the resources of all the Government Departments on this, and my right hon. and hon. Friends in other Departments are closely associating themselves with the inquiries which that Committee has in hand.

RAILWAYS (ACCIDENT, BRADFORD EXCHANGE STATION)
Mr. George Craddock(by Private Notice) asked the Minister of Transport whether he will make a statement on the rail accident last night at Bradford Exchange Station.
The Minister of Transport (Mr. Ernest Marples): I understand that yesterday evening at 5.30 p.m. approximately a diesel multiple unit train which left Manchester Victoria at 4.25 p.m. to go to Leeds Central collided with the steam engine of a stationary parcels train at Bradford Exchange Station.
The driver of the multiple unit train, and a railway employee travelling as a passenger, were killed. 14 other passengers were taken to hospital, of whom I understand six have been discharged.
I have directed that a public inquiry should be held. It will start on Tuesday, 16th June, at Bradford. I regret that I can give no further information meanwhile.
I should like to express my sympathy with the relatives of the two railwayman who lost their lives, and with those who were injured in this unfortunate accident.
Mr. Craddock: May I thank the right hon. Gentleman for his statement, and join with him in his expressions of sympathy to the relatives of those who were killed and his good wishes to those who were injured in the accident? May I say that I am also very pleased that he has taken immediate action to have an inquiry?
Mr. Marples: I am certain that the sympathy of the whole House will go to the relatives of the two railwaymen who were killed and to those who were injured in the accident.
Mr. Tiley: Together with fellow Bradfordians, I have used Bradford Exchange Station for many years and I do not remember any other serious accident there, because our railways are normally so safe.
May I associate myself with my right hon. Friend in the expression of sympathy for what has occurred, and also say how much we admire the driver of the train who stayed at his post and was killed, and thus prevented a greater number of injuries and panic.
Hon. Members: Hear, hear.
Mr. Marples: I am grateful to my hon. Friend.
Mr. McLeavy: Is the right hon. Gentleman aware that as this unfortunate accident occurred in my constituency and that I was so concerned that I immediately contacted his Ministry with a view to a statement being made at the House? I thank the right hon. Gentleman for making such a statement to the House.
May I thank the Minister also for announcing that there is to be a public inquiry, which, I think, will give considerable satisfaction to the citizens of Bradford, and associate myself, and this side of the House, with the tribute which has been paid to the driver of the train, and with the expression of sympathy to the relatives concerned and to those injured.
I hope that the inquiry will reveal any defect which may have arisen, and that Bradford will regain its long record of the absence of serious railway accidents.
Mr. Marples: I am glad to have the approval of the hon. Gentleman.

BUSINESS OF THE HOUSE
Mr. H. Wilson: May I ask the Leader of the House whether he will state the business of the House for next week?
The Lord Privy Seal (Mr. Selwyn Lloyd): Yes, Sir. The business for next week will be as follows:
MONDAY, 8TH JUNE—Remaining stages of the Public Libraries and Museums Bill.
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Second Reading of the Education Bill [Lords], and Committee stage of the Money Resolution.
Consideration of Lords Amendments to the Police Bill.
TUESDAY, 9TH JUNE, and WEDNESDAY, 10TH JUNE—It is hoped to complete the Committee stage of the Finance Bill.
THURSDAY, 11TH JUNE—Supply [17th Allotted Day]: Committee.
Debate on the Hospital Service in the United Kingdom.
Motions on the Import Duties Orders.
FRIDAY, 12TH JUNE—Private Members' Bills.
MONDAY, 15TH JUNE—The proposed business will be: Second Reading of the Fishery Limits Bill, which it is hoped to obtain by eight o'clock.
Afterwards, Motions on the Horticulture Schemes, and the Fertiliser Scheme.
Mr. H. Wilson: In view of the widespread interest in the Education Bill, will the Leader of the House make it clear that enough time will be provided to debate this without the debate being shortened for the purpose of Lords Amendments to the Police Bill?
Secondly, in view of the statement of the Prime Minister this afternoon, in which he endorsed the statement of his noble Friend Lord Blakenham that budgetary provision has been made, for further pension increases, can the right hon. and learned Gentleman say whether a Treasury Minister or some other Minister will make a statement in the House next week giving details of his budgetary provision? Alternatively, will he lay a White Paper so that the House can study it?
Mr. Lloyd: I certainly do not think that it is the wish of the Government to curtail discussion unnecessarily on Monday. I think that we should see how we get on on Monday, and perhaps we may have to use a portion of the time on Tuesday to complete the business set down for Monday.
I have no doubt that my right hon. Friend the Chancellor of the Exchequer will take note of the right hon. Gentleman's second question.
Mr. Wilson: In addition to noting this, which is very important in view of the House's traditional control over Government expenditure, is it not desirable that, where budgetary provision is made, the House should be told about it at once? If it is only communicated in a speech made in the country by a Minister who is not a Member of this House, but a Member of a House whose duties in financial matters are well known to have been curtailed some years ago, should not the Government take early steps to make sure that this budgetary provision, which seems to have slipped through somehow or other without this House noticing it, is drawn to the attention of the House of Commons?
Mr. Lloyd: I do not want to enter into controversy with the right hon. Gentleman about what my noble Friend actually said. It might perhaps be embarrassing if one reminded the right hon. Gentleman of some of the things that he has said in the past, but I have no doubt that my right hon. Friend the Chancellor of the Exchequer will also note what the right hon. Gentleman has added to his former question.
Mr. W. Yates: The Leader of the House will, I hope, recall that on four occasions before Whitsun I and other hon. Members suggested that perhaps it might be interesting to have a debate on foreign affairs as one way of passing the time of the House.
In view of the fact that the Commonwealth and the people of India have suffered a tragic loss through the death of the Prime Minister of India, and also because of the changing events both in the Middle East and the Far East, when will my right hon. and learned Friend permit the House to enjoy a debate on foreign affairs?
Mr. Lloyd: I shall not comment on the motives which lead my hon. Friend to intervene in debates on foreign affairs, but I hope very much that we shall be able to have a debate on foreign affairs during the week beginning 15th June.
Sir B. Janner: In view of the statement made by the Home Secretary this afternoon, and the questions put to him about hooliganism, may I ask the Leader of the House whether he is now prepared
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to have an early debate on the implementation of the Albemarle Report? Does not he think that that is of considerable importance, so that the House can express its views about what still remains to be implemented in the light of that Report?
Mr. Lloyd: There are certain opportunities for such a matter to be ventilated, but not next week.
Mr. Wade: May I ask the Leader of the House when there is to be a debate on the White Paper on Monopolies, Mergers, and Restrictive Practices?
Mr. Lloyd: In the not very distant future.
Sir C. Osborne: My right hon. and learned Friend said that it was hoped to obtain the Fishery Limits Bill by eight o'clock on Monday, 15th June. May I ask him not to limit time so strictly, as this important issue affects the lives and earnings of fishermen, fish merchants, skippers and trawler owners, in my constituency, and in all fishing ports? It is an extremely important Measure. Will my right hon. and learned Friend give us plenty of time in which to consider it?
Mr. Lloyd: I agree with my hon. Friend that this is an important and helpful Measure for the fishing industry. I do not think that there will be any desire to curtail discussion on it, but, nevertheless, we hope to obtain the Second Reading by a reasonable hour.
Mr. Bence: In view of the budgetary provision for an increase in pensions, is a Supplementary Estimate to be placed before the Estimates Committee?
Mr. Lloyd: Not next week.
Sir K. Thompson: Does my right hon and learned Friend consider that his answer to the Chief Whip of the Liberal Party was adequate, in view of the fact that this is the first time in this Parliament that the hon. Gentleman has managed to get his whole party in the House?
Mr. Ross: In view of the continuing serious news from Aberdeen, can the Leader of the House say whether arrangements have been made for a statement to be made next week by the Secretary of State for Scotland, both

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about what further steps are being taken to contain the typhoid outbreak and also further information about the promised inquiry?
Mr. Lloyd: I have no doubt that my right hon. Friend will keep the House informed.
Mr. Shinwell: May I ask the Leader of the House whether his attention has been drawn to a Motion on the Order Paper in my name?
[That it be an Instruction to the Committee of Privileges to consider so much of the article published in the Sunday Express of 31st May, 1964, under the name of Cross-Bencher, as relates to the matter of the complaint made by the hon. Member for Dudley and referred to the Committee of Privileges on 24th March, and, in particular, to consider that part of the article which suggests that members of the Committee of Privileges will not discharge their duties in an impartial and honourable manner.]
It asks for a debate to enable the House to instruct the Committee of Privileges to take note of an article contained in last Sunday's Sunday Express which appears to reflect on the objectivity and impartiality of members of that Committee?
Will the right hon. and learned Gentleman offer us an early opportunity of introducing this Motion and taking the views of the House, so that the Committee can be properly instructed?
Mr. Lloyd: I do not think that it is necessary to discuss that Motion, because I am informed that, in view of the Resolution of the House on 30th October, 1947, it is competent for the Committee of Privileges to take this matter into account without specific instructions.
Perhaps I may speak in another capacity—I must be careful, of course, for I am also Chairman of the Committee of Privileges—and say that I would be surprised if the Committee was not aware of the right hon. Gentleman's Motion.
Mr. Shinwell: I recognise that the right hon. and learned Gentleman, on this issue, is wearing two hats. I am not quite certain which hat I should attack. But, as Chairman of the Committee, how can he be assured that it
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will take cognisance of the contents of this article? Has it discussed the matter? [HON. MEMBERS: "Order."] I am in order. In any event, if Mr. Speaker regards what I have just said as a transgression of the rules, he will so advise me.
Mr. Speaker: The right hon. Gentleman was asking for information which it would be out of order to give to him. But it has not been given yet.
Mr. Shinwell: I would not have asked that question, Mr. Speaker, but for the obvious and inescapable fact that the right hon. and learned Gentleman assured the House that the Committee will take this matter into consideration. [HON. MEMBERS: "No."] It is surely within the recollection of the House that the right hon. and learned Gentleman assured us—[HON. MEMBERS: "No."]—that this matter was within the cognisance of the Committee and that he was assured that it would take notice of it. [HON. MEMBERS: "No."] Very well, then. If the Leader of the House wishes to correct me and use appropriate language to satisfy hon. Members, I am quite prepared to listen.
Can we be assured that no disclosures will be made meanwhile by any member of the Committee of Privileges about the preparation of a dossier by the Secretary of State for Education and Science, the right hon. and learned Gentleman the Member for St. Marylebone (Mr. Hogg), to which reference is made in this article, and which appears to indicate that some information has been disclosed, apparently by a member of the Committee?
Mr. Lloyd: I am certain that any suggestion of a disclosure by any member of the Committee is unfounded. In regard to my previous statement—in my capacity as Leader of the House—I was making a guess.
Mr. Bellenger: Is the right hon. and learned Gentleman aware that if the Committee were to make a report to the House without delay there would be less opportunity for incidents like this to arise? When does he think that it will report?
Mr. Lloyd: I am conscious of that point and I am sure we wish to make a report as soon as we can.
Mr. Speaker: Mr. Robert Cooke.
Mr. Shinwell: On a point of order, Mr. Speaker. In view of the statement by the Leader of the House that he has just been making a guess, may I direct your attention to the article in question? You are aware that I notified you that I intended to raise this matter and I ask you now for your guidance as to whether the content of this article indicate a breach of privilege, since it reflects on the objectivity and suggests absence of impartiality among members of the Committtee of Privileges?
Mr. Speaker: I cannot help the right hon. Gentleman now, because he is out of time to ask for a Ruling by me, as he will appreciate. The Motion is on the Order Paper. I cannot decide about it. It is in the hands of others now.
Mr. Shinwell: Further to that point of order, Mr. Speaker. You are aware that the reason that your attention was not directed to the article immediately an opportunity offered itself—namely, on Monday last—was because it was thought that, as the contents of the matter were already before the Committee, it was unnecessary to do so. The opportunity was, therefore, taken by me to put this Motion on the Order Paper to enable the Leader of the House to say whether we would be permitted to instruct the Committee to look into the contents of the article.
Mr. Speaker: With respect to the right hon. Gentleman, I must tell him that he is assuming knowledge that I did not have. But had I had it it would not make any difference on the material point. The right hon. Gentleman is out of time for seeking my views about this.
Mr. Robert Cooke: I believe that you did call me to ask a question of the Leader of the House, Mr. Speaker.
Mr. Speaker: I think that it is quite likely. It is buried in the annals of time. Mr. Cooke.
Mr. Robert Cooke: May I ask my right hon. and learned Friend the Leader of the House to resist any temptation
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to take this scurrilous column called "Cross-bencher" in the Sunday Express seriously as, at worst, it contains mostly lies and, at best, mostly half-truths?
Mr. Speaker: That question goes rather beyond the compass of propriety in a question and also beyond what arises on business.
Mr. Shinwell: Further to that point of order, Mr. Speaker. [HON. MEMBERS: "Oh."] It is all very well for hon. Members to interject and try to impede another hon. Member from doing his duty. I am trying to protect members of the Committee of Privileges, irrespective of the party to which they belong. That is my sole purpose and, since an hon. Member opposite has quite rightly directed attention to the article in question, and has declared it to be a pack of lies, surely this is a matter for the consideration of the Leader of the House.
Mr. Speaker: On no conceivable view can that question be, as far as I can see, something which gives rise to a point of order for me at this stage.
Mr. G. M. Thomson: Has the Leader of the House's attention been drawn to a Written Answer, given by the Secretary of State for Commonwealth Relations yesterday, indicating an allocation of about £50 million out of public funds to Kenya and to an announcement by the Secretary of State outside the House about more millions of pounds of public money for the University of Southern Rhodesia?
Will the right hon. and learned Gentleman consult the Secretary of State and seek an assurance that if, next week, he intends to allocate these substantial sums of public money, which have been a matter for discussion in the House, he will do hon. Members the normal courtesy of making a statement to the House?
Mr. Lloyd: Without notice, I do not know the facts of the case, but I will certainly talk to my right hon. Friend about it.

BALLOT FOR NOTICES OF MOTIONS
  Nationalisation
  Mr. F. M. Bennett: On behalf of my hon. Friend the Member for Rye (Mr. Godman Irvine), I beg to give notice that on Thursday, 18th June, he will call attention to the extension of nationalisation and the harm it will do to the economy of the country, and move a Resolution.
  Government Business
  Dame Irene Ward: I beg to give notice that on Thursday, 18th June, I shall call attention to how we can speed up the good business of Government, and move a Resolution.
  National Health Service (Reforms)
  Mr. Pavitt: I beg to give notice that on Thursday, 18th June, I shall call attention to the need for radical reforms in the National Health Service, and move a Resolution.
ORDERS OF THE DAY

  FINANCE BILL
  Further considered in Committee [Progress, 3rd June].
  [Sir WILLIAM ANSTRUTHER-GRAY in the Chair.]

  FINANCE BILL

    Clause 12.—(CHARGE OF INCOME TAX FOR 1964–65.)
    Question proposed, That the Clause stand part of the Bill.
    4.10 p.m.
    Mr. Douglas Houghton: The Chancellor of the Exchequer has had a very easy ride on the Bill so far. For the Committee to dispose of the first 11 Clauses on the first day is almost unheard of. If we dispose of the remaining Clauses on the second day, as we might hope to do, the right hon. Gentleman's predecessors will be envious of his remarkable experience.
    This Clause imposes more taxation than all the rest of the Bill put together. Indeed, it imposes more taxation than has ever been imposed by a corresponding Clause before. This innocent-looking Clause, dressed up it appears in a little brief authority, is estimated to bring in something more than £3,000 million. Before I go any further, I should like to ask the Chancellor to tell the Committee how much he estimates will be the receipts of Case VII of Schedule D in the total estimate for Income Tax of £3,043 million. Presumably, in estimating the receipts from Income Tax for 1964–65 there has been a breakdown of the estimates to put some figure to the Chancellor's expectations from the various Schedules and branches of the Income Tax code. I am asking what figure is included in the estimate for receipts from Case VII of Schedule D.
    If the Committee rejects Clause 12, there will be no Income Tax. Income Tax will not have been abolished, but it will not have been renewed. Needless to say, if that were to happen there would be consternation in the Inland Revenue and great rejoicing everywhere else. Crowds might gather in Whitehall and Tory propagandists would tell the

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    throng, perhaps, that we were now entering the promised land and would exhort them not to chuck it away. Liberal spokesmen might conceivably say that the Tories were only doing what Gladstone promised to do in 1874. Perhaps some of the concern of the Inland Revenue would be the possibility of hostile demonstrations outside Somerset House. I quite expect that about half the tax collectors in London would be ducked in the fountains in Trafalgar Square and the other half thrown into the Serpentine. Altogether, it would be a great occasion.
    But, of course, none of this will happen. This annual tax, now renewed every year for well over a century, will be given a further lease of life. The standard rate, with all its mythology, is to be continued under the Clause at 7s. 9d. in the £. I do not say that 7s. 9d. in the £ is too high, but I do say that it is higher than it need be. If we had a fair system of taxation and if the one we had were more effectively administered and stops were put to a good deal of avoidance and evasion, I have no doubt that the standard rate could be reduced.
    Nevertheless, there is always a good deal of misunderstanding about this so-called standard rate. It is really a maximum and not a standard rate. There are millions of taxpayers who do not pay tax at 7s. 9d. in the £ on any part of their incomes. Various personal allowances and earned income relief, and so on, reduce the effective rate of tax. For example, a married man with one child does not pay an effective rate of tax of 7s. 9d. in the £ until he is earning about £10,000 a year, and I am including Surtax in that. Those with investment income, whether solely investment income or a mixture of investment and earned income, are caught by the 7s. 9d. rate much earlier than the taxpayer with earned income only.
    4.15 p.m.
    The only point I am making in this connection is that the standard rate of Income Tax is by no means the effective rate for most of us and is not even imposed on any part of the incomes of millions of taxpayers. That is a good
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    reason for hoping that a tax reformer, one day, will find an alternative to this rather old-fashioned idea of a standard rate of Income Tax. It creates unnecessary prejudice and misunderstanding, because in our Income Tax code we express reduced rates of tax by subtractions from the standard rate, which leads to much confusion. It is a pity that no one has yet applied in his mind, or so it seems, to finding an alternative. We should try to find a way of defining tax rates in a simpler and more progressive form, because we need to show more clearly the upward steps to the real top rate rather than the downward steps from a largely notional standard rate. But Clause 12 is here. It is traditional and, for the moment, we must consider Income Tax as it is.
    I said that the standard rate of 7s. 9d. was higher than need be if we had a fairer system of taxation. I am certain that there is no hon. Member opposite who would defend the existing system and say that it was a fair distribution of the burden of taxation and was generally acceptable as a satisfactory system. Need I stress again how unfair it was, and largely still is, to tax incomes and profits, but to allow capital gains to go free? Even the extremely half-hearted step taken to remedy this position adds to the injustice of the present structure. Case VII of Schedule D, the so far invisible tax, shrouded at present in fog and mystery, is itself unfair. It taxes at the normal rates of Income Tax and Surtax only capital profits realised within short and strictly limited periods and from specified sources.
    The distinction between income and capital gains is largely artificial anyway, but it is deeply embedded in the history of our taxation system. This is one of the difficulties about a rational approach to a capital gains tax. In the United States of America, as far back as 1913, it was realised that, in an expanding economy with large appreciations of capital wealth and large capital gains which could add to the disposable incomes of many people, it would be quite unsatisfactory to confine taxation to incomes alone. This is far too narrow a basis for a system of direct taxation. My hon. Friends and I have said right from the beginning that we regard the present tax in Case VII of Schedule D, which is covered by this Clause, as un-

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    fair and inadequate, and we would strengthen it.
    I doubt whether any hon. Member would be prepared to defend a short-term speculative gains tax in any discussion of fiscal principles or administration today.
    Captain Walter Elliot: Will the hon. Gentleman define a little more closely what he means by "capital"? As he knows, money measures the value. When he talks of "capital", does he mean household articles, houses and property of all sorts, and things like that?
    Mr. Houghton: No. I am sure that the hon. and gallant Gentleman is not quite as dull as all that about the scope of the capital gains tax and the conventional definition of capital profits.
    In this context we are referring to realised capital gains by transactions in land, equity shares and similar sources of increased income. There may be an argument how far certain possessions should come into the scope of a future capital gains tax; this is a classic argument among many who discuss this matter. It is a question whether we would include, for instance, jewellery, antiques, valuable pictures, and so on. But at the moment, when I talk about strengthening the capital gains tax, I am thinking of it on a more conventional basis.
    But apart from the capital gains tax which we have, and which we regard as being far too inadequate, there are many rough edges in our system of taxation—especially in personal taxation—which need to be rubbed off. We have put down some new Clauses. A few of them have been put down in previous years, but others are new. We are hoping to have the opportunity of discussing some of them before the Bill leaves the Committee. I believe that the age exemption is still too low; I believe that the small incomes relief is still too low. Furthermore, there is the strange anomaly under which single persons, widows and widowers who have the expense of maintaining a household get no more personal relief than does a young single person living at home. It is idle for any Chancellor to suggest that there are limits to the scope of refinement in personal allowances and reliefs when we have so many of them
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    in various forms throughout the whole fabric of our taxation system.
    The Committee ought now to consider whether we should give some attention to the tax on war widows' pensions. This country is almost alone in taxing such pensions. That fact impeded the relief that the Committee wanted to make, some years ago, in respect of victims of Nazi persecution. When we were being asked to provide some relief in respect of annuities paid by the Federal German Government for the victims of racial persecution, we had to bear in mind the fact that we were still taxing the pensions of war widows. There again, there is scope for some sympathetic approach to the incidence of taxation. I also take the view that the lowest rate of tax—which is a derivative of the standard rate—is, at 4s., too steep an entry in the range of taxable income. There is plenty of scope there for tax reform.
    What about the noticeable gulf which still exists between Pay-As-You-Earn and "Pay-As-You-Like"—the perquisites, the expenses, the entertaining, and the motor cars, on the firm's account? An employer of considerable numbers of workers recently told me, "Of course, our working chaps know what is going on. They see all this luxury and high-level expenditure on the firm, and they resent having to pay every penny of tax on their overtime, their production bonuses, their incentive payments, their weekend work, and the rest." There is not the slightest doubt that, quite apart from the revenue point of view—which is quite substantial—the general atmosphere of industrial relations is prejudiced by the continued existence of this kind of thing.
    I do not know whether all this was what the Prime Minister had in mind when he spoke at Bath the other day. A report in the Daily Telegraph on 2nd June, referring to the Prime Minister, said:
    "He also attacked Socialist plans for taxation, and said that if the tax rates of the last Socialist Government were still in force today we should be paying an extra £1,000 million a year."
    I am not sure what he was attacking, but is the suggestion—I ask the Chancellor this; he may know—that we are paying less today, either in money terms or real terms, than we paid in earlier years?

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    The Chancellor is collecting £1,140 million more in Income Tax under the Clause, with the standard rate of 7s. 9d. in the £ than the last Labour Chancellor collected when the standard rate was 9s. 6d. in the £. The Clause will yield £1,100 million more in Income Tax than was the case only five years ago, when the standard rate was the same as it is now.
    Had the Prime Minister nothing to say about the millions of pounds of revenue which has slipped through the Government's fingers because of their faltering and inefficient management of our economy? Had we maintained a steady rate of economic growth of 4 per cent. there would have been hundreds of millions more automatically flowing into the Exchequer, and this would surely have enabled the Chancellor to reduce the standard rate. Apart from that, the whole nation has suffered a hold-back in its rise in living standards.
    I do not know whether the Prime Minister had in mind that we might try to do something to stop the avoidance of Estate Duty. According to the Daily Telegraph of 29th May the Prime Minister has just given his son-in-law a 250-acre farm near Tewkesbury, in Gloucester, which is thought to be worth about £40,000. The report says:
    "In making it a gift in consideration of marriage he has ensured that this will automatically be so without any tax problems. Gifts made in this way are immediately exempt from future Estate Duty."
    It is no good thinking that the great mass of Pay-As-You-Earners do not read these things in the Daily Telegraph and wonder what is right and proper in our taxation system.
    I am sorry for giving the Chancellor a rougher time than he has been having up to now, but I am afraid that there is a lot more to come. If we cannot put something across on this Clause we shall probably not have a chance to do so for the rest of the Bill, and I propose to let the Chancellor have it all.
    At present, the proportion of the national income taken in taxation is almost as high as it ever has been. It stands to reason that this must be so, because public expenditure is now running at about 4 per cent. more of the gross national product than it did seven
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    years ago, and almost as high as when the Conservatives came to power 13 years ago—and it is still rising. But, says the Chancellor, in a speech reported to have been made at Newark, "Labour's policies will be disastrous".
    4.30 p.m.
    The Chancellor is a genial and agreeable man. He has ambled in and out of our debates in this Committee in a very pleasant manner and has not been called on to do very much. When he has spoken, he has done so with good humour, and, if I may say so, with intelligence. When he gets outside the House of Commons he talks political drivel. Why should he make this sort of speech at Newark anyway? After all, Gladstone's first constituency was Newark—and I lived there myself. It has a proud history and it does not thank Chancellors who go there and make wild and exaggerated speeches about Labour policies. We like the Chancellor. We regard him as the best Labour Chancellor since 1951. I hope that he will not mind that tribute, because it is rather too late in his political career to do him any harm.
    I cannot, of course, refer to matters, alleged to be part of our policy, which have no bearing on taxation, but the Chancellor refers, as being in his judgment part of Labour policy, to the "punitive taxation of profits". I quote the words from the report which appeared in the Guardian. Where has he got that from? Does he ignore some of the evidence, which has now come to him from two separate directions, about the level of company profits and the need to give attention to the taxation of company profits? Does he propose to say anything to the Committee about the Report of the Public Accounts Committee, which was presented to the House of Commons a little while ago? This draws attention to the drain of revenue on the limited sample which we looked at—about £12 million a year—due to the fact that the high level of investment allowances providing, tax-free capital profits are enabling companies to pay dividends out of capital profits while deducting tax at the standard rate from distributed dividends and setting that off against their ordinary tax burden.
    Does the Chancellor realise that there is probably £20 million draining out of the revenue in the circumstances described

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    in the fourth Report of the Public Accounts Committee? That would go quite a long way towards obtaining the £100 million which he would need in order to reduce the standard rate of Income Tax by 3d. in the £. Does the Chancellor brush aside the facts which are disclosed in the Gordon Richardson Report where we are told, in paragraph 154:
    "The effective burden of direct taxation on companies has fallen in this country in recent years despite the fact that overall the nominal rates of tax have increased from about 50 per cent. on profits earned in 1954 to 53¾. per cent. on profits earned in 1962. This is due to the improvements in the capital allowances and primarily to the introduction of the investment allowance in 1954."
    The other day I saw the report of a company which said that owing to the incidence of investment allowance the net tax burden would be reduced from 47½ per cent. to 41 per cent. The legend persists among hon. Members opposite that companies are payinig tax at 53¾ per cent. on profits. The Richardson Report makes clear that that is not so. It also states—I quote from paragraph 164:
    "If account is taken of the treatment of dividends paid to shareholders we think that the percentage rate of tax effectively falling on companies in this country compares favourably with the rates which apply in the other countries we mention."
    The Committee mentions a number of neighbouring and thriving competitors. We say that the Report of the Public Accounts Committee, taken with the information, not previously known, regarding the level of effective company taxation which is in the Richardson Report indicates that the time has come to undertake a thorough review of company taxation.
    We see again that the standard rate referred to in Clause 12 is largely a fiction even when imposed on corporate profits. I put it to the Chancellor: in his view, would it be punitive to check the decline in the effective rate of tax borne by companies? Is that his idea of punitive action? Would it be punitive even to recover some of the ground already lost by the Revenue, which is clearly revealed in the Reports before the right hon. Gentleman? That is why I say that I think an entirely fresh approach to the taxation of company profits is now called for. Things have happened recently. They were not
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    apparent before, but now they have come out.
    Mr. Stanley R. McMaster: Will the hon. Gentleman be a little more specific about his last point? Is it Labour Party policy to cut out all investment allowances so that they may not be taken advantage of in this way?
    Mr. Houghton: It is not Labour Party policy to do away with or to curtail investment allowances. We should wish to use them, probably in a more discriminatory way, which would be a better way to secure the kind of investment that we want.
    We shall have to consider whether the standard rate of Income Tax should apply to company profits and whether tax deducted at the standard rate from distributed dividends should continue to be retained by the companies and set against the taxation of profits or paid over to the Revenue. That is the crucial point about this exercise. We also wish to consider whether there should be a single rate of corporation tax with no separate Profits Tax at all, single-tier or two-tier. All these matters go into the melting pot since we have information about the level and operation of Income Tax on company profits which was not available in such detail before. I do not know whether the Chancellor will dissent from any of this, but I think that it is a rational and progressive approach to company taxation.
    In his Newark speech the Chancellor included a reference to what he described as new forms of taxing wealth. This he included in his indictment of what he believed to be Labour policies. It is a regrettable thing if we cannot have public discussion of new forms of taxation, or the extension of existing forms of taxation, or a comprehensive revision of the whole structure of taxation, without having political prejudice imported into it at every touch and turn.
    These so-called new forms of taxing wealth are in existence in a number of countries which are thriving competitors of ours. We are envious of their progress, we wonder how they have done it. We call it a miracle and look at our performance with dismay. Why, then, should we regard talk of new forms of taxation of wealth as if it were a new form of mortal sin? We wish to

    1275
    get it on the same rational basis as the right hon. Gentleman apparently wishes not to put it. This is something—I am sorry to ram this home again—that N.E.D.C., under his own chairmanship, said might well form part of a comprehensive overhaul of our taxation system designed to stimulate economic growth. That is the very purpose which the Chancellor is constantly saying he wishes to fulfil.
    When we are talking about tax reform and new forms of taxation or varying existing forms of taxation, immediately the assumption is that we mean to increase the overall level of taxation. That is a false assumption, also. Tax reform can take place, and, I think, would take place, by redistribution of the burden of taxation rather than an overall increase in the general level of taxation. We want to get the higher revenue which is needed to finance Labour's programme from higher production and a higher gross national product. It is our economic plan which is designed to promote that improvement. If we can get it from that source it is as healthy a source as the Chancellor gets his money from and it would bear less heavily on the whole economy.
    It is strange that the Chancellor should use such an extreme term as the word "disastrous" in this connection. I wonder whether hon. Members opposite have any views on the record of their own Government in the general economic field. We can sum it up by four figures. Since 1952–53 the National Debt has gone up by £4,000 million; that is, 15 per cent. The interest on the National Debt has gone up by £400 million a year; that is, 66 per cent. The amount raised by taxation has gone up by £2,800 million a year; that is, an increase of 60 per cent.
    The Chairman: Order. I am sorry to interrupt the hon. Member, but I hope that in this debate on Clause 12 we will not go very much wider than the Clause.
    Mr. Houghton: No, Sir William. I am just pointing out the disastrous record of Her Majesty's Government in order to get back sooner or later—sooner, I hope—to the standard rate of Income Tax.
    Sir Alexender Spearman: May I interrupt?
    Mr. Houghton: Not now. If I do not complete my fourth figure now I may not get the opportunity to do so later, and I wish to complete this by saying that Government expenditure has gone up by £4,300 million a year; an increase of 90 per cent. I ask any Tory philosopher opposite what he has to say to that.
    Sir A. Spearman: I ask the hon. Member whether, in order to complete his record, he would add that the rate of growth and capacity to produce is going ahead? In 1951, it was 1½ per cent. and it is now going ahead between 3½ per cent. and 4 per cent.
    Mr. Houghton: The hon. Member for Scarborough and Whitby (Sir A. Spearman) is repeating the error of so many of his hon. Friends by trying to compare the painful recovery of our economy from the devastation of war and the higher level of production—[Interruption.] If hon. Members opposite apply their minds intelligently, they will realise that this country was emerging from conditions unparalleled in our history. One could not expect at a time when raw materials were short throughout the world, when our machinery and factories had been turned over to war production and had to be turned back again, that it would not be astonishing if our rate of economic growth was as high as one would hope it would be, and as it has been, in peacetime years afterwards.
    When I hear of the Chancellor of the Exchequer talking at Newark about "controlling public expenditure", all I can tell him is that the Chairman of the Public Accounts Committee burst into scornful laughter. If the Chancellor wants any lessons in control of Government expenditure, he should study the Reports of the P.A.C. I am about to relieve your increasing anxiety, Sir William, by saying that if our grossly unfair and distorted tax system cannot be reformed without disreputable attempts being made to create prejudice and even panic, a Labour Government will have to match these political manoeuvres with firm resolve to see justice triumph over political expediency. That is not a threat, it is a promise.
    We simply cannot allow this unfair and distorted tax system to prevail in

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    the sort of Britain that we want to see, a system which is full of leaks and loopholes, rackets and avoidance devices. I hope—this is a very humble hope of mine—that a Labour Government will be able to produce a comprehensive and acceptable plan for tax reform. I do not think that it will be very rewarding to attempt to do it piecemeal. What is needed now is a new concept of direct taxation.
    4.45 p.m.
    I think that a Labour Government should have the courage, in due time, to publish a White Paper to show what their tax reform plan would be so that people can study it and see what is involved in the redistribution of the tax burden, with the usual safeguards in publishing anything of this kind against evasive action. In my personal judgment—I am speaking personally now—I do not think that a Labour Government would set out deliberately to soak the rich, but it certainly would set out deliberately to stop soaking the poor. The economy needs effort, energy, enterprise, initiative and skill and a new tax system should and must encourage all of these. The present one simply does not; I think that the Chancellor must recognise that.
    Nor do I shrink personally from bringing Surtax into the review of a reformed tax system. I question whether the need for this can be justified in present circumstances, for it is a very crude and inefficient instrument of taxation. It is largely avoided and the yield from it is comparatively low. I believe that in a more satisfactory system of progressive taxation we could manage without it. But if effort, work and skill are to be relieved of the excessive burdens of taxation—and I think that there is a strong case for reducing the burden of taxation on the middle incomes—then those with large accumulations of wealth and rapidly multiplying capital profits must be prepared to be more forthcoming. This is what equity is all about and it is no good shirking it.
    We have to get the revenue somehow and it is a question of how much revenue is needed and who is to find it. It is also important that a new taxation system should be acceptable as fair and equitable because acceptance in all forms of direct taxation is very important indeed. A lot
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    of it is still voluntary taxation. It is important to get the co-operation of the taxpayer. The skill of any tax reformer will lie in co-ordinating greater social justice with the need to stimulate economic growth.
    Savings are needed as well as work. Capital formation is needed as much as industrial training and rewards for skill must be brought into harmony with rewards for prudence. No Labour Government will penalise thrift. Thrift is being penalised heavily at present, as the right hon. Gentleman knows if he studies many letters he is getting from distressed holders of undated gilt-edged stock. Thrift is penalised in other directions in our social services. A Labour Government would remove that.
    There is nothing disastrous to the nation's economy or well-being in anything that I have said. If there is, I hope that the Chancellor will denounce it and let us hear what his reasons are. It is sheer mischief for him to go to Newark or anywhere else and indulge in the sort of claptrap in which he apparently indulged the other day. We shall offer a new deal, new hope, and a fairer economic taxation system. It is my firm belief that at this very moment the electors of Faversham are saying this is how they want it to be.
    The Chancellor of the Exchequer (Mr. Reginald Maudling): I cannot resist the temptation to follow the hon. Member for Sowerby (Mr. Houghton). I do not think that he could be unkind if he tried—and he tried hard this afternoon, but not successfully. I will try to deal with some of the wide-ranging issues which he succeeded in raising on this occasion.
    The Clause, as he recognised, is one which we pass annually to perpetuate this temporary tax, which has been temporary, but effective, for many a long year. That is all that the Clause contains. One of the criticisms which he made was that at a standard rate of tax of 7s. 9d. in the £ we are collecting more revenue than the Socialists collected at a rate of 9s. 6d. in the £. This strange criticism hardly seems in line with the other criticisms about a stagnating economy and lack of growth, for it is the best possible evidence of the health of the economy.
    We need large sums of money to pay for the enormous expansion of social services. We hear complaints that there

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    has been no expansion of the social services and that nothing has been done for them, and yet he said how much more money we have to find for the increasing expenditure on education, hospitals and roads, indeed all the social services. They are the reasons why we need the additional revenue provided for by the Clause, and it can be found because a Conservative policy has provided these enormous additional sums in revenue at a standard rate of tax of 7s. 9d. rather than 9s. 6d. What the Prime Minister said in the speech which the hon. Member quoted is true. If we returned to the rates of taxation which we had under the Socialist Government, we should collectively pay about £1,000 million more in taxation than we are paying at present. That puts the position straight in that respect.
    I do not think that the hon. Member has much to offer as an alternative to Income Tax. He produced the old argument about the possibility of reducing the standard rate of tax if there were less avoidance and evasion. We are always concerned in the Treasury, in the Inland Revenue and in this Committee to check avoidance and evasion. But I do not think that any serious student of these matters and of the scale and operation of our current direct taxation—and I include the hon. Member among the serious students—would suppose that a further toughening of policy on avoidance and evasion would make any significant difference to the current rates of Income Tax.
    The hon. Member raised a question about personal allowances which I think it would be more convenient for the Committee to discuss when we reach the new Clauses on the Notice Paper, when I will go into the matter in detail. He then ranged fairly wide. I was interested in what he said about Estate Duty and gifts. He implied that if one gives something to one's children, one is thereby avoiding Estate Duty. I wonder whether he wants to carry the logic of that to its conclusion. Is he carrying that through to the stage of saying that any gift to one's children should bear Estate Duty? I think that he should make the position clear.
    Mr. Houghton: The Chancellor must know the extent by which Estate Duty
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    is being avoided by gifts inter vivos. He must know that other countries have had to cope with this abuse of Estate Duty by imposing a gifts tax.
    Mr. Maudling: I take it that the hon. Member is advocating a gifts tax. The point about which he is complaining can be met only by a gifts tax. That is the logic of what he is saying. This may be official Labour Party policy, and it is the logic of his argument. He cannot get away with it as easily as he thinks. He cannot complain about something and then shrink from the remedy. I agree with him that this matter should be argued dispassionately, but if he complains about people giving their sons farms free of duty he must be prepared to say that he will put a tax on someone who gives a farm, or a business, to his son.
    The hon. Member kindly referred to my speech at Newark, which seemed to be more the subject of his speech today than was the Finance Bill. I do not complain about this. He was kind enough to give me notice that he would refer to my speech, and I am grateful to him for doing so. I am also grateful for the chance to repeat what I then said—which is that the policy advocated by the hon. Gentleman and his colleagues would be disastrous for the economy of this country. I gave a number of reasons. Some of them I cannot discuss this afternoon, because they would be out of order. I could not, for example, discuss nationalisation, or bulk buying. I could not discuss the preposterous idea of driving down interest rates by pouring out Government money, a policy which led to so much trouble in the late 1940s. None of these matters is relevant and, therefore, I shall not mention them.
    But it is proper to refer to rates of taxation and the effect of the Labour Party's policies upon the rates of direct taxation—which are included in the Clause—particularly on industry. I said that the Labour Party was thinking in terms of the punitive taxation of profits, and I repeat that and stand by it. I meant the idea which has been developing this year that taxes on profits should be increased. This would be utterly irrelevant to the economic problems of the present year and positively damaging to the level of investment in industry

    1281
    which we need. If, despite these two facts, the Labour Party still intends to increase the taxation of industrial profits, it can only be for punitive reasons.
    I refer now to the speech made by the right hon. Gentleman the Leader of the Opposition in Swansea, on 25th January, when he talked about ruthless discrimination. We have never had that clearly explained. There is a feeling that the people they do not like will be ruthlessly discriminated against—the people whom they think are not doing the right thing or are not being efficient.
    Mr. J. J. Mendelson: No one said that.
    Mr. Maudling: If the hon. Member reads Labour Party speeches more carefully he will understand what I am saying.
    What surprised me was the criticism of investment allowances at this stage by the hon. Gentleman. The Labour Party, I understand, are strong believers in investment allowances and often have advocated increasing them. It is the system of investment allowances which gives rise to some of the difficulties about which we have been talking and of which the hon. Member is aware. He ought to recognise that it would be unwise to put forward solutions to some of the difficulties which would involve the withdrawal of capital allowances if, as a party, the Opposition believe in strengthening them.
    The hon. Member talked about a general review of taxation and of company profits, and referred to new forms of taxing wealth. He also referred to what I said about the level of expenditure and the level of taxation under Labour Party policy. We have seen that, as he rightly said, this Clause will extract from the taxpayers a higher overall total payment than ever before. I think that we are entitled to say that, given the policies advocated by the Labour Party, the level would have to be very much higher still, for two reasons: first, the much heavier expenditure which they are advocating; and, secondly, the effect of their policies on savings. I cannot emphasise too often that a reduction in savings is bound to mean an increase in taxation.
    Mr. James Callaghan: If the right hon. Gentleman thinks that this is disastrous, how does he explain away the failure of his own Government, for example, in relation to Post Office savings? Is he aware that anybody who put £100 in the Post Office Savings Bank in 1959 will find that today it is worth only £85? If that is not a distastrous attack on savings, I should like to know what is.
    Mr. Maudling: I will tell the hon. Gentleman what is. What is a disastrous attack on savings is a wealth tax, a capital gains tax as suggested by the Labour Party, its proposals for Government expenditure and its proposals for artificially lowering interest rates. All these are calculated to produce inflation on a scale which could not fail to be disastrous for savings. If one wants evidence, there is no better or more concrete evidence than the dramatic increase in savings under the present Government.
    Mr. Callaghan: Does the right hon. Gentleman realise that when the Conservative Party was returned to power, for £100 of War Loan paid one received £100, whereas 12 years later one gets £60 to £65? This is the deprivation of savings about which people are complaining. They are not worried about the possible disasters which he sees. They are complaining about the real loss in their savings which has taken place under the Conservative Government.
    Mr. Maudling: I am well aware that the purchasing power of the £ has fallen in the years of the Conservative Government, but I am also well aware that it has fallen a great deal less than it did under the Labour Government. But what is fundamentally important is that the level of savings has dramatically increased in these years and remains extremely high. The possibility of maintaining the current level of public expenditure at this level of taxation, and without going higher, depends entirely on maintaining the level of savings.
    I will reply to the hon. Member for Sowerby, who referred to my speech at Newark: I stand by everything I said, and I welcome this opportunity of repeating it, as I and my colleagues will continue to do until the General Election.
    Mr. Douglas Jay: Would the Chancellor of the Exchequer answer one other question? If he regards he proposal for a wealth tax in particular as so disastrous, why, as Chairman of the National Economic Council, did he put his name to this proposal? Does he deny that he is Chairman of N.E.D.C.?
    Mr. Maudling: Of course not. N.E.D.C. is a tripartite body—Government, management and unions. It would be wrong for me, as Chairman, to try to exercise a veto over the consideration by N.E.D.C. of any matter. I do not agree that the wealth tax would have the suggested effect. But I cannot say to N.E.D.C., "Because the Government do not agree with this matter, you must never discuss it or put it forward as a possibility".
    Mr. Jay: Does this mean that the Chancellor does not take responsibility for reports which are published by N.E.D.C., he being the Chairman of the Council?
    Mr. Maudling: It is well understood that neither the Government, nor the unions, nor the employers, are bound by every word in a report made by the Council, unless they specifically say so. Otherwise N.E.D.C. would make no progress. If the right hon. Gentleman thinks about this he must agree, if he wants N.E.D.C. to succeed. One party cannot have a veto over every word of any document put forward by the Council. This document said collectively, on behalf of the Council, that a wealth tax was a possibility to be considered. I agree that it is a possibility. I myself think that it is all wrong, but I shall not stop others from considering it if they want to.
    5.0 p.m.
    Mr. J. T. Price: My hon. Friend the Member for Sowerby (Mr. Houghton) has most effectively and very ingeniously deployed a number of considerations in this debate on the Question, "That the Clause stand part of the Bill". I agree that this seems to be the only opportunity that some of us will have to develop in detail our arguments on a number of matters which strike us as paradoxical in our tax system. To my mind, nothing was more
    1284
    justified than the remarks directed by my hon. Friend a few moments ago to the gross disparity which exists between the almost 100 per cent. effectiveness of P.A.Y.E. taxation on the small taxpayer and the wide-open gateways which exist for evasion of tax by large taxpayers.
    Nothing is better known or more clearly realised by intelligent people, even intelligent people who are themselves profiting from the system, than the tremendous advantages which are enjoyed by those in possession of ample expense accounts. Most intelligent people and most business firms, even firms of the highest reputation, against which I level no charge of impropriety but which nevertheless take advantage of every loophole in the tax system, know that the expense account racket is part and parcel of the system of attracting labour at the higher executive level.
    It is well known that many firms are in the racket of providing either Mercedes Benz or Rolls-Royce cars, whilst at other levels of employment firms are known to provide Rovers or Jaguars, and perhaps cars of lesser quality. These are gimmicks. They are incentives which are used freely in the business world to attract people who are wanted at certain levels of administration.
    I should be the last hon. Member of the House to argue irresponsibly that we do not need people of the highest calibre to improve our industrial efficiency. The Labour Party has never stood in the way of the greatest encouragement being given to higher efficiency in our industrial system.
    However, some of us are often, in our capacity as leaders of industrial labour, asked to discourage irresponsible action in industry, which sometimes occurs, much to the regret of all of us. It sticks in our crop when we know that the industrial morale of many of our people is being undermined by the glaring disparity which exists between those in the expense account racket and the ordinary person who is paying every penny of tax which Parliament levies on him.
    It is a racket. The Chancellor of the Exchequer has sufficient integrity and intelligence, which we freely acknowledge, to know that this is going on. Some of his predecessors stonewalled on the issue for many years. They refused to tighten

    1285
    up the things which have been tightened up a little in recent years. Much more tightening up is needed if we are to give the impression to the ordinary people that the taxation system is fair and is operated with equity by the House of Commons.
    Perhaps I should not have allowed myself that little outburst, but I have said what I believe to be true. I believe that it should be said in the Chamber with vigour and sincerity.
    As I shall be deprived of the opportunity of doing so later, may I refer now to a lesser subject but one which affects many people? The matter was referred to incidentally by my hon. Friend the Member for Sowerby. For some reason, new Clause 6—"Income tax: exception in respect of certain widows' pensions"—is not to be called. I suppose that I am not entitled to query the discretion of the Chair.
    The new Clause refers to one of the most ridiculous and idiotic paradoxes which exists in the tax system. It can no longer be justified. I do not think that it has ever been debated in detail in this Chamber. Widows who are in receipt of pensions for the loss of their husbands are under the ignominious penalty and disadvantage of having those pensions assessed for Income Tax purposes under Clause 12, or whatever rules apply to them.
    Is the Chancellor prepared to make a serious note of this? I am not raising the matter frivolously or for any small advantage. Members, regardless of party, have always agreed that Service pensions should be tax-free. Ordinary Service pensions are not aggregated with other in come for tax purposes. What about widows' pensions? If a widow has had a husband who was maimed and received a tax-free pension at the appropriate rate under the Royal Warrant—
    The Temporary Chairman (Sir Samuel Storey): Order. I do not think that we can discuss new Clause 6 in detail on this Question. Passing reference to the new Clause is perhaps in order, but not a full discussion of its details.
    Mr. Price: I will try to respect your Ruling, Sir Samuel. I am only mentioning a matter which was referred to incidentally. It is a matter of importance.
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    The trouble arises only when the status of the pension is changed. As soon as such a husband dies, perhaps from his war injuries, the pension his widow receives is subject to tax. This is a paradox which cannot be justified or defended by the House of Commons.
    I plead with the Chancellor of the Exchequer to review this matter and give us some reply to it. This applies also to widows who receive pensions under the Industrial Injuries Acts, because those pensions are assessed for Income Tax purposes. There is this strange contrast between the great mountain of tax-free capital gains and tax-free expense accounts on a most lavish and extravagant scale and the number of small people whose pensions, which were perhaps earned for injuries received in the service of this country, are subjected to the rigours of the tax law.
    I will not irritate you, Sir Samuel, by developing this point any more. I believe that I am entitled to raise it in the way I have done. I strongly support the criticisms which have already been advanced.
    Mr. Graham Page: I hope that my right hon. Friends on the Treasury Bench will take note of what the hon. Member for Westhoughton (Mr. J T. Price) has said about war widows' pensions. This is a point which needs consideration. I will not go further than that, because I am afraid, as was the hon. Gentleman, of getting out of order. Yet I am encouraged by the way in which the hon. Member for Sowerby (Mr. Houghton) kept in order in his journey from Somerset House to Trafalgar Square fountain, down Whitehall, on to the Serpentine, thence to a farm in Tewkesbury, and on to Newark. The hon. Gentleman kept in order all the time. I think I can keep in order on the much narrower point I wish to raise. It is much closer to the Clause than the hon. Gentleman was at times during his speech.
    Before I come to that point, I wish to refer briefly to one comment made by the hon. Member for Sowerby. He said that my right hon. Friend the Chancellor of the Exchequer talks political drivel outside the House of Commons. With all due respect to the hon. Member, he himself succeeded in talking political

    1287
    drivel inside the Committee this afternoon. It cannot escape the notice of anyone that the standard rate of tax in Clause 12 is 7s. 9d. as compared with the standard rate in 1951, under the Government of his party, of 9s. 6d. It cannot have escaped the notice of anybody that since 1951 millions have been relieved of Income Tax altogether [HON. MEMBERS: "No."] It is the fear of the public that if the party opposite had charge of the Budget on this occasion we should be returning to a standard rate of 9s. 6d. in the £ and those millions who have been relieved would be put back on Income Tax. Those who are saving—and the savers have increased tremendously over the past dozen years—would be deprived of their savings, as they were under a Socialist Government, at twice the rate of inflation which exists under the Conservative Government.
    I turn to the one rather narrow point to which I wish to draw the attention of the Committee.
    Mr. Callaghan: As political drivel seems to be the order of the day, would the hon. Member mind withdrawing his statement that there are more people now relieved of tax than there were in 1951? Will he refer to the Annual Report of the Commissioners of Inland Revenue, where he will see that this is quite untrue? There were more people exempt from tax in 1951 than there are today.
    Mr. Page: So far as incomes are concerned, more have been relieved of tax since 1951. The lower income groups have been relieved of tax.
    Mr. Callaghan: The hon. Member is quite wrong and he should acknowledge it. So far as I know, he has not the figures in front of him and I have. There were more people exempt from tax in 1951 by the operation of the allowances than there are today. This has been the basis of my complaint year after year to the Chancellor, and that is why I have put down these Amendments. The hon. Member seems to think that the Chancellor has done what he should have done, but he has not, and it is high time that the exemption limits were put up again.
    Mr. Page: The hon. Gentleman is quite right in taking overall numbers
    1288
    like that, but more people as a result of more earnings and the increase in the standard of living have come within the higher taxation groups.
    This Clause provides for Income Tax for the year 1964–65 to be charged at the standard rate of 7s. 9d. in the pound. I want to draw the attention of the Committee to circumstances where in fact that will not be charged, despite this Clause, although it was charged in the past. I refer to the deduction of 7s. 9d. in the pound from ground rent. This is a narrow point, but it is producing a certain amount of hardship on people of very small means.
    Prior to last year's Finance Act, the ground lessee was assessed on the ground rent which he paid. It sounds rather anomalous that the income payer was assessed and not the income receiver, but as a result the ground lessee was entitled to deduct 7s. 9d. in the pound when he paid his ground rent. Many ground lessees in my constituency, and I have no doubt in the constituencies of other hon. Members, are people of small incomes, living in small houses on a ground lease. They are not liable to Income Tax at all. They deducted the 7s. 9d. in the pound from the ground rent when they paid it and they were not called upon to account for that sum to the Chancellor.
    There was nothing immoral in that. This system of assessing the payer was a convenient way of collecting tax, and the Inland Revenue had to put up with the defects of that system because of the great advantages of it in the collection of the tax; so there was nothing immoral in the ground lessee not accounting for the 7s. 9d. in the pound which he had deducted according to the standard rate.
    5.15 p.m.
    The result is, for example, that for years the ground lessee who was liable for £5 ground rent discharged his liability by paying £3 1s. 3d. to his ground landlord—if my mathematics are right. The Finance Act, 1963, repealed the sections which assessed the ground lessee or required him to deduct the 7s. 9d. in the pound, mentioned in Clause 12, from his ground rent. He now is faced with the position of paying that ground rent in full to his ground landlord.

    1289
    Since 1963, he finds himself paying somebody 7s. 9d. in the pound, and unfortunately he blames my right hon. Friend the Chancellor for making him pay this. It is right, I think, although this is the narrow point, that the Committee should know that some who can ill afford this, although it may be a small amount, are now paying 7s. 9d. in the pound which they did not have to pay previously. I ask my right hon. Friend to consider if he can give them some relief. They are the people of very small means who can ill afford even a matter of a pound or two in this way. I wonder whether he can restore them to their previous immunity from the standard rate of 7s. 9d. in the pound.
    Mr. Cyril Bence: I rise partly to meet the point raised by the Chancellor of the Exchequer who made so much play about the tremendous increase in savings out of increasing incomes on which 7s. 9d. in the £ is charged since 1951. We have had inflation since 1945; in fact, since 1939. We have been going through the process of the fall in the value of the units of currency in every country. It would be a frightening situation if, in the processes of the fall in the value of money, there was not in our industrialised community an increase in savings. In fact, we should be in complete stagnation if at the same time that the value of money was falling there was no increase in the quantity of money in circulation and being saved. The one goes with the other.
    This is an inflationary cycle—higher incomes, higher savings, higher expenditure, higher prices. This is due to the fall in the value of money, and this is the inflationary process. I am surprised that the Chancellor should put it as a serious argument that it is the symptom of the great success of our economic order that there are more savings. More savings are partly the result of higher prices and the fall in the value of the unit of currency.
    I do not want to use this as a political stick to beat anybody. In every country in the world there is this inflationary process and the fall in the value of money, which, in a way, lessens the burden on any community and any individual. I believe that the tragic
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    consequences of deflation would be much worse than the modest inflation which takes place in contemporary world economies. Therefore, I think that the Chancellor is indulging in political claptrap wren he tries to make the political argument that he has made today.
    Mr. Maudling: The fact is that savings have increased many times over in real terms.
    Mr. Bence: This, of course, is true in the economies of Western Europe and the whole of the modern world where science and technology have been brought to bear. As one who has been in engineering all his working life, I should be disappointed indeed if, as a result of all the science and technology of the last 60 years, people engaged in all those processes were not able to acquire more personal satisfaction for themselves and at the same time build up a greater reserve of savings. I should be very disappointed indeed of any equality in our civilisation if there were not this sort of natural increase in the personal wealth and general well-being of the whole society. Therefore, to bandy about this sort of argument is just a waste of time. It is sheer political claptrap and has no bearing whatever on how best we can organise our affairs to get the best out of our productive effort.
    On the question of the burden of taxation, generally speaking the proportion of taxation to income is the same in 1964 as it has been for some time. It is surprising that in whatever field we operate, whatever the proportion of taxation, direct and indirect, and the relation of incomes in the different groups of our society, the differential remains very much the same. Sometimes I think that it is because there is a sort of inbuilt stability in these differential relationships which prevents us from achieving the results which we might otherwise achieve.
    I want now to come to the matter of the 7s. 9d. tax which my hon. Friend quite correctly said is not an effective figure of taxation. As I have said so many times, there is a difference between those who use a firm's car and those who run their own car. I have heard it said in factory after factory that when a man

    1291
    had a firm's car made available to him it represented so much being added to his annual income. Those of us who ran our own cars paid for them ourselves. Perhaps they were secondhand cars, but we got no allowance for running them. The only difference between the car which we used to travel to and from work and the car which the top executive ran was that the car which I or other workers had could be taken abroad on G.B. plates whereas that used by the top executive could not. He could not take his car abroad because he could not get a green card because the car was provided by the company as a gimmick, as my hon. Friend described, to increase his income.
    The workpeople of 1964 are not the same as the workpeople of 1864. They know that this sort of thing is going, on and that in some factories there is a fleet of 60 to 100 cars which are at the disposal, free of charge, of executives of a certain position upwards. They receive different cars according to their different status. The man at the top will have a six-cylinder car costing up to £2,000. I forget the actual figures, but I think that it was 60,000 miles or three years, whichever was the lowest, before the man qualified for a new car.
    Mr. H. Rhodes: This practice is spreading. It is not just confined to managers, higher executives and the like. It is now spreading to workers and is part of the wage system. A worker can now go to a factory a few miles away and get free petrol from the pump. This is happening all the way through.
    Mr. Bence: I am surprised to hear that. I have known the practice apply down to departmental managers, but I do not know of one case where it has come down to chargehands or foremen who get a car or even get petrol free at the company's pump. I have had no personal experience of that. My hon. Friend is probably right, and in Yorkshire the practice may be spreading.
    This is a very serious matter in factory units. Men resent it. True, we used to get some little quid pro quo; we could get a few repairs done internally one way or another. This was a sort of compensation or perquisite for being a skilled
    1292
    man. I can tell the Chancellor that there is strong resentment throughout the country at this practice. A lecturer at a university, perhaps in medicine, or a research worker, at a salary of £1,700, £1,800, or £2,000 a year, does not get a car. He is a man who has graduated. When he goes into the employ of a big company he receives his salary plus a car, which is worth about £200 a year to him. Why divide the people in scientific and technical grades in the country into two groups of people? Those who enter some of the professions, especially those professions in which we need men very badly, such as in technical and scientific research, receive a nationally agreed salary. They pay their Income Tax at the rate of 7s. 9d. in the £. They only have their personal allowance and they pay their tax under P.A.Y.E. They cannot dodge paying their tax in any way. Yet when they go into factories to advise administrators, engineers and scientists they find that their associates are getting much greater salaries plus a motor car.
    Mr. Kenneth Lewis: Will the hon. Gentleman make it clear that where people have cars which are used for company purposes the personal use of that car is written back against their income? They are, I think, charged by the tax man for this. That is the first thing. My second point is, does the hon. Gentleman propose in due course to introduce a Bill to do away with the use of cars for company purposes? Will he get the support of his right hon. and hon. Friends on the Opposition Front Bench for that?
    Mr. Bence: I am not speaking for my Front Bench. I am expressing my own views. I am not a tax or financial expert. I have only one expertise in the narrow engineering field, but I am applying my argument to taxation of 7s. 9d. in the £. Therefore, I will leave the point which the hon. Gentleman raises to the experts in the matter to deal with as they see fit.
    The people who get these cars also get their petrol and the licence for the car. They are, in fact, having set off against their income the means of travelling to and from work. This is ridiculous. I have known cases of two people living next door to one another, one of whom is a foreman and has a car paid for by the company in which to travel to and

    1293
    from work. He is allowed sufficient to enable him to use it for his fortnight's summer holiday as well. The fellow next door is not a foreman but he also has a car. In his case, however, he has to pay for it himself. He gets no allowance for running it. So long as this practice goes on, the supplying of cars on company account, then I suggest that with the growth of housing estates and with people being moved into new towns from our city centres, everyone who has to travel from home to work should be able to set the cost of running a car against his income.
    Mr. John Hall: Would not the hon. Gentleman agree that in the cases that he has in mind where workers have to travel considerable distances to work, probably from new housing estates, some firms in these days are having to send buses to fetch them to and from work and are having to pay the cost of that travel?
    Mr. Bence: I did not know that that was so, but if it is good enough to do that why not permit the individual to set against his income the cost incurred in travelling from and to his place of work? After all, the executive who has a motor car provided for him by the company is, in a negative way, getting an allowance to run the car. The hon. Gentleman says that some firms are hiring coaches to bring in their work people. This is done in remote places. This being so, we should introduce into our taxation system further allowances so that people may set their cost of travelling to and from work against Income Tax.
    5.30 p.m.
    Something of the kind I am suggesting occurred during the war when, under the Emergency Regulations of the day, the Ministry of Labour made an allowance of about 30s. a week to people who had to travel some distance to work. Workers know that the present 7s. 9d. standard rate is not really being collected. It is in theory but not in practice, because there are many gimmicks, the motor car being one, for getting round it.
    My fare to Glasgow from where I live was 4d. when I first moved to the district. It is now 11d. Fares which used to be 1s. 3d. are often now 3s. 6d. Apart from increases in fares, people are living further out from the cities and are having
    1294
    to travel further distances to and from work. The burden of travel is becoming heavier, financially and in other ways, all the time, and I hope that since the Government are anxious to move people and industries out—
    The Temporary Chairman: Order. The hon. Gentleman is getting wide of the question of Income Tax allowances.
    Mr. Bence: I have been discussing it only because the matter was raised. Some hon. Members are expert at getting all sorts of things discussed. I am not expert in doing this and must wait for matters to be raised before being able to speak on them. Suffice to say that I hope that this or a future Chancellor will examine the possibility of extending travelling allowances to work people generally.
    Sir Henry d'Avigdor-Goldsmid: We have had a far-ranging debate on the rather fragile peg of the 7s. 9d. rate of Income Tax. The hon. Member for Sowerby (Mr. Houghton) is very much responsible for it having ranged wide. We always enjoy his contributions in Committee. Today he was in good form, but I was rather surprised to hear him complain, when he produced his views on tax reform, that they should be branded as politics. He should remind himself, it being some years since he left the higher reaches of the Inland Revenue, that politics is what we are all here for, and he should not take it amiss that some of his remarks may be characterised as politics.
    Mr. Callaghan: My hon. Friend is never political about anything as serious as Income Tax.
    Sir H. d'Avigdor-Goldsmid: On both sides of the Committee we have a vested interest in the maintenance of savings. This is not a party issue, and I regret to say that this subject has been misused in the debate today. Personal savings are fundamentally a question of personal choice. The person who saves has at the same time plenty of opportunity for spending. If he makes a personal decision to save, it is because he is reasonably confident about the safeguarding of what he is putting aside. It was misleading of the hon. Member for Cardiff, South-East (Mr. Callaghan) to draw attention in his intervention a short while ago to only one stock, the 3½ per cent.

    1295
    War Loan, which, owing to the original conditions on which it was issued, has gone in many cases to the small saver who should never have had it.
    One can never blame the Front Bench of either side that in respect of savings schemes produced since 1939 people have fallen into that trap. In other words, the small saver in any savings he has put aside since 1939 has had the cash value absolutely guaranteed. In his anxiety to make a political point the hon. Member for Cardiff, South-East rather cast doubt on the efficacy of the various savings schemes we have before us. I still say that it is inescapable that savings are a matter for personal choice. If people decide to save it is because they consider that their savings are safe. Therefore, it does not help the interests of either side of the Committee for the hon. Member to refer to the 3½ per cent. War loan in the way he did, remembering that it stands at a very much lower price. There is no holder who has not either bought it at a discount or had a chance of selling it at a premium. I agree that in some respects it is a stone around our necks. Nevertheless, we are responsible for the finances of the country and I am sure that the difficulties of this stock will not recur.
    I was interested to hear the hon. Member for Dunbartonshire, East (Mr. Bence) refer to a number of tax avoiding activities. When there is a high rate of Income Tax it is obvious that tax-free benefits are bound to be sought, not by any level of employee but by all. This applies not only to luncheon coupons—which, incidentally, are not available to directors—but to anything else. They are all benefits.
    Having listened with interest to the remarks of the hon. Member for Sowerby, if he wants to reallocate the tax burden he must, I would remind him, still raise the same sort of revenue, for I did not hear him say anything about raising less revenue by any reallocation of the tax burden. If he feels that the tax burden is being placed too heavily on the earner and intends to reallocate it, he must, in doing so, place a heavier burden on companies. Will that not be the same form of punitive taxation? If not, I do not know what he means. If he wishes to make a massive change
    1296
    from the earner to companies, the companies are not going to let that go for nothing. They will be bound to make a great deal of propaganda to the effect that that must reduce their possibilities of attracting future investment. I have no doubt that the position is being thought out, but it should be clearly put on the record as to the extent of the relief the private taxpayer will get and the additional amount companies will have to carry in future. This is an unexpected but none the less welcome debate. It is rather interesting, however, that on this subject of a tax introduced by Mr. Gladstone, although the Liberal Party was here in full strength at Question Time, none of its members has found it appropriate to be present at any time for the subsequent debates.
    Mr. Callaghan: I intervene at this stage in order to put a question to the Chancellor, and also to respond to the very courteous remarks made by the hon. Baronet the Member for Walsall, South (Sir H. d'Avigdor-Goldsmid). The hon. Baronet, like my hon. Friend the Member for Sowerby (Mr. Houghton), thinks about these matters in largely non-political terms, and it might be possible to get a rational debate on such matters as a gifts tax, or a wealth tax, or a tax on capital gains, or the other ideas put out by one or other of them. Unfortunately, the hon. Gentleman's Front Bench does not think in the same way, and I must admit that I do not either.
    The hon. Gentleman says that I am in danger of casting some doubts on the efficacy of our savings system and that this is something above and beyond party. That is the sort of cliché uttered in the House but completely ignored by Tory propagandists outside. We are facing a campaign, from the Prime Minister downwards, to prove to the country that the effect of the election of a Labour Government will be disastrous to savings—
    Mr. A. E. Cooper. Hear, hear.
    Mr. Callaghan: The hon. Member for Walsall, South will now see what he is dealing with. He is not dealing with an issue beyond and above party but with a situation in which the hon. Member for Ilford, South (Mr. Cooper) genuinely

    1297
    believes that the election of a Labour Government will wreck our savings system. Not only does the hon. Member think that, but the Prime Minister thinks it, too. The Chancellor, of course, knows better, but I do not believe that either the Prime Minister or the hon. Member for Ilford does. When the Prime Minister sent his message to the unsuccessful candidate at Rutherglen, he put at the beginning of it that the election of a Labour Government would mean a disastrous attack on the people's savings. The people of Rutherglen ignored what the Prime Minister said.
    In this context, I am entitled to say, and to repeat, that the actions of Conservative Governments during the last 13 years, have been disastrous to the holders of certain savings. We do not have to look into the crystal ball when we can read the book. The simple truth is that anybody who put £100 into the Post Office Savings Bank in 1952 would have drawn a full 2½ per cent. each year since, but in terms of purchasing power that £100 would be worth only about £65 today. Anybody who was fool enough to put £100 into the Savings Bank at the beginning of the Tory Administration has now lost £35. If that is not an attack on the small man's savings, far transcending any attack that could be made by a Labour Government, I have yet to recognise one—
    Mr. K. Lewis: What about Daltons?
    Mr. Nigel Birch rose—
    Mr. Callaghan: The right hon. Gentleman has a reputation for saying very bluntly what he thinks. He can say it when I have finished, and I shall not mind.
    Any one who purchased 3½ per cent. War Loan in 1951–52 would now find that it is down to—I have not looked at the price for the last day or two, but I suppose that it is about £59. I do not know whether hon. Members get the representations that I get—and I get them now addressed to 11, Downing Street, and the Chancellor is good enough to send them on to me. Perhaps I should not have said that, because this is a serious matter. Everyone who has seen such letters knows what some holders of this stock have experienced, and recognises that there has been much hardship in this field and that a great many people
    1298
    who bought—some for patriotic reasons—the 3½ per cent. War Loan—and I do not now talk of the large institutions, but of the small people who have put the story to me—have lost over the last 13 years some 30 per cent. or 40 per cent. of their capital.
    5.45 p.m.
    I put this for the moment on a non-political basis, but I warn hon. Members opposite that if they intend to say that the election of a Labour Government will mean a disastrous attack on the savings of the people they will have these facts rammed home. People know them to be true. They know that there has been this loss of savings, and loss in the value of savings. What hon. Members opposite are doing, and they will not get away with it in the next few months, is to attempt to hide behind the small people and try to persuade them, or terrify them or frighten them in order to prevent any attack being made on the large-scale evasions that are taking place.
    If that is the basis on which this battle is to be fought, I must tell hon. Members opposite that every one knows that our taxation system is now operating unfairly. No one can deny that there are large-scale undertakings which, through manipulation of the tax machine—and legitimate manipulation of the tax machine—on which the Public Accounts Committee reported to the Chancellor only a few months ago—are able to make millions of pounds on tax, whereas every P.A.Y.E. man who suffers deduction of tax at source is compelled to pay every penny.
    Today we have had a Report from the National Incomes Commission pointing out the serious effects on the economy that will ensue if the wage drift in the engineering industry persists. I have no doubt that the Commission is quite right. It says that it did not discover this, but it is astonishing that it should write with such freshness about it when every trade union negotiator and every employer has known about it for years—it is one of the basic difficulties in getting an incomes policy.
    I only wish that we could have the same examination made of the level of company profits in some of these industries. Why is it always on wages that this is based? When the plumbers' wages were referred to the National Incomes Commission, the Commission

    1299
    asked employers to provide evidence of profits. That was over a year ago. It wanted to be able to test the validity of the claim that profits were too high. Did the N.I.C. get any co-operation? The Chancellor knows the answer as well as I; the employers refused to produce to the Commission the evidence of profits.
    How is it possible, in those circumstances, to get a proper incomes policy? How is it possible to get a feeling of fairness as between all parts of the community if there is this sense that there are some sections, made up of large companies which are able to make substantial sums—I will not mention any names—without paying a penny of taxation, either through manipulation of land purchases and sales or in other ways and, on the other hand, the wage earner who is being chased the whole time?
    I happen to take this incomes policy question very seriously. I do not say that the Chancellor does not do so, but that is why I am astonished by his complacency. My hon. Friend the Member for Sowerby asked a question at the beginning of his speech that we have asked about five times. The Chancellor has not answered it today, and he has not answered it before, so I shall ask him again. Case VII provides for the collection of a speculative profits tax. It was passed last year. In his Budget estimates for the current year, the Chancellor has shown a gross sum for the collection of Income Tax, including Case VII. I repeat the simple question my hon. Friend has asked: Why does the Chancellor refuse to state what sum has been included in that total for the speculative profits tax? The right hon. Gentleman must know. He cannot possibly say that he does not. He has a total, and he must have made that total from a series of individual totals.
    What is the individual total for the speculative Profits Tax? This goes side by side with incomes policy. We were told in 1961 by the present Leader of the House when he introduced the pay pause that the other half of it was the taxtion of profits and it was out of his statement in July 1961 that Case 7 of Schedule D was introduced. Here we are three years later, and the Chancellor
    1300
    is unable, unwilling or too ashamed to tell us. Why has the answer not been given? I will give way to the right hon. Gentleman if he cares to tell us.
    Let me put a series of direction questions to the right hon. Gentleman. He must agree that he has a total estimate of the Revenue from Income Tax this year. Apparently he is not going to give me yea or nay, but I appeal to the rest of the Committee that this is generally agreed and that that total is made up of the total collection from Schedules B, C, D, E and other sources of revenue. I assume that within Schedule D it is made up of a collection of the total from the Cases up to Case 8. I therefore assume that the right hon. Gentleman has a total for Case 7 and that that is the amount which he expects to collect from the speculative Profits Tax.
    Either the right hon. Gentleman does not know or he is too ashamed to tell the Committee what that total is. I suspect that it is the latter reason and that the amount of revenue to be derived from the speculative gains tax is so infinitesimal that he dare not tell us because it will throw into extraordinary relief what is moving through the National Incomes Commission on to the trade unionists and what is being exacted on the other hand from those who are making almost untaxed capital gains. This is a serious point to which the Chancellor should reply, and it is no use saying that we do not yet know the figure.
    The amount of Government waste, which we have debated in the House of Commons before, has a substantial effect on the rate of Income Tax. There is, for example, Government waste on missiles. If we had avoided that waste the rate of tax this year would not be 7s. 9d. but 7s. 3d. in the £. The Government must take their share of responsibility for that. People are having to pay more in taxes because the Government have wasted money. We have had no result from it and no weapons from it; nevertheless we have to pay for it.
    It should be understood that this Government, through the failure of their economic policies, have deprived the people who invested in certain forms of savings of a substantial part of their capital and that the Government have brought considerable hardship to those people. It should be understood that

    1301
    the Income Tax system operates unfairly as between those assessed under Schedule E under P.A.Y.E. and those assessed under other Schedules. It should be further understood that the waste of Government expenditure has resulted in a higher rate of Income Tax being payable than otherwise would be the case.
    It is on that basis that the Chancellor should have dealt with the case made by my hon. Friend the Member for Sowerby. He should not have ridden off on a wave of complacency when he indicated that he had nothing to offer and no way of redressing the grievances which are deeply felt by those who are paying under the system. The sooner the right hon. Gentleman leaves it to others to at least try to do something to remedy the situation, the better for the people of this country. I give way now to the right hon. Gentleman if he cares to reply.
    Mr. Birch: The hon. Member for Cardiff, South-East (Mr. Callaghan) might have looked a little further back. One of the reasons why there has been this heavy fall in gilt-edged securities—and I entirely agree that it has had a grievous effect on many people—was the Daltonian money policy of the late Labour Government. The hon. Member may remember that holders of local loans at 3 per cent. were forced to convert to 2½ per cent. irredeemable securities, which I think I am right in saying had fallen by 39 per cent. by the time the Labour Government went out of office. That was the quickest loss anybody could have had on any security. It was an enormous capital loss during Labour's period of office. As for a wages policy, the line of hon. Members opposite always is that if only we were beastly enough to business there would be no difficulty at all in having a wages policy.
    Mr. Callaghan: Oh, no!
    Mr. Birch: Hon. Members opposite anyway say that the way to do it is to be beastly to business. What was the position when they left office? The highest rate of tax was 19s. 6d. Income Tax was 9s. 6d. in the £. Profits Tax on distributed profits was so high that though there was not officially a dividend freeze there was one very nearly.
    1302
    Purchase Tax was at the highest rate, including 100 per cent. on such things as lipstick. There had to be a special exhortation to the workers to "support your own Government". In the last year when Labour was in power the late Mr. Gaitskell was begging the unions to co-operate. Price control was in force. Wages went up by 10 per cent. and prices by 12½ per cent. These various attacks on business are simply not relevant to a wages policy. What is relevant is to remove the obstacles to growth so that we can have a decent regular rise in the standard of living. The relevant point on savings is that when the party opposite left power personal savings were £100 million a year and now they are £2,000 million, and therefore somebody has been saving something, despite all those troubles.
    Mr. John Mackie: We are not all agreed whether or not Income Tax is fair, but I think that we are all agreed that through no fault of yours, Sir Samuel, the order of speakers in the debate has been unfair. The hon. Member for Flint, West (Mr. Birch) comes bursting into the Chamber—
    The Temporary Chairman: Order. The hon. Member must not criticise the calling of Members.
    Mr. Mackie: I obviously did not criticise. I said that it was no fault of yours, Sir Samuel.
    The right hon. Member for Flint, West mentioned savings which have been mentioned earlier in the debate. One point which has been missed out concerns the hire-purchase debt. I knew that the hire-purchase debt is supposed to represent forward savings. The debt is today between £900 million and £1,000 million, and to be fair we should subtract that from savings before arriving at the net figure. If that is done, it will be found that the savings are not quite as good as some hon. Members try to make out.
    I am sure that we are grateful to my hon. Friend the Member for Sowerby (Mr. Houghton) for what he has said on the question of some change in the method of taxation and particularly on the difference between P.A.Y.E. and a tax on profits. I should like to give my own experience of how this hit me when I became a Member of Parliament. I started work in 1926 at £40 a year plus

    1303
    my keep and I did not pay tax until I made farm profits just before the war. It was not until I had a Parliamentary salary that I realised the difference between the situation when one has the money oneself and, as my hon. Friend the Member for Cardiff, South-East (Mr. Callaghan) has said, one is able to manipulate it legally, and the situation where the tax collector gets in first and the tax is knocked off under P.A.Y.E. Undoubtedly, there is gross unfairness in our taxation system, something which I did not realise, as I say, until I got my first salary here five years ago.
    6.0 p.m.
    With reference to allowances, manipulations and so on, motor cars in particular have been mentioned. The hon. Member for Rutland and Stamford (Mr. K. Lewis), who has just left the Chamber, pointed out that, if a person uses a business car for private purposes or for purposes other than the business, he has to pay. But, of course, he knows the system as well as we all do. A man puts in a certain figure, the inspector of taxes says that it is not enough, and they split the difference or argue about it. The inspector is most lenient. Everyone knows that it is a tremendous advantage to run a business car and have it for use for other purposes, an advantage which ordinary people do not have, and it is ridiculous to suggest otherwise.
    I am a farmer and I get perquisites which are not taxable. I am very grateful for them. My farm workers get them too, but they and all other workers see what is going on and are led to look for loopholes which they can use. For example, a man can go and work overtime for another employer up to £25 a year and it will not be returned for tax. A few years ago, the limit was more than £25; I am not sure that there was a limit at all. Now, at any rate, any employer who pays £25 or more to anyone in a year must return it, so employees are making absolutely sure that they do not work for more than £25 for any one employer. I think that this is correct under the regulations.
    The point is that the unfairnesses in our taxation system are, as it were, percolating down to everyone, and this is one of the great arguments for a change in the system. As my hon. Friend the
    1304
    Members for Sowerby said, I hope that, when this party comes to power in October, the matter will be taken strongly in hand.
    The Chancellor makes light of how much could be raised by a capital gains tax. He is always saying this, and, in spite of the questioning which my hon. Friends constantly direct at him, he gives no other answer. For the edification of the Committee, I shall read an advertisement which I cut out of The Times the other day. It is headed,
    "How To Raise Money On Property",
    and it reads:
    "Six years ago Mr. A went into property with £1,250 of his own. He's now worth £1 million plus."
    Does any hon. Member really think that that man should not have paid tax on that income of nearly £200,000 a year for six years? The advertisement goes on:
    "The London Property Letter covers his case and others in a clear-eyed look at the art of buying property without really having capital. It tells you how much you actually need. And how to raise the rest. It views the values of 'gearing'. Casts a cold eye over 'booster contracts'. Tells how to live with Local Planning Authorities. And how to find finance for that villa in Spain. The LPL, Britain's most authoritative property journal, puts the whole business of property finance into perspective. Send 5s. now for this issue of property finance. Or 6 gns. for full membership (24 issues and special benefits)."
    Sir H. d'Avigdor-Goldsmid: If instead of reading that particular paper the hon. Gentleman had turned to one which gave him the winners of greyhound races or horse races, he might for a modest investment have been offered the possibility of wealth on a comparable scale on which he would have been in no danger of paying tax at all.
    Mr. Mackie: That seems to be a completely irrelevant interjection.
    We all know what is happening. We know how much money is being made in the buying and selling of land. The Chancellor is quite wrong when he says that he would raise only "chicken-feed" by a proper capital gains tax. I emphasise again the necessity for change in our taxation system. Otherwise, we shall get everyone going deeper and deeper into all sorts of avoidance devices, creating a moral situation in this country which would be deplorable.
    Mr. A. E. Cooper: The hon. Member for Cardiff, South-East (Mr. Callaghan) spoke a lot about savings. He really does talk the most appalling economic nonsense, and the sooner he goes back to Oxford for his weekly lessons, the sooner he may come back—it will probably take a few months—and know something about the A.B.C. of the subject.
    Mr. Birch: The hon. Member for Cardiff, South-East (Mr. Callaghan) has been far worse since he had his lessons.
    Mr. Callaghan: I should just like to say that it is all a complete myth anyway.
    Mr. Cooper: As my right hon. Friend the Member for Flint, West (Mr. Birch) pointed out, the record of savings when the Labour Government were in office was quite deplorable. We have no reason to hang our heads in shame for the record of savings under Conservative Governments. Only £100 million was all that could be mustered under the Labour Government, and, even taking into account the change in the value of money, the difference between £100 million and £1,800 million a year is very great indeed. But this, of course, is only the beginning of the story. Saving is not just a simple matter of £ s. d., investment in the Post Office, in War Savings or War Loan. There are other more tangible savings which, even with inflation, retain and, perhaps, improve their value. I refer to houses. Under the Labour Government, there was very little building done for the private investor in house property. Today—
    The Temporary Chairman: Order. There is nothing about houses in the Clause.
    Mr. Cooper: No, Sir Samuel, but if I were to relate it to money terms, I should, presumably, be in order. Houses cost money and are paid for out of savings. Today, there are 9 million houses which represent past savings—
    The Temporary Chairman: Order. The hon. Gentleman must relate this to the Income Tax.
    Mr. Cooper: Houses are paid for after people have paid their tax. [HON. MEMBERS: "No."] Of course, they are. If
    1306
    any hon. Member opposite can tell me that house-purchase payments are made before taxation is paid, I shall be very glad to hear it, and I am sure that many millions of others will, too. House-purchase payments are made after Income Tax has been paid. They represent a payment out of the residue of a man's income. No one can deny that.
    Mr. Houghton: Has the hon. Gentleman heard about tax relief on mortgages?
    Mr. Cooper: Of course. This is part of the system, but the tax has to be paid, and the priority call on a man's income is his Income Tax. The hon. Gentleman must know that, or perhaps he ought to go to Oxford with his hon. Friend the Member for Cardiff, South-East and find out.
    I was challenged earlier as to whether I thought that it would be a disaster for savings if a Labour Government were returned. I say that it would be a disaster. The record proves that. People did not invest in savings when there was a Labour Government because they did not believe in a Labour Government, and this was the reason why the Labour Government were thrown out in 1951. For the same reason, they will not get back in October this year. The country will return us as the Government.
    I come back now to the points which have been raised by hon. Members opposite about the expense account. This is a sort of hardy annual trotted out by hon. Members opposite, and, listening to them, one would imagine that there were hundreds of thousands of company directors going about the country and living in the lap of luxury at the taxpayer's expense. What a lot of rubbish that is. Every hon. Member of the House of Commons lives on an expense account.
    Mr. W. A. Wilkins: Rubbish.
    Mr. Cooper: Hon. Members claim expenses necessarily incurred in the execution of their duties as a Member of Parliament. To that extent, every hon. Member is living on an expense account. Do not let us split hairs about this. We claim our expenses and we have to justify them to the Income Tax authorities. If we cannot justify them, they are disallowed. Company directors, or anybody who is operating under Schedule E, are

    1307
    in precisely the same position. They have to justify their expenses to the Income Tax authorities.
    I am a director of two public companies and I have to approve the expenses of sales representatives and other people who are entitled to expenses. I have to justify my own expenses to my board. My company has to make a profit. It has shareholders to consider. Do hon. Members opposite suppose for one moment that the shareholders of public companies would allow the directors or any other members of the staff to carry on dissipating the company's funds to their detriment? Of course they would not do any such thing.
    Excesses do occur in some cases—there is no doubt about that—but that is true of practically everything in every walk of life. However, I assert without fear of contradiction that the conduct of the average company director and of the average board of directors in this country is very high indeed. They have a very high standard of integrity. If we criticise these men, we throw dirt at a very honourable profession—auditors and accountants. I see the hon. Member for Gloucester (Mr. Diamond) sitting there. Will he, as a member of the Labour Party and sitting on the Opposition Front Bench, say that his company or his profession audits and approves public and company accounts showing that expenses have been incurred which are unjustified? He knows perfectly well that his profession would not allow him to do any such thing.
    Expenses are not simply incurred by company directors and top executives. They are incurred by commercial travellers who are not in every case earning very high salaries. We have heard much about cars today. They are provided by companies for their representatives on the road. I have a company car. I never drive less than 25,000 miles a year. Do hon. Members opposite think that I do that for fun? Do they think that I entertain customers several nights a week and never get home until midnight for fun?
    Mr. Bence: Why do it?
    Mr. Cooper: If hon. Members opposite are honest about this, they will acknowledge that there are many men engaged in business who have to work very hard for
    1308
    very many hours in order not only to sell their goods in this country but to develop trade abroad. They have to spend many months abroad developing their company's business and, at the same time, helping the country's economy.
    I therefore sincerely hope that this talk about the expense account will be allowed to die. It is complete nonsense and a red herring drawn across the political scene. There are some excesses, but I believe that, by and large, the Income Tax authorities and auditors cut this down to the minimum.
    6.15 p.m.
    Mr. Maudling: We have had a wide-ranging debate. The hon. Member for Sowerby (Mr. Houghton) went rather wide and, no doubt, I erred too in following him. Nevertheless, this has been an agreeable debate. I take it that the Committee will be passing this Clause. I have heard no dissent from the major Question put from the Chair.
    I should like to reply to one or two points. My hon. Friend the Member for Crosby (Mr. Graham Page) referred to the difficult Schedule A point on ground rents. The transitional arrangements have been complicated to follow. The question he asked was whether there was a way of giving people Income Tax relief on annual ground rents paid. I do not think that that is possible. The point of the abolition of Schedule A was to take away the liability of owner-occupiers to pay Income Tax on the notional value of their property. To go further would open up the whole question of giving a rent allowance for tax purposes, which is not something that the Government could contemplate accepting.
    The rest of the discussion has ranged largely over three things—savings, expenses and the speculative gains tax. I thought that the answer on savings was given very effectively by my right hon. Friend the Member for Flint, West (Mr. Birch) and there is nothing that I need add in that respect. On expenses, I echo what has been said by more than one of my hon. Friends. It is true that there may and can be abuses in so many respects at many different levels. It is right that the Committee should always be anxious to protect the integrity of the Revenue, as indeed the Income Tax

    1309
    people themselves are. But it is wrong to give the impression that there are widespread abuses.
    For example, I think that I am right in saying that a person with an income of over £2,000 has the private use of his motor car assessed by the Income Tax inspector and has to pay the full rate of tax. It may be difficult often to arrive at the exact figure, but I cannot see that this is necessarily a bad thing. We are always trying to tighten up the system, but I do not think that it is wise to suggest that there is widespread abuse at any level in our society.
    Mr. Bence: I was not concerned with abuses. The point that I made was that with the increasing need for people to travel longer distances to their place of work we should increase the allowance on the use of a motor car which a man buys himself when he uses it to go to and from his work.
    Mr. Maudling: I was coming to that. We have often discussed whether the cost of travel to work should be allowed as a deduction for tax purposes as distinct from the existing practice. I should be out of order if I were to rehearse those arguments, but I can refer the hon. Gentleman to the times when this proposal has been discussed and always rejected.
    I am sorry that on the previous occasions when I have explained the point about the yield of the speculative gains tax I have not, apparently, made myself clear to hon. Members opposite. It is not yet possible to give an accurate or a useful estimate of the yield of the speculative gains tax, first, as I explained on Second Reading or when winding up the Budget debate, because of the timing of the tax and the fact that the first year of operation of the tax would bring in only a proportion of the gains liable to tax; secondly, because of the time for assessment and the large number of appeals in the operation of a new tax; and, thirdly, because quite a number of capital profits would probably fall for assessment under, I think, Case I of Schedule D: they could come under tax and be taxed under Case VII or that case.
    It will never be possible to give a completely accurate estimate of the yield of the speculative gains tax. I do not wish to give the Committee a figure for the yield of the speculative gains tax which
    1310
    would be misleading. I repeat the undertaking which I have given before. As soon as it is possible to give a meaningful figure, we will do so, but until then it will not contribute to the health of our debates if I put forward figures which are bound to be based on very slender evidence.
    I think that I have dealt with the main points which have been raised. We have had a vigorous debate and possibly a rehearsal of speeches which will be heard again and again in the next few months. I hope that with that brief explanation hon. Members will be prepared to pass the Clause.
    Mr. Wilkins: Would the right hon. Gentleman answer one question? I have attempted to ask him this before this afternoon. I do not think that he was here at Question Time today when the Prime Minister gave the House an assurance that the right hon. Gentleman had made provision in the Budget for an increase in old-age pensions. Could the right hon. Gentleman tell us what—
    The Temporary Chairman: That does not arise on this Question.
    Mr. Wilkins: If, as the Prime Minister said, the Chancellor has made provision in the Budget for an increase in old-age pensions, he must obviously raise the money through Income Tax—through the Revenue.
    The Temporary Chairman: Order. The matter could be raised at a later stage, but not on this Clause.
    Question put and agreed to.
    Clause ordered to stand part of the Bill.
    Clause 13 ordered to stand part of the Bill.

    Clause 14.—(TRANSFER OF PART OF COMPANY'S TRADE WITHOUT CHANGE OF OWNER SHIP.)
    The Financial Secretary to the Treasury (Mr. Alan Green): I beg to move Amendment No. 49, in page 12, line 31, after "change", to insert:
    "in the year 1964–65 or any subsequent year of assessment."
    This is a drafting Amendment. I believe that, even without the Amendment, it would have been clear that the Clause relates to transfers which take place on

    1311
    or after 6th April, 1964. However, one or two inquiries have been made and we thought that it would make sense to write the date into the Bill.
    Amendment agreed to.
    Question proposed, That the Clause, as amended, stand part of the Bill.
    Mr. John Diamond: It would be appropriate to say one or two things as quickly as may be done having regard to the fact that rather more time than some of us expected has been taken up by an interesting debate on an earlier Clause.
    Clause 14 arises from the fact that the structure of the Income Tax is a bad one and is completely out of date. Had the proposals which have come before the Committee on previous occasions from hon. Members on this side to have a system under which tax was collected on an actual basis instead of, as at present, on a previous-year basis—which is now explained in a White Paper which the Government have put forward, but which has not received any more than blessing for consideration—been accepted, we should not have needed any kind of detailed amending legislation to prevent anomalies arising. Clearly, anomalies have arisen. In a previous case under the Finance Act, 1954, we have accepted the principle of which the Clause is merely an extension. It follows, therefore, that we would not wish to resist this extension, which is a proper one.
    There is, however, an aspect which has been recently drawn to my attention, which does not form the basis of an Amendment but which I might draw to the attention of the Financial Secretary to the Treasury in the hope that he will consider it so that at a later stage he might tell us the Government's views upon it. The matter has been drawn to our attention by the Agricultural Central Co-operative Association Ltd. and it affects co-operative societies. Before I get the wrong kind of reception from the benches opposite, may I say that I understand that this is a co-operative association on behalf of the National Farmers' Union and, therefore, is not something which necessarily bears a strong political content.
    The question does not relate exclusively to the extension but relates
    1312
    to the principle involved in the relevant Section of the 1954 Act. The legislation as existing and as proposed would help to provide for the carry-forward of losses made in circumstances where an amalgamation or a take-over takes place and one is allowed to treat the new business as a continuing business and not as a cessation. In those circumstances, a company is protected. It has the right to continue its losses into the new ownership if it satisfies the terms of the earlier Section and of this proposed Clause. That relates to a company.
    Companies, however, are not the only things which merge or take over for good, sensible business reasons. Co-operative societies do the same thing. A co-operative society cannot, however, take over in the same form as a company takes over, because a company is governed by the Companies Act and a co-operative society, or, at all events, a friendly society, is governed by the Industrial and Provident Societies Act, 1893. These societies are prevented from having the benefit of this legislation because when there is a merger of the kind which this legislation seeks to protect, it does not take the same form as is provided for here.
    There is, I understand, a procedure whereby one goes before the Registrar and the liabilities of the transferor society are taken over by the transferee society. The transferor society ceases to exist and with the cessation goes the right to carry forward losses.
    I hope that I have made the point clear. I shall be glad, if necessary, to hand to the Financial Secretary a document which gives further details. The question is of a technical nature and I have no desire to detain the Committee unnecessarily. The principle is clear. I merely ask the hon. Gentleman to give the matter consideration and to let us know his views at a later stage.
    Mr. Green: I will willingly consider what the hon. Member has said. I agree with him that it would be unwise of me to attempt an answer off the cuff on what is a highly technical matter. I will look at what he has said as carefully as I can and endeavour to give the

    1313
    hon. Member an answer at a later stage.
    Question put and agreed to.
    Clause, as amended, ordered to stand part of the Bill.

    Clause 15.—(EXTENSION OF DOUBLE TAXATION RELIEF IN RESPECT OF CERTAIN DIVIDENDS.)
    The Temporary Chairman: The next Amendment which is selected is No. 94. Sir Henry d'Avigdor-Goldsmid.
    Mr. J. T. Price: On a point of order. You have given the number of the next selected Amendment, Sir Samuel. May I draw your attention to the fact that the Amendment Paper is not printed in serial order? It starts with Amendments Nos. 45 and 49 and then goes to No. 94. I understand the reason for this. It is because of the different times at which Amendments have been tabled. It would, however, greatly assist the Committee if you could state not only the number of the Amendment, but the page of the Amendment Paper. It is difficult to find Amendments unless one knows where they are.
    The Temporary Chairman: It is Amendment No. 94, to Clause 15, and it appears on page 2937.
    Sir H. d'Avigdor-Goldsmid: I beg to move Amendment No. 94, in page 13, line 45, at the end, to insert:
    (3) For the purposes of the provisions of the Income Tax Acts mentioned in subsection (1) of this section a company shall be deemed to control, directly or indirectly, not less than one-quarter of the voting power in another company if a third company having such control also controls, directly or indirectly, not less than one-half of the voting power in the first-mentioned company.
    The Clause is generally welcome to industry, particularly to companies having interests abroad, because it provides that a company which controls, directly or indirectly, not less than one-quarter of the voting power in the company paying the dividend can take into account in calculating double taxation relief any foreign tax paid by the latter in respect of its profits.
    The difficulty which arises, and towards remedying which the Amendment is put forward, is that companies which have subsidiaries abroad may, for reasons of local taxation, have to vest the owner-
    1314
    ship of the subsidiary in a company specially created for the purpose. They may, therefore, not actually comply with the wording of the Bill, but they are clearly meant to enjoy the relief which the Clause provides.
    To give an example of a case in which the parent company controls 20 per cent. and a subsidiary of the parent company controls 20 per cent. of the voting power in the foreign company, as the Bill is drafted the relief would be obtained only in respect of the parent company's 20 per cent. holding. That is not the intention of the Clause.
    I do not pretend that the precise form of the Amendment commends itself to the Government draftsman, but I hope that my hon. Friend the Financial Secretary to the Treasury will accept the principle as being fair. The Amendment simply draws attention to a defect in the wording of the Clause which, I hope, my hon. Friend will be able to remedy at a later stage.
    6.30 p.m.
    Mr. Green: I can assure my hon. Friend that, having looked into this as carefully as I can, I see no objection to the spirit and intention of his Amendment. I think that it is probably carrying as far as it is wise to carry this form of relief. However, I am happy to assure him that I accept the spirit and intention. I should like to make sure of the drafting, for it is very necessary to do that, and if my hon Friend will be good enough to withdraw the Amendment I will ensure that the words are checked.
    Sir H. d'Avigdor-Goldsmid: In view of that, I beg to ask leave to withdraw the Amendment.
    Amendment, by leave, withdrawn.
    Question proposed, That the Clause stand part of the Bill.
    Mr. G. R. Mitchison: I rather dislike this Clause and would like to hear the Government's reasons for introducing it. So that we may not waste time discussing some matter which is not in my mind, I will tell the hon. Gentleman what is in my mind.
    I think control has usually been recognised as meaning possession of at least 50 per cent. of the shares in some form or another. We are now asked to accept

    1315
    25 per cent. It will be said, I dare say, that under modern conditions 25 per cent. is good enough. If that is to be the case, I suppose that two people can have control, each having 30 per cent.—or even three people. This seems to have some rather odd possible results. I should have felt that in a matter of this kind it was much safer to keep to the usual 50 per cent., and if one proposed to reduce the figure, at any rate have some check on the cases in which it is allowed; that is to say, make it a condition that there should be specific approval or something of that sort. Even so, I would much rather keep to the original—I say "original", but it is not invariably so; perhaps I should say "the usual original"—stipulation that control means at least half the share capital of the company.
    Perhaps the hon. Gentleman would be kind enough to deal with that. There are really two points. One point is, why are we leaving the 50 per cent. basis for the new basis? The second point is, have the Government considered the implications of more than one person or company having control of another?
    Mr. Green: I am glad that the hon. and learned Gentleman has raised this point. I think that the principle of allowing relief for underlying tax was disturbing to the Labour Party on a previous occasion. Perhaps I may start at this point, because I hope that it will make it clearer to the Committee. I think that what hon. Gentlemen opposite were saying originally, though they have not done so today, was that it is very much better to rely on double taxation agreements and to go for those. I think that is a fair statement of what the Opposition would prefer.
    I would also prefer to have double taxation agreements, and I agree on that straightaway. But, as a matter of practice, such agreements often take a long time to negotiate, often through no fault of the overseas country with which one negotiates. For a very poor, developing country, a double taxation agreement may not always be very attractive to negotiate. Meantime, there is the plain fact of companies which have large share ownerships or in some cases total share ownerships overseas, and so do not want
    1316
    to wait for the negotiation of double taxation agreements. This brings us up to date on the arguments deployed last year.
    It has increasingly tended to be the case that British companies or British individuals invest overseas in new enterprise with foreign partners—this is a statement of fact and I am not arguing against it—in a situation where under the laws of the foreign country they are not permitted to own 50 per cent. of the equity and in some cases must own much less. In such circumstances it is not desirable to discourage the British investor—particularly if it is a developing country, because it would be of assistance to the economy of that country to have the investment made—by putting him under some rather special penalty because relief is not available for underlying tax.
    If the figure is kept at 50 per cent., as it is now, and the Treasury gives special exemptions—this is the second thought put to me by the hon. and learned Gentleman—it is all rather cumbersome. I am not saying that it is impossible, but it is rather cumbersome. The Chancellor has come to the conclusion, after a good deal of experience over these things, that it would make sense to reduce below 50 per cent., down to 25 per cent. as a general rule, and that we shall suffer no administrative or real fiscal penalties if we do so. On the other hand, we shall, in fact, make it rather easier for new investments to go on being made since one of the disincentives to making them will have been removed. An administrative difficulty will have been removed as well. In terms of the experience that we have had, it makes common sense, we think, to enlarge the bounds in this way.
    Mr. Mitchison: I must tell the hon. Gentleman that his reply, although, as usual, attractive in manner and almost, but not quite, persuasive in substance, is wholly unsatisfactory. To start with, he has not dealt with the point that I put to him about more than one company having control, and I will now give way while he does so.
    Mr. Green: I beg the hon and learned Gentleman's pardon. We do not expect any problem about that at all. I will explain why in this way. We would

    1317
    agree that if it were an individual shareholder owing a true minority interest—I start again with an extreme because I believe that it will be more illustrative; let us say an individual shareholder owning only 2 per cent. of the shares of the overseas company—it might well be very difficult for him to obtain the information he would need in order to get any benefit from the Clause. But if it is a company with a substantial shareholding—and 25 per cent. is substantial—or if it is, under the terms of the suggested Amendment, a company within a group of companies, we feel confident that with its own technical resources and with such a large share of the investment overseas—this would apply whether there were one or two companies concerned—it would have little difficulty in getting the information needed to substantiate a claim to relief under the Clause.
    So we have looked at the situation where more than one company might be involved and have come firmly to the conclusion that because they have the resources to look after themselves—whereas an individual with a small holding might not have—we do not believe that there will be any difficulties.
    Mr. Mitchison: I do not want to continue to be difficult, but I am afraid that that answer is equally unsatisfactory. Let me make perfectly clear what I mean. We are not really in Hampton Court maze; we are in some fiscal provisions, and these relate to companies which are supposed to have control of other companies. The point is that if they have 50 per cent. or more of the shares, then they have control, but if one can have three companies having the control now proposed by this Clause, then one is putting forward what anybody but the Government or Treasury would say was an entirely bogus proposition.
    One cannot have three people having control of the same thing, unless they happen to agree, and, so far as I can see, that is what this Clause provides. I do not ask the hon. Gentleman to drop the Clause now. One would not want to divide the Committee against it until he has had an opportunity to consider the points which have been raised, and I hope that he will give an undertaking that he will do that.
    1318
    Let me go a little further. It is said that under the laws of some foreign countries one cannot have more than 50 per cent. of the shares. If that is the position—and I accept it if the hon. Gentleman tells me that that is so—and one has to form a subsidiary company for the purpose, then, no doubt, perhaps with the assistance of the Amendment which has been accepted, the matter is simple.
    There are, however, other alternatives. Suppose, for instance, that there are three partners concerned who differ. Partners do not always agree. I am talking in a loose sense of three companies. What happens then? Who has control of the company? Are we right in basing a fiscal concession on what is really an entirely bogus idea? I think that that is the reason why in the past, in almost every case, control has been kept to a 50 per cent. or larger holding. But this is not control, and I am the more frightened about it because I seem to remember that there is, in fact, provision for the Treasury to give consent in cases where a smaller percentage is held. That is right, is it not?
    Mr. Green: Yes; it depends on the circumstances.
    Mr. Mitchison: As long as there is such a provision, what is the sense of doing this? One can meet any hard cases by exercising discretionary powers instead of telling a sort of statutory lie, and I should have thought that it was very much better to do so.
    If the hon. Gentleman wants to cover this particular case, I suggest that instead of putting in a general provision of this sort, which is misleading, and, I think, rather dangerous, it would be very much better to amend the Clause to meet the particular point which he wants to cover. That point is the case of foreign countries—no doubt particularly developing countries—where a 50 per cent. or 51 per cent. interest is not allowed to a foreigner. I understand the difficulty about it. All that is happening is that the Treasury is being very naughty. It is telling a lie because it is too lazy to exercise its discretionary powers. Or perhaps I should say that it is making the Bill tell a lie because it is too lazy to exercise those powers.
    However repulsive the hon. Gentleman may think my language, I entreat

    1319
    him to consider what in my opinion is a real and dangerous point, and to give an undertaking that he will reconsider this matter. I think that we shall want to return to it at a later stage of the Bill to try, with our clumsy hands, and without the skilled assistance of Treasury draftsmen, to meet the facts of the case instead of opening the stable door rather too wide to taxpayers.
    Mr. Green: I think that there might be some small misunderstanding here. The point really is to give the shareholder the opportunity of getting the information on which to claim relief. We are satisfied that if a company holds 25 per cent. of another company it will have the power, the authority, to extract the information which it requires to lodge its claim for relief from the underlying tax paid by that other company.
    6.45 p.m.
    If there are two companies, one with 20 per cent. and one with 30 per cent., we are even more satisfied that there will not arise the possibility of them quarrelling over the matter. They will have a common interest in the matter. They will both want to lodge a claim in this country for relief from tax. The two of them combined will have a general interest.
    Of course I shall consider what was said by the hon. and learned Gentleman. I never object to the language which he uses, because it is within the character of people to use the language which they use. I cannot possibly say here and now that we shall put down an Amendment, but I shall look at what the hon. and learned Gentleman said. Of course I accept completely his right to move an Amendment himself later if he wishes to, after in his turn studying what I have said this afternoon.
    Question put and agreed to.
    Clause ordered to stand part of the Bill.

    Clause 16.—(PLANT AND MACHINERY AND OTHER ASSETS LEASED TO TRADERS AND OTHERS.)
    Mr. William Clark: I beg to move, Amendment No. 90, in page 14, line 12, to leave out from "listed" to "is" and to insert
    "in subsection (4) hereof".
    1320
    I do not think that I need detain the Committee for very long. We have all read the Bill with great interest. The Amendment will make it more logical than it is at the moment, because it will be seen that what is referred to in subsection (1,a) is not found in this subsection, but in subsection (4).
    The Solicitor-General (Sir Peter Rawlinson): My hon. Friend is clearly right. This is a drafting error, and the Amendment sets the matter to rights.
    With the agreement of my hon. Friend, and that of the Committee, I was propossing to turn to the intricacies of Clause 16, which is only the first of three intricate Clauses. I had intended to refer to the details of that in moving the next Amendment, and if that is agreeable to my hon. Friend and to the Committee, I merely say to him that we are grateful for his having pointed out this drafting error, and I advise the Committee to accept the Amendment.
    Amendment agreed to.
    The Solicitor-General: I beg to move Amendment No. 50, in page 14, line 18, at the end to insert:
    "or, before, at or after that time, the lessor's interest in the lease, or any other interest in the asset, has belonged to a person associated with the person who made the payment, and that person so associated with the person who made the payment has obtained a capital sum in respect of that interest".
    I think that it might be convenient to the Committee to discuss with that Amendment, Amendments Nos. 51 and 52, and the Amendments to Schedule 7, Nos. 73 to 83, and 85. They are consequential Amendments should the Committee accept the Amendment which I have just moved.
    The Chairman: If that is convenient to the Committee, so be it.
    The Solicitor-General: It may be of convenience to the Committee to go through a little of what is the effect of the Clause, and indeed, to relate it to Clauses 17 and 18 to show the importance of the Amendment.
    These Clauses deal with the avoidance devices based upon the leasing of trade premises, plant and machinery, and other business assets. The avoidance can take a number of different forms. The remedy is directed against a practice which, on the evidence, is as yet in its infancy.

    1321
    Leasing is a normal financial arrangement, and is certainly in no way objectionable. There are many cogent reasons for it in business. The objection arises where the terms of the lease are so arranged that substantial tax benefits are produced, in particular by a bunched-up rent at first and a negligible rent thereafter.
    Let me give an example. Let us take the case of an asset or a piece of machinery worth £1,000, for which a rent of £400 a year is charged for three years—making a total of £1,200—and, thereafter, a rent of £1 a year for another term of years. The epitome of the Clause, which the Amendment seeks to perfect, is the case where a person creates a capital sum which is not taxable by making deductions which attract some form of tax relief. The Clause deals with cases where plant and machinery or other assets are leased for use in a trade or other income-producing activity, and where payments under the lease qualify for tax relief in one of the ways set out in subsection (4).
    I will give another example. Let us say that a trader leases machinery of the value of £1,000 for 23 years. The agreement is that the rent will be £400 per annum for the first three years and thereafter £l per annum for 20 years. After the trader has paid his rent of £400 per annum for the first three years—making £1,200 he has a 20-year lease on the machinery, and, because it carries with it a consideration of a payment of rent of £1 a year, he can buy that machinery for a nominal sum—say, £5—at the end of the bunched-up rent period. He may at that time be possessing machinery to the value of £500 which he has bought for that nominal sum.
    He is then able to repeat the process, leasing back some of the machinery to another financier at, say, £200 a year for three years and then purchasing the tail end of the lease, again for a nominal sum. In the process he will have paid a rent of £1,200 on the first transaction and £600 on the second, and will have bought the machinery for £5, making a total of £1,805, less a lump sum of £500 received on the second transaction. As a result he would be allowed deductions in computing his profits up to £1,800, and would not be chargeable in respect
    1322
    of the £500 which he had received. This device could be repeated.
    Clause 17—and I refer to it now only to contrast it with this Clause—deals with the case where the trader enters into leasing arrangements of trade assets which he already owns. Matters are then so arranged that he makes an unreasonable "tax profit" from the scheme. This is the same form of bunched-up leasing. It may not be necessary for me to refer to it again now, although at a later stage I will do so if the Committee wishes. Clause 18 concerns the same process when it is executed with regard to land.
    Leasing to acquire capital, and the raising of a loan on the security of property, is common and wholly unobjectionable, but there is no reason why it should attract substantial tax relief which would not be available if the capital had been raised by some other method. These Clauses are devised to hit only at such artificial transactions, of which I have given an example.
    This form of evasion is in its infancy. It came to the attention of my right hon. Friend just before his Budget statement and it has been included in the Bill. As the Committee will appreciate, a number of Government Amendments have been put down because we have had to consider complex and difficult problems in going into the intricate detail which is necessary to deal with artificial leasing arrangements. The remedy proposed is that a capital sum should be chargeable under Case VI up to the total of deductions allowed for the bunched-up rent. It is the same principle as the balancing charge, where allowances which have already been given are clawed back when events show that they have been excessive. This charge is the same.
    This Amendment, together with Amendments Nos. 51 and 52, deal with a loophole in the Clause as now drafted which became apparent on closer examination. It was a loophole connected with associated persons, in respect of which it appeared that by the use of certain devices, by associating subsidiaries with the various transactions, the intention of the Clause could be thwarted. The Amendment that I have moved deals with the Income Tax aspect and Amendment No. 51 with Profits Tax. Amendment No. 52 is consequential, and

    1323
    Amendments Nos. 73 to 83, and No. 85, are merely consequential Amendments in Schedule 7, which is the Schedule that provides the machinery to deal with what is set out in the Clause, relating to leases to traders and others.
    The object of the Clause is to correct excessive tax advantages which are enjoyed in cases where excessive rents are paid for plant which qualifies for tax relief, and where, later, the lessee receives the capital sum. This correction is made by withdrawing that tax relief. I hope that I am not wearying the Committee with examples, but it is easier to explain the matter by using examples. I should like to give one that is most apposite in showing where the gap in the Clause arose.
    Let us suppose that trader A leases to leasing company B, an asset, or some plant, at £20,000 per annum for three years and, thereafter, £500 per annum for 17 years—in other words, a bunched-up rent with a very high rent at the start of the transaction. The next day leasing company B sub-leases to company C, which is a trading subsidiary of company B, for £40,000 per annum for three years—a bunched-up rent—and thereafter £500 per annum for the remaining 17 years, if the agreement is for 20 years. The next day company B assigns its lease from trader A with the benefit of the sub-lease to company C, to a dealer, D, for £50,000.
    The Clause would provide that the charge on the capital sum received is limited to the amount of tax relief received. Since B, as the original leasing company has had no tax deductions under the lease under the terms of the present Clause, it would then be entitled to pay no tax on the £50,000; and C, the second of the companies, having paid rent, would be entitled to a tax deduction, and C would not be subject to any tax under Clause 16.
    7.0 p.m.
    I apologise to the Committee for using capital letters, but as hon. Members will appreciate, these matters are of the greatest complexity and intricacy. I hope, therefore that hon. Members will be patient if the examples have to have capital letters to try to distinguish between the various parties to the different agreements. The Amendments are designed to stop that gap by making B
    1324
    liable in respect of the capital sum up to the limit of any deductions accruing to its subsidiary C. Generally, therefore, the Amendments stop the avoidance by taking account of tax reliefs enjoyed by an associated person—an "associated" person is defined in paragraph 5 of Schedule 7—in determining the limit of charge under the Clause in respect of a capital sum claimed for the lessee's right under the lease of the plant.
    Amendments No. 73 to 83 will effect what is the purpose of Amendments No. 50, 51 and 52. They are consequential and their effect is in each case to ensure that as the sum is received by a different member of a group of companies the charge imposed is not avoided by the device of C; that the sum was received by a member of the group. It is necessary, therefore, in the Clause to widen the references in Schedule 7 to sums obtained for the rights of the lessee under the lease of an asset. These Amendments make the necessary alterations in various places in the Schedule. That, broadly, is the purpose of Clause 16. This is a technical Amendment. The consequences which flow from it ensure that the mischief which Clause 16 was designed to prevent is dealt with and the purpose of the Clause is not thwarted by the use of associated or subsidiary companies.
    Mr. McMaster: Anxiety has been expressed that this Clause, as amended, might affect ordinary hire-purchase dealings. Can my right hon. and learned Friend give an assurance that consideration has been given to this point and care taken to avoid interfering in any way with ordinary hire-purchase agreements made by a group of companies?
    The Solicitor-General: There is a group of Amendments, which will be discussed later, relating to hire purchase. It might be more convenient if I deal with that matter when we come to Amendments Nos. 53 to 86. If my hon. Friend is content to do so, I should prefer that he wait until that stage.
    Mr. Mitchison: These Amendments are designed to deal with tax avoidance which I suppose, within Parliamentary language, I could call "wangling", but perhaps I cannot add the epithet which might occur to many of us. I wonder who thinks these things up. I have nothing to say against people who conduct their

    1325
    business and transactions with the Revenue in an ordinary and straightforward manner, but this, so far as I can see, is not straight dealing and, of course, the Government are perfectly right to take steps to deal with it. The Order Paper is covered with Amendments in the name of the Chancellor which are designed to stop other leaks of the same kind or, if hon. Members prefer, faults in the Clauses which have been put forward to deal with this trouble. Apparently, the Treasury heard about it only fairly lately.
    I have come to the conclusion that if I were proposing to embark on the business of professional tax avoidance, I should expect to be found out sooner or later and dealt with. I should, therefore, take care to tell someone in the Treasury about it, or get associated persons to tell someone, not too long before the next Budget. In that way there would be put forward long and detailed Clauses on behalf of the Government which would nearly deal with the trouble, but not quite. The result would be that I should get away with it for another year.
    This seems to me to illustrate the kind of thing which we have said time and again from these benches, that we wish the Government had power to deal with matters of tax avoidance and exercised it at other times than on the occasion of the annual Finance Bill. It shows the extreme difficulty which arises in relation to these matters. Here we see one hole in the Government's remedy which has been stopped at the last moment. How many more are there? One almost despairs of trying to deal with this kind of thing by tax avoidance Clauses in a Finance Bill. They just seem not to do the trick.
    Back come the Government of the day, time after time—all Governments have been in the same position—and they find themselves running along trying to catch up with the tax avoiders and their astute advisers. They catch them for the moment, but then these tax avoiders are away again, taking advantage of another little flaw or a totally different method of getting round the law. Whether it is A, B, C, D or X, Y, Z or whatever it is, or how many people are ganging up together or forming companies for these operations, goodness knows. I hope that steps may be taken in the Treasury, if that is at
    1326
    all possible, to get the matter right before the Government come forward with a Finance Bill.
    The number of Amendments put down by the Chancellor is excessive. I see the reason for them and if, as I think, it is the inevitable reason, the cause ought to be removed and there ought to be consideration of other methods of dealing with this kind of thing. That has been said before from these benches. Meanwhile, I assure the right hon. and learned Gentleman that he will get no opposition from us over measures designed to prevent tax avoidance. We appreciate the clarity and conciseness with which he has put a very difficult matter before the Committee. We shall not object to the Amendments. We have some Amendments arising on a different point which we shall deal with later.
    Amendment agreed to.
    Further Amendments made: In page 14, line 34, at end insert:
    "or, before, at or after that time, the lessor's interest in the lease, or any other interest in the asset, has belonged to a person associated with the person who made the payment, and that person so associated with the person who made the payment has obtained a capital sum in respect of that interest".
    In page 14, line 35, leave out "who made the payment" and insert "obtaining that sum".—[The Solicitor-General.]
    Mr. Diamond: I beg to move, Amendment No. 16, in page 15, line 2, to leave out "under a lease created" and insert "made".
    The Chairman: I think it would be convenient also to discuss the following Amendments:
    In page 17, line 31, leave out "under a lease created".
    In page 18, line 1, leave out "after 14th April 1964".
    In line 2, after "is", insert "or has been".
    In line 3, at end insert "after 14th April 1964".
    In line 15, leave out "after 14th April 1964".
    In line 16, after "is", insert "or has been".
    In line 17, after "and", insert "after 14th April 1964".
    Mr. Diamond: I think that that would be very convenient, Sir William. The Amendments we are discussing together are all of a kind. If I explain the first we need not waste time in repeating the argument on the related Amendments to the following Clauses. I thought it convenient that the right hon. and learned Gentleman dealt with the three Clauses together. Before he rose, I thought I understood what the Clause was about and that my Amendment was well placed, but I am not absolutely sure about that now. However, I had better proceed with the argument.
    The right hon. and learned Gentleman said that the way in which this avoidance was deterred or prevented was by taxing a capital sum. By a slip of the tongue at one stage he referred to a capital charge. I do not altogether disagree that there might be a capital charge, much as I am against capital punishment. The amount of tax which could be avoided, we have been told, could run into hundreds of millions of pounds.
    There are two reasons why we are very anxious that these Amendments should be fully discussed and, if appropriate, accepted. The first is their effect on these Clauses. The second is their effect on tax avoidance generally. Dealing with the second first, tax avoidance of this kind becomes possible because we have not got a capital gains tax. Therefore, it is possible for people to charge and get relief from taxation on payments and for other people to receive sums which are, in effect, the equivalent but which are called capital by nature as opposed to income and therefore do not fall to be taxed.
    We get the situation in which payments of an equivalent amount are going out and coming in. The outgoing payments are relieved from tax and the receipts are not taxed because they are called capital. One is called expenditure and one is called capital and we get this ridiculous situation. If we had a capital gains tax we would not be bothered with these matters because it would not be worth while to try to convert income into capital which all these things aim to do. We are anxious that these Amendments should be accepted because these avoidance schemes are being encouraged by the Government by their practice in dealing with the question of timing.
    1328
    An avoidance scheme is profitable if one can have a full run on the whole scheme. If the scheme is stopped at a very early stage it ceases to be profitable. Therefore, the whole point is to try to get the scheme stopped as early as possible. My hon. and learned Friend the Member for Kettering (Mr. Mitchison) suggested one method to which several of us have referred previously, but what I am referring to is the discouragement of proposals for tax avoidance. Proposals are encouraged if the tax experts know that it is the practice of the Government every time an avoidance scheme is stopped to say to those who have a scheme running, "We will allow you to recoup the full benefit of your scheme."
    If we could make it clear to everyone that the Government now take the view that where a tax avoidance scheme is stopped it is stopped immediately in midstream, that would be a great discouragement to those who advance these schemes. They would know that it would not be worth the trouble and expense involved for the taxpayer in mounting an avoidance scheme of this complicated kind. The Solicitor-General described a possible example. It involved a number of leases, a vast number of stamp duties, professional fees galore, doubtful questions about the use of property in the meantime and a host of practical difficulties and expenses. People will not go to that expense unless they know that they will be profitably rewarded by a tax saving.
    7.15 p.m.
    We shall deter people from initiating tax avoidance schemes by making it known that schemes will be stopped immediately. Therefore, the Amendment proposes, instead of allowing—as subsection (3) does—payments made under a lease created on Budget day to escape the net, to allow only payments made prior to Budget day and not payments made by a lease created prior to Budget day which might continue for years. As the Solicitor-General explained in the examples he gave, there would be bunched-up payments running over three years or five years and nominal payments would be made thereafter. We want to make quite clear that only those payments made before the Chancellor

    1329
    made his statement have any right whatsoever to be included in the general protection afforded in the case of retrospective legislation.
    We are not proposing retrospective legislation; we are not suggesting anything retrospective in the slightest degree. We are saying that payments made when the law stood as it stood at that time are perfectly valid payments, but we say that it is quite wrong to give, as it were, safe conduct to anyone who has entered a scheme in regard to payments made, however long they may continue, if they are to be of benefit to the taxpayer. I thought, before the right hon. and learned Gentleman rose, that they would be of benefit to the taxpayer and therefore the stopping of these payments would achieve our purpose. I still think it does that, but he will appreciate that what he said was weighty and well worth long consideration. We have not had time to give consideration and discussion to what the effect of the Clause as amended may be.
    The purpose of the Amendment may not be achieved by the drafting, although I suspect that it will be, because my hon. and learned Friend the Member for Kettering has done the drafting. I hope I have made clear that the purpose is not to affect in any way a scheme retrospectively but is merely not to give a tax avoider a free run and safeguard him in getting benefit from the time when the Chancellor made his Budget Statement.
    The Solicitor-General: The hon. Member for Gloucester (Mr. Diamond) is completely right in what he alleges that the Amendment seeks to do. He has paid the right tribute to his hon. and learned Friend who, in effect, has effected the purpose of the Amendment. The purpose of the Amendment is to see that payments made after Budget Day, as opposed to agreements entered into before Budget Day, are caught by the Bill.
    The hon. Member seemed to advance the argument, which he raised on Second Reading, that it becomes necessary always to undertake tax avoidance schemes because there is no capital gains tax. That is what his hon. and learned Friend said also on Second Reading and, I think, in discussion of the last
    1330
    Amendment. I point out to both hon. Members that only a tax on capital gains at the same rate as a tax on income can be completely successful in stopping these devices. The arguments demand a capital gains tax at an equal rate. If there were not a capital gains tax at an equal rate there would always be not only substantial but marginal profits which such avoiders would seek to obtain.
    The Bill seeks to ensure that capital sums which are so called capital sums shall be treated as income and taxed accordingly within the limits of the Clause, and in respect of this and Clauses 17 and 18 the amount deductible in computing trading profits will mean an added liability on the taxpayer's marginal rate, which is likely to be higher than any general capital gains tax could be.
    The main arguments raised by the hon. Member for Gloucester are really the arguments of deterrent, but he disclaimed that there was any retrospective effect. While we have the present system of a man being able to arrange his affairs in accordance with the law, it is a serious step to seek to alter the law so as to affect the consequences of agreements which, when made, were wholly lawful agreements; and it is only in particularly serious cases—very rare cases indeed, I should have thought, and usually after warnings have gone unheeded, and even then only rarely—that there should be introduced by Parliament a system so that there is an alteration of the law so as to affect the agreement which has been entered into and which, at the time it was made, was wholly lawful.
    It is not a criminal offence to arrange a person's affairs so as not to attract tax. That is our system and principle of legislation. It is the burden imposed on Governments and the House of Commons to establish by law what is unlawful and it is the right of the citizen to manage his affairs within the law. This may be a great burden, but it is a price, perhaps a somewhat heavy one, that is worth paying. It means that we should not change the law except by due process; and these Amendments involve an element of retrospection because the tax effect of the transactions entered into before Budget day, 14th April, would be different.
    Mr. Jay: I shrink from entering into this discussion. Would this be retrospective only in the sense that any change in the rate of Income Tax is retrospective in so far as it falls on an income paid after the change in the law but due to some contract made before the change in the law? Is it not inevitable that that happens whenever Income Tax or any other tax is raised? Should the Solicitor-General describe this as being retrospective in the way he has?
    The Solicitor-General: It is retrospective, nevertheless. It is because the evil is such, in the hon. Gentleman's view, in the case of the tax avoider that he must be deterred; and to deter one must do it in this way, the implication being that the Government may have to be rough, tough and unfair in doing it. I reject that, and say that here is an agreement which has been entered into, in which there are two parties—and I will consider the effect of the Amendments on one party as opposed to another later—at a time when the agreement was lawful. Agreements of that type start with certain consequences. There may be consequences which have already happened and which may have an effect on the consequences which will flow from that happening and concern the agreement and the payments to be made. In those circumstances, if one alters the law it means that one is altering the consequences of such an agreement. One is, therefore, doing a drastic thing because it is, in effect, changing the whole of the situation which was not contemplated at the time the agreement was arranged and made.
    Mr. Jay: I would like to press this question. Supposing someone enters a contract to pay a certain rent over a certain period of years, a perfectly legal and proper thing to do. Supposing that in the course of that period the Chancellor raises the standard rate of tax. It follows that the tax is increased on the payments on the contract entered into before that alteration in the law was made. In such circumstances nobody would suggest that, for that reason, people who were deriving their income from such a contract should not pay the same higher rate of Income Tax after the change as other people.
    The Solicitor-General: It is clear that any consequence from a change in taxa-
    1332
    tion can affect all kinds of agreements, but that can be within the contemplation of all the parties to an agreement at any time, whether it is an agreement to hire personal services or to hire or rent premises or assets, with which we are dealing. I certainly consider that that must be contemplated.
    The tax may be such that one party will get less. That is not affecting the relationship between the two parties but the relationship between the party and the Government or the party and the Income Tax. What the Amendments seek to do is to alter the consequences of an arrangement which has been made, and if one does that one is then interfering by law in an arrangement which has been perfectly lawful and about which the parties who entered into it anticipated the consequences that would flow from the law as it existed when the agreement was made—that is, unless one accepts the fact of retrospective legislation. If one accepts that, one is saying that although an agreement was entered into when it was right and lawful to do so it is now considered that it was so wrong that the Government intend to ensure that the parties to the agreement do not get the benefits and the Government also intend to show that it was a wrong agreement.
    That is an understandable position, but it is wrong to say that that does not involve an element of retrospection. I suggest that it does. When arrangements of this kind are made the results are shared between the two parties. The tax is charged on only one, and it is obviously impracticable to apportion it. One party would have to bear the whole of the tax imposed to neutralise the tax advantage which has arisen, notwithstanding the fact that the other, the financier, would, in such an arrangement and agreement, have got for himself a very substantial part of the benefit.
    The principle which has been carried out by the Bill is to accept the fact that agreements entered into before Budget Day, before the announcement was made, were lawful, but that they involve tax avoidance, that the Government are seeking by these Clauses to prevent that avoidance in future and that any other method of dealing with the situation would be retrospective legislation, if one

    1333
    likes to call it by another name. For that reason, I advise my hon. Friends to resist the Amendments.
    Mr. Diamond: When I spoke earlier, I approached the matter with due humility as one who, in a difficult field, might not be certain that he is right. I have no such humility in this situation. We have established the case absolutely clearly; that the Amendments are correctly drafted and that the purpose of them has been achieved. The difference between the two sides of the Committee does not rest on a question of fact or law but simply on a question of principle, on which we feel extremely strongly indeed. I dare say that hon. Members opposite feel equally strongly the other way, and, therefore, the debate has done nothing but good by bringing this to light.
    7.30 p.m.
    Let me remove, first, the minor point of the capital gains tax. The right hon. and learned Gentleman is correct in saying that only if capital gains are taxed at an equivalent duty is the possibility of some benefit completely avoided. It is equally right to say that, if it is at half the rate, it is made half as attractive. It becomes much less attractive when any adjustment of that type is made. Only when there is a very large margin involved does it become worth while. However, that is not the major point.
    The major points are the two which I made and which have not been resisted. The first is that the Government, by taking this attitude, are encouraging tax avoidance. I made that point with some reservation earlier. I remove all reservation now. The speech made by the Solicitor-General was an encouragement to everybody to take further avoidance measures and go through this Clause and the Amendments word by word and comma by comma to find in what way the way is charted. The way tax avoidances arise is that the more legislation one provides the more one charts the way as to things which one cannot do and therefore directs investigation to the things which one can do. Avoidance legislation merely creates the possibility of further avoidance. Everyone knows this.
    1334
    The only way to stop further avoidance schemes being prepared is to make it clear that real damage would be suffered by the parties who entered into this conspiracy—let us be clear about it—to defraud the Revenue. It is nonsense to talk about these two holy gentlemen entering into an agreement together to do a perfectly ordinary piece of business. The whole thing is carefully excluded by the Bill. The right hon. and learned Gentleman and others who have spoken on this have made it clear that normal bona fide transactions are not touched. We are not concerned with those who have to do business together and enter into a contract and carry out their business. They are protected.
    We are concerned with those who enter into purely artificial transactions and know full well what they are doing. The financier involved knows precisely why he has entered into a ridiculous agreement which says, "For the first three years you shall pay £500 a year and for the next ten years you shall pay 5d. a year". It is a nonsensical agreement. The financier knows precisely why he is doing it and the risks he is taking. He knows that under this Government he is taking no risks whatsoever. He is being granted safe conduct to the very end of the road, because the Government are committed to saying, "No matter what the purpose of the agreement is, we must respect it completely. It is an agreement between two people to defraud the Revenue and we must respect it to the end of the day".
    The Labour Party cannot accept that attitude and philosophy. Of course the right hon. and learned Gentleman is right in saying that, if the Amendments were carried, one party to the agreement would suffer damage. Why not? That is what we want. We want to stop people starting these schemes because they will know that they do not get safe conduct to the end of the road, that they do not come into harbour safely. There may be a Government who will stop them in mid-stream, in which case one side or the other will not get his bargain and will not get full co-operation from the Government to provide the tax benefit, which is the sole purpose of entering into the scheme.
    The Solicitor-General: What lawful agreements does the hon. Gentleman say that it is right for Parliament to declare unlawful or declare that the benefit from them should not subsist to a party to the agreement?
    Mr. Diamond: I am no lawyer, but I thought that I had made it clear when I said that these were not two people entering into a normal business deal. These are two conspirators entering into a ridiculous contract to defraud the Revenue. That is the sole purpose of it. I do not know why one should mince words here. One does not hire plant at £500 a year for the first three years and then at 5d. a year to get a machine of a particular type. One does not go into business in that way. This is what we are talking about. We are talking about the kind of agreement the right hon. and learned Gentleman explained to us, where there are ridiculous rents bunched up in the first three years and virtually nothing in the next period. Why?—so that one can then assign a lease, assign what is a valuable asset, to somebody else, and under our present capital-gains-free system make a large capital gain, pay no tax on it and, with the co-operation of the Conservative Government, go home happily, telling the driver to put full steam ahead on the Bentley and drive home as fast as he can.
    That is a nice situation. We do not approve of it. We do not want any retrospective legislation at all, and we are not having it. What we are saying is that any agreements entered into before the law was altered are, unfortunately, safe, because they were entered into when the law was as it was. Any payments made after the law had been altered are covered by the existing law in exactly the same way as Estate Duty, for example. Would the right hon. and learned Gentleman now give an undertaking that everybody who enters into a scheme to avoid Estate Duty as the law now stands will have safe conduct until he is well and truly buried? Of course not. Almost every year new legislation is introduced to stop schemes which are in existence but which have not come to fruition because the people are still alive and the property has not yet passed. That is happening all the time. It should happen in this case.
    Before I get completely out of control, I ask my hon. Friends to support me on this issue in the Lobby.
    Question put, That the words "under a lease created" stand part of the Clause:—
    The Committee divided: Ayes 175, Noes 130.

    Division No. 98.]

    AYES

    [7.36 p.m.

    Agnew, Sir Peter

    Curran, Charles

    Grosvenor, Lord Robert

    Atkins, Humphrey

    Dalkeith, Earl of

    Gurden, Harold

    Awdry, Daniel (Chippenham)

    d'Avigdor-Goldsmid, Sir Henry

    Hamilton, Michael (Wellingborough)

    Barlow, Sir John

    Deedes, Rt. Hon. W. F.

    Harris, Frederic (Croydon, N.W.)

    Barter, John

    Digby, Simon Wingfield

    Harris, Reader (Heston)

    Batsford, Brian

    Doughty, Charles

    Harrison, Col. Sir Harwood (Eye)

    Beamish, Col. Sir Tufton

    Drayson, G. B.

    Harvey, John (Walthamstow, E.)

    Bell, Ronald

    Duncan, Sir James

    Henderson, John (Cathcart)

    Biffen, John

    Eden, Sir John

    Hiley, Joseph

    Bingham, R. M.

    Elliot, Capt. Walter (Carshalton)

    Hill, J. E. B. (S. Norfolk)

    Birch, Rt. Hon. Nigel

    Elliott, R.W. (Newc'tle-upon-Tyne, N.)

    Holland, Philip

    Bishop, Sir Patrick

    Emmet, Hon. Mrs. Evelyn

    Hollingworth, John

    Black, Sir Cyril

    Errington, Sir Eric

    Hooson, H. E.

    Bossom, Hon. Clive

    Farey-Jones, F. W.

    Hughes-Young, Michael

    Bourne-Arton, A.

    Farr, John

    Hutchison, Michael Clark

    Bowen, Roderic (Cardigan)

    Fell, Anthony

    Iremonger, T. L.

    Boyd-Carpenter, Rt. Hon. John

    Finlay, Graeme

    Jenkins, Robert (Dulwich)

    Boyle, Rt. Hon. Sir Edward

    Fisher, Nigel

    Johnson, Eric (Blackley)

    Braine, Bernard

    Fletcher-Cooke, Charles

    Johnson Smith, Geoffrey

    Brown, Alan (Tottenham)

    Fraser, Ian (Plymouth, Sutton)

    Jones, Rt. Hon. Aubrey (Hall Green)

    Burden, F. A.

    Galbraith, Hon. T. G. D.

    Kaberry, Sir Donald

    Butcher, Sir Herbert

    Gammans, Lady

    Kerans, Cdr. J. S.

    Campbell, Gordon

    Gardner, Edward

    Kerr, Sir Hamilton

    Carr, Compton (Barons Court)

    Gibson-Watt, David

    Kirk, Peter

    Carr, Rt. Hon. Robert (Mitcham)

    Giles, Rear-Admiral Morgan

    Leavey, J. A.

    Channon, H. P. G.

    Gilmour, Ian (Norfolk, Central)

    Lewis, Kenneth (Rutland)

    Chichester-Clark, R.

    Glover, Sir Douglas

    Lilley, F. J. P.

    Clark, Henry (Antrim, N.)

    Gough, Frederick

    Loveys, Walter H.

    Cooper, A. E.

    Grant-Ferris, R.

    Lubbock, Eric

    Cordeaux, Lt.-Col. J. K.

    Green, Alan

    Lucas, Sir Jocelyn

    Coulson, Michael

    Gresham Cooke, R.

    Lucas-Tooth, Sir John

    Craddock, Sir Beresford (Spelthorne)

    Griffiths, Eldon (Bury St. Edmunds)

    McAdden, Sir Stephen

    Cunningham, Sir Knox

    Grimond, Rt. Hon. J.

    MacArthur, Ian

    McLaren, Martin

    Pitt, Dame Edith

    Tapsell, Peter

    Maclay, Rt. Hon. John

    Pounder, Rafton

    Taylor, Sir Charles (Eastbourne)

    Macleod, Rt. Hn. Iain (Enfield, W.)

    Powell, Rt. Hon. J. Enoch

    Taylor, Frank (M'ch'st'r, Moss Side)

    McMaster, Stanley R.

    Price, David (Eastleigh)

    Teeling, Sir William

    Macmillan, Maurice (Halifax)

    Prior, J. M. L.

    Thatcher, Mrs. Margaret

    Maddan, Martin

    Prior-Palmer, Brig. Sir Otho

    Thomas, Sir Leslie (Canterbury)

    Maitland, Sir John

    Pym, Francis

    Thompson, Sir Kenneth (Walton)

    Marlowe, Anthony

    Rawlinson, Rt. Hon. Sir Peter

    Thornton-Kernsley, Sir Colin

    Marshall, Sir Douglas

    Redmayne, Rt. Hon. Martin

    Thorpe, Jeremy

    Marten, Neil

    Rees-Davies, W. R. (Isle of Thanet)

    Touche, Rt. Hon. Sir Gordon

    Matthews, Gordon (Meriden)

    Renton, Rt. Hon. David

    Turton, Rt. Hon. R. H.

    Maude, Angus (Stratford-on-Avon)

    Ridley, Hon. Nicholas

    Tweedsmuir, Lady

    Maudling, Rt. Hon. Reginald

    Ridsdale, Julian

    van Straubenzee, W. R.

    Mawby, Ray

    Roberts, Sir Peter (Heeley)

    Vane, W. M. F.

    Maxwell-Hyslop, R. J.

    Robson Brown, Sir William

    Vickers, Miss Joan

    Maydon, Lt.-Cmdr. S. L. C.

    Roots, William

    Wade, Donald

    Miscampbell, Norman

    Russell, Sir Ronald

    Walder, David

    Montgomery, Fergus

    Scott-Hopkins, James

    Walker, Peter

    More, Jasper (Ludlow)

    Shaw, M.

    Ward, Dame Irene

    Morrison, Charles (Devizes)

    Shepherd, William

    Webster, David

    Neave, Airey

    Skeet, T. H. H.

    Wilson, Geoffrey (Truro)

    Osborne, Sir Cyril (Louth)

    Smyth, Rt. Hon. Brig. Sir John

    Wise, A. R.

    Page, Graham (Crosby)

    Spearman, Sir Alexander

    Wood, Rt. Hon. Richard

    Parmell, Norman (Kirkdale)

    Stainton, Keith

    Worsley, Marcus

    Percival, Ian

    Stevens, Geoffrey

    Pickthorn, Sir Kenneth

    Studholme, Sir Henry

    TELLERS FOR THE AYES:

    Mr. Peel and Mr. Hugh Rees.

    NOES

    Allen, Scholefield (Crewe)

    Hamilton, William (West Fife)

    Noel-Baker, Francis (Swindon)

    Barnett, Guy

    Hannan, William

    Noel-Baker, Rt. Hn. Philip (Derby, S.)

    Bence, Cyril

    Harper, Joseph

    Oliver, G. H.

    Bennett, J. (Glasgow, Bridgeton)

    Hayman, F. H.

    O'Malley, B. K.

    Blyton, William

    Henderson, Rt. Hn. Arthur (Rwly Regis)

    Oram, A. E.

    Bottomley, Rt. Hon. A. G.

    Hilton, A. V.

    Oswald, Thomas

    Bowden, Rt. Hn. H. W.(Leics, S. W.)

    Holman, Percy

    Owen, Will

    Bowles, Frank

    Houghton, Douglas

    Pannell, Charles (Leeds, W.)

    Boyden, James

    Howie, W.

    Pargiter, G. A.

    Bray, Dr. Jeremy

    Hughes, Emrys (S. Ayrshire)

    Paton, John

    Brockway, A. Fenner

    Hunter, A. E.

    Pavitt, Laurence

    Brown, Rt. Hon. George (Belper)

    Hynd, H. (Accrington)

    Price, J. T. (Westhoughton)

    Butler, Herbert (Hackney, C.)

    Janner, Sir Barnett

    Probert, Arthur

    Butler, Mrs. Joyce (Wood Green)

    Jay, Rt. Hon. Douglas

    Pursey, Cmdr. Harry

    Callaghan, James

    Jeger, George

    Randall, Harry

    Carmichael, Neil

    Johnson, Carol (Lewisham, S.)

    Rankin, John

    Chapman, Donald

    Jones, Rt. Hn. A. Creech (Wakefield)

    Redhead, E. C.

    Cliffe, Michael

    Kelley, Richard

    Rees, Merlyn (Leeds, S.)

    Collick, Percy

    Kenyon, Clifford

    Rhodes, H.

    Corbet, Mrs. Freda

    Key, Rt. Hon. C. W.

    Robertson, John (Paisley)

    Crosland, Anthony

    King, Dr. Horace

    Robinson, Kenneth (St. Pa, N.)

    Crossman, R. H. S.

    Lawson, George

    Rogers, G. H. R. (Kensington, N.)

    Cullen, Mrs. Alice

    Ledger, Ron

    Ross, William

    Davies, S. O. (Merthyr)

    Lee, Frederick (Newton)

    Shinwell, Rt. Hon. E.

    Diamond, John

    Lee, Miss Jennie (Cannock)

    Silverman, Julius (Aston)

    Dodds, Norman

    Lever, L. M. (Ardwick)

    Skeffington, Arthur

    Doig, Peter

    Lipton, Marcus

    Small, William

    Donnelly, Desmond

    Loughlin, Charles

    Snow, Julian

    Edelman, Maurice

    Mabon, Dr. J. Dickson

    Sorensen, R. W.

    Edwards, Walter (Stepney)

    McBride, N.

    Steele, Thomas

    Evans, Albert

    MacColl, James

    Stonehouse, John

    Fletcher, Eric

    McInnes, James

    Stross, Sir Barnett (Stoke-on-Trent, C.)

    Foley, Maurice

    McKay, John (Wallsend)

    Swain, Thomas

    Foot, Dingle (Ipswich)

    MacKenzie, J. G.

    Wainwright, Edwin

    Foot, Michael (Ebbw Vale)

    McLeavy, Frank

    Warbey, William

    Forman, J. C.

    Mallalieu, E. L. (Brigg)

    Weitzman, David

    Fraser, Thomas (Hamilton)

    Mallalieu, J.P.W. (Huddersfield, E.)

    Wells, William (Walsall, N.)

    George, Lady Megan Lloyd(Crmrthn)

    Manuel, Archie

    Wilkins, W. A.

    Ginsburg, David

    Marsh, Richard

    Willey, Frederick

    Greenwood, Anthony

    Millan, Bruce

    Willis, E. G. (Edinburgh, E.)

    Griffiths, David (Rother Valley)

    Milne, Edward

    Woof, Robert

    Griffiths, Rt. Hon. James (Llanelly)

    Mitchison, G. R.

    Yates, Victor (Ladywood)

    Griffiths, W. (Exchange)

    Morris, Charles (Openshaw)

    Hale, Leslie (Oldham, W.)

    Moyle, Arthur

    TELLERS FOR THE NOES:

    Mr. McCann and Mr. Ifor Davies.

    The Solicitor-General: I beg to move, in page 15, line 43, at the beginning to insert "Part I of".
    It might be for the convenience of the Committee to discuss this Amendment with Amendment No. 54, at end add:
    1338
    "but, in relation to a lease which constitutes a hire-purchase agreement as defined in Part II of Schedule 7 of this Act, this section shall have effect subject to the modifications set out in the said Part II".
    Amendment No. 72, Schedule 7, in page 33, line 2, at end insert—

    Clause 16.—(PLANT AND MACHINERY AND OTHER ASSETS LEASED TO TRADERS AND OTHERS.)
      "PART I".
      Amendment No. 86, in page 35, line 38, at end insert:

      PART II
      Hire-purchase agreements
      8.—(1) If the lease constitutes a hire-purchase agreement, for the references in the provisos to subsections (1) and (2) of the principal section to the amount of the capital sum there shall, where that capital sum was obtained in respect of the lessee's interest in the lease constituting the hire-purchase agreement, be substituted references to the amount of the capital sum after deducting any capital expenditure which was incurred by the person obtaining the capital sum in providing the lessee's interest and which is for capital allowance purposes, still unallowed at the time when the assignment or other transaction takes place in respect of which the capital sum is obtained.
      (2) In this paragraph "capital expenditure incurred by the person obtaining the capital sum in providing the lessee's interest" means—

      (a) so much of any payment made under the lease by the person obtaining the capital sum (or, where the capital sum was obtained by the personal representatives of a deceased person, so made by that deceased person) as is not a payment in respect of which a deduction is allowable by way of income tax relief which is one of the kinds listed in subsection (4) of the principal section, plus

      (b) where the lessee's interest was assigned to the person obtaining the capital sum, any capital payment made by that person as consideration for the assignment.

      (3) In this paragraph the reference to the amount of capital expenditure which is, for capital allowance purposes, still unallowed at the said time shall be construed as a reference to the amount of the capital expenditure after deducting any amount which, under section 297 of the Income Tax Act 1952 (definition of "expenditure unallowed" for purposes of capital allowances for machinery and plant), would be deductible in ascertaining as at that time the amount still unallowed of expenditure incurred by the said person in providing the leased asset.
      (4) If the amount to be deducted in pursuance of sub-paragraph (1) of this paragraph exceeds the amount of the capital sum from which it is to be deducted, no charge shall arise under subsection (1) or subsection (2) of the principal section in respect of the capital sum.
      Disposition of part of rights under hire-purchase agreement
      9.—(1) If the capital sum represents the consideration for part only of the lessee's interest in the lease which constitutes a hire-purchase agreement, the amount to be deducted under paragraph 8(1) of this Schedule shall be such proportion of the capital expenditure which is still unallowed as is reasonable having regard to the degree to which the capital expenditure has contributed to the value of what is disposed of in return for the capital sum.
      (2) If more than one capital sum is, or is to be regarded as, obtained by the same person in respect of the lessee's interest in the lease which constitutes a hire-purchase agreement, then, so far as in respect of one of those capital sums any deduction is made in respect of capital expenditure in pursuance of paragraph 8(1) of this Schedule, that capital expenditure shall be left out of account in applying paragraph 8 of this Schedule to any other such capital sum; and the order in which this sub-paragraph is applied shall be the order in which the capital sums are obtained.
      Meaning of "hire-purchase agreement"
      10.—(1) In this Part of this Schedule "hire-purchase agreement" has the same meaning as in the Hire-Purchase Act 1938.
      (2) In Scotland, for the foregoing definition there shall be substituted the following definition—
      "hire-purchase agreement" means any contract, in whatsoever terms it may be expressed, whereby goods are taken on hire by one person from another person in consideration of periodical payments to be made by the first mentioned person to the other person, with an option to the first mentioned person to become the buyer of the goods.
      The Chairman: If that is the wish of the Committee.
      7.45 p.m.
      The Solicitor-General: The object of this Amendment to Clause 16 is to mitigate in certain hire purchase cases the charge imposed by this Clause to which my hon. Friend the Member for Belfast, East (Mr. McMaster) referred earlier.
      It is hoped that the Amendment which I am moving in respect of this part of the Clause will mitigate the harshness which did exist as my hon. Friend implied, when he intervened.
      With Hire Purchase, as the Committee appreciates, in essence the trader is paying for two things: first, for the use of an asset for a period, and, secondly, for the right to acquire, usually for a nominal sum, at the end of the period. As it was drafted, the hire purchase agreement was caught, but it was essential that the hire purchase agreement should be included in the Clause otherwise all agreements could have been dressed up as such agreements. It was therefore important to include hire purchase agreements. But there was in fact a danger that this was too harsh to genuine hire purchase agreements.
      Under the ordinary law hire purchase payments are divided, first, into consideration for hire which is allowed in

      1341
      computing profits, and, secondly, the payment on account of the purchase which, in fact, is capital outlay and not allowed in computing profits. The trader gets, first, his annual wear and tear allowance, and secondly, the initial and investment allowances. If he assigned, before the end of the hire purchase agreement the tractor or whatever it was he was purchasing, he would retain what he had under the wear and tear allowance but the intital and investment allowances would be withdrawn and there is no balancing charge which was spoken of earlier.
      The Clause as it was drafted before the proposed Amendment was based on the assumption that the full payments would be deducted but on the hire purchase the trader would not have deductions equal to total payments. That meant in respect of a Hire Purchase instalment only a percentage attracted allowances and it was important therefore to carve out the capital element of that instalment, and therefore Amendments Nos. 53 and 54 seek to restrict the charge under the Clause so that it does not operate to reduce the total tax relief, that is deductions for rent and capital allowances, below the net outlay. Amendments Nos. 53 and 54 do that.
      Amendment No. 72 merely introduces the words "Part I" at the start of Schedule 7, and Amendment No. 86 sets out fully that part of Schedule 7, namely, Part II Hire-Purchase agreements. We seek to import that into Schedule 7 as a second part. It operates by cutting down in hire-purchase cases the amount of the capital sum to be taken into account in computing the charge under Clause 16.
      The Amendment to Schedule 7 is the substantial Amendment. In paragraph 8(1) of that Amendment we read references
      "to the amount of the capital sum after deducting any capital expenditure which was incurred by the person obtaining the capital sum in providing the lessee's interest"
      which is allowed for capital allowances. "Capital expenditure" is defined in paragraphs 2 and 3. What this does is to cut down in hire-purchase cases the amount of the capital sum which is to be taken into account in computing the charge under Clause 16.
      I do not pretend that this is simple or deny that it has taken a substantial
      1342
      Amendment to deal with the case of the genuine hire-purchase agreement. It is one of the mischiefs of such avoidance that to prepare legislation to provide against the avoidance techniques the provisions must be set out in great detail and very fully so as not to damage the genuine trader. We are seeking to prevent an avoidance by persons who are setting out to avoid.
      Mr. Diamond: What does the hon. and learned Member mean by people who are "setting out to avoid". Is that the answer to the question which he asked me a short time ago?
      The Solicitor-General: The argument which the hon. Member set out before may sound splendid and get a lot of support, but it is a basic encroachment on the rule of law and, although it may seem to be putting it grandly, on the responsibilities of the House and of Government. This was a case in which one interfered with a lawful agreement. The hon. Member showed how deeply he felt about such people, but it may be that in some matters the principle and the rule of law are even more important. That is the position which I adopted in our discussions on the last Amendment.
      Paragraph 9(1) deals with the case where the lessee receives a capital sum as a consideration for the assignment of part only of his interest under the lease, and the deduction is to be only a reasonable proportion. Paragraph 10 defines what is a hire-purchase agreement. It is necessary to include a special provision for Scotland because the Hire-Purchase Act, 1938, does not apply to Scotland, but it has the same meaning. The effect of the first two Amendments, which are paving for the latter two Amendments, is to ameliorate a harshness which was not intended and which would have affected genuine hire-purchase agreements.
      Mr. Mitchison: As the hon. and learned Gentleman carefully and clearly explained, these Amendments begin piano, rise to allegro and end with appassionato.
      It is true that one judge said that we all had liberty to order our affairs according to the law as we found it, but another judge said the direct opposite—that we must have regard to what was morally right and wrong. If the hon. and learned

      1343
      Gentleman feels that the rule of law is at stake when people take steps to prevent further performance of a contract which at that moment they are declaring to be immoral and wrong, what needs amending is the law, and that is exactly what we are doing by this Clause in whatever form. But I must pursue this no further.
      The Amendments seem to be a reasonable compromise between what is necessary to business and what would be an abuse of a standard form of business. On those grounds we on this side of the Committee are willing that they should be taken as swiftly as anyone wishes.
      Mr. McMaster: I know that certain persons who are concerned with hire-purchase agreements will very much welcome the Amendments.
      This matter was brought to my attention by certain members of the finance and taxation committee of the Chamber of Commerce. I welcome the work of these members of bodies such as the Chambers of Commerce and the Federation of British Industries, who go through the Bill very carefully. It is a difficult Bill, and they draw to our attention matters which we might otherwise miss. In doing my work on the Bill I have found it a great help to receive the recommendations and advice of these bodies so that these matters can be brought to the attention of the Government and put right.
      Mr. Bence: In paragraph 10(2) we read:
      "'hire-purchase agreement' means any contract, in whatsoever terms it may be expressed, whereby goods are taken on hire by one person from another person in consideration of periodical payments to be made by the first mentioned person to the other person, with an option to the first mentioned person to become he buyer of the goods."
      There is a form of hire purchase in Scotland which we call, colloquially Napierism. I dare say that the right hon. and learned Gentleman has heard a great deal about this. If he had attended the Scottish Grand Committee or the Committee on the Hire-Purchase Bill he would have heard an outcry against the practice of the Napier credit structure in Scotland. Is the form of credit adopted by Napier, which seems to be a system between money lending and credit sale rather than straight hire purchase, included in these words?
      The Solicitor-GeneralI have never been a member of the Scottish Grand Committee.
      Mr. Bence: We must have that rectified.
      The Solicitor-General: Except in a general form I could not advise the Committee on Scottish law, but I will see that any comments or representations which are made are brought to the appropriate attention, and if required I will report back to the Committee. All I am advised is that because the 1938 Act does not apply to Scotland it is necessary to set out the definition. I am told that the definition set out will accurately and properly include all hire-purchase agreements in Scotland, but I will certainly look at the particular matter that the hon. Member has mentioned.
      8.0 p.m.
      Sir Eric Errington: This adds another weapon to what I can only describe as the hire-purchase armoury of legislation during this Session. From what my right hon. and learned Friend has said, it seems that the hire-purchase agreement situation is satisfactorily protected by these Amendments. As will be known, there is another, not dissimilar, method of providing people with the use of plant and machinery—the method known as leasing.
      I presume, but I should like confirmation, that there is nothing here that will affect that quite common method of the ordinary leasing of plant and machinery. As far as I can see, what is sought is to protect the Revenue from damage through the sale, as a capital asset, of a lease. If that be the case, presumably there can be no harm and, indeed, no legislation affecting what I would describe as the ordinary leasing procedure. This is of considerable importance, because quite a considerable amount of this type of business is being done at the present time.
      The Solicitor-General: I can reassure my hon. Friend the Member for Aldershot (Sir E. Errington) that, as I said in moving the Amendment, there is no intention, and there has been no intention, of affecting the ordinary practice of leasing on proper and commercial terms, which is wholly unobjectionable and, as he has pointed

      1345
      out, quite properly very common and widespread. The purpose is, in certain circumstances, to claw back deductions that have been admitted. However, my hon. Friend is right to point out the importance of this leasing in industry, and its commonness. I can assure him that it is not affected.
      Amendment agreed to
      Further Amendment made: In page 16, line 6, at end add:
      "but, in relation to a lease which constitutes a hire-purchase agreement as defined in Part II of Schedule 7 of this Act, this section shall have effect subject to the modifications set out in the said Part II."—[The Solicitor-General.]
      Question proposed, That the Clause, as amended, stand part of the Bill.
      Mr. Mitchison: I wish to make only one very small point in connection with this amended Clause and the preceding Clause which amended the usual meaning of "control". I notice that these Clauses provide, and quite properly provide, for associated persons and associates to be dealt with in certain connections; that an associate may include a person who has control, and that, for the purpose of this Clause, at any rate, the definition of "control" in the Income Tax Act is thought to be quite sufficient. I say that in case the question should arise later in connection with the previous Clause.
      The Solicitor-General: I am much obliged to the hon. and learned Gentleman for Kettering (Mr. Mitchison), as I do not think that it would be right for me to make any comment at all at this stage.
      Clause, as amended, ordered to stand part of the Bill

    Clause 17.—(PLANT AND MACHINERY AND OTHER ASSETS LEASED TO PERSONS CARRYING ON TRADE, ETC.: SPECIAL CASES.)
    The Solicitor-General: I beg to move Amendment No. 55, in page 16, line 29, to leave out from "allowable" to the end of line 35, and to insert:
    "and one or more subsequent payments are made by the same person under the same lease, that part of the first-mentioned payment may be carried forward and treated for the purposes of computing the profits or gains or losses of the trade for the purposes of income tax as if it were made at the time when the next of those subsequent payments was made,
    1346
    and so made for the period for which that subsequent payment was made."
    It might be for the convenience of the Committee, Mr. Blackburn, if with this Amendment we discussed Amendment No. 56 and Amendments Nos. 65 and 66, which affect Clause 18.
    The Temporary Chairman (Mr. F. Blackburn): If that is the wish of the Committee.
    The Solicitor-General: I am much obliged.
    This group of Amendments affects what is called the carry-forward of deductions and allowances from one year to another. Clause 17 deals with the case in which the trader owns an asset—plant or machinery—leases it to the other person, who leases it back with the same kind of arrangement of a bunched-up rent. The Clause provides that there shall be allowances only in respect of a commercial rent, not of a bunched-up rent, and commercial rent as defined.
    That is the purpose of Clause 17 but, on close examination, there appeared to be a loophole, and it also appeared that some drafting required clarification. Amendments Nos. 55 and 56 are designed to deal with that. As drafted, the Clause permitted carry-forward to a successor in the trade of a person who made excessive rent payments.
    Perhaps I may again return to Messrs. A, B and C. If trader A owned plant and leased it to B at a premium of £8,000, and B leased it back to trader A for £3,000 per annum for three years and thereafter at a peppercorn rent or minimal rent, at the end of three years A would have paid £9,000 in rent and his tax reliefs would be limited to, say, £3,000, assuming that a commercial rent was £1,000. Thereafter, the amount available for carry-forward would be £9,000 less £3,000—£6,000. If A carried on leasing at the peppercorn rent he would be allowed the carry-forward at £1,000 per annum and, at the end of 6 years, he would get full relief, but he would have to go on for six years to get that full relief.
    But if he sold—enter Mr. C—to C, and C paid to A what was, in effect, a tax-free premium which reflected both the true value of the lease and the tax reliefs

    1347
    that were to be carried forward, it would cause him to pay an inflated price. The purpose of these Amendments is to negative that advantage. The Amendment provides that the carry-forward is disallowed in respect of rental payments to be added to later payments except by the same person under the same lease. If it is the same person and the same lease, the carry-forward is allowed.
    Amendments 65 and 66 carry out the same principle where it applies to rent, and close a similar loophole. This seemed to be a proper way of closing that particular loophole, in which it seemed that it could be possible that this disposal of the asset while the peppercorn rent was continuing would produce for that particular person a capital sum that would be inflated and would have avoided any charges upon it. I therefore move the Amendment, which would have the effect of remedying that situation.
    Mr. Callaghan: I congratulate the Solicitor-General on the lucidity and charm with which, as always, he has put his case. He has led us through the involved labyrinth of Messrs. A, B and C and I notice that the Amendment has been put down since the Bill was drafted as a result of the skilful diligence of the Inland Revenue. I congratulate that Department, but so far in the development of this dramatic serial we have not had the appearance of Mr. D. I think that quite soon, the Inland Revenue having closed this loophole, Mr. D. will come along and upset all the skilful plans that have been laid. The Solicitor-General is properly detaining the Committee on these intricate matters which many of us are struggling to understand. I exempt the Solicitor-General from that remark and also my hon. Friends here with me. They understand it completely.
    I do not want to exceed the bounds of debate but I utter this simple thought. Instead of going through this business of closing up loophole after loophole, time after time, and then finding that Mr. D comes along and upsets them, and once he has done that and we have blocked him Mr. E appears—and I am not sure what happens by the time we reach the end of the alphabet—would it not be simpler, if the Solicitor-General has this responsibility in 15 years' time, if we have not done it in the meantime, to
    1348
    have a straight capital gains tax to obviate this intricate legislation which in the end does not achieve a solution?
    The Solicitor-General: The hon. Gentleman has left us with a simple thought, as he puts it, but these are not simple matters however one cares to express them. If we have a capital gains tax at the same rate as the Income Tax and the Surtax we may achieve that object. I must hope that the hon. Member never has a chance of touching the revenues of this country at all, but even if he ever had that opportunity it would still not be a simple matter. It is no use trying to pretend that any of these matters will ever be capable of simple explanation, let alone of simple practice.
    Mr. Callaghan: I do not promise that it will be a simple matter. I merely say that it will be effective. At the moment it is neither.
    Amendment agreed to.
    Further Amendment made: In page 16, line 45, leave out from "made" to end of line 46 and insert:
    "at a time subsequent to that at which they were made, and to the extent that a part of a payment carried forward under subsection (3) of this section is not allowable as a deduction it may again be carried forward under the said subsection (3)."—[The Solicitor-General.]
    Question proposed, That the Clause, as amended, stand part of the Bill.
    Sir H. d'Avigdor-Goldsmid: We have heard a great deal about what the Clause is concerned with, which is catching certain transactions and blocking loopholes, but there is some danger that a legitimate trade will also be caught in one of these blocked loopholes. When my right hon. Friend the Chancellor of the Exchequer introduced his Budget he said with reference to these provisions:
    "They will be designed to stop a profit being made out of tax by avoidance schemes, but will not penalise normal leasing arrangements."—[OFFICIAL REPORT, 14th April, 1964; Vol. 693, c. 244.]
    Unfortunately, normal leasing arrangements as now known have little to do with relations between lessor and lessee as most of us think of them.
    I am reminded in talking of this of Greek law where I understand it is common for a landowner to own the land, a second owner to own the tree and a third owner to own the olives that grow

    1349
    on the tree. This is the sort of situation that arises under what we like to call leasing. It is common to have a company, for example, manufacturing internal telephones having associated with it another company which buys the product of the manufacturing company and then leases it. But it does not lease it to the user. It leases it to a third company which will be a rental company and which, in turn, will rent the internal telephone service to the ultimate consumer.
    Mr. Callaghan: This is Mr. D.
    Sir H. d'Avigdor-Goldsmid: Yes, indeed, this is Mr. D. This sort of thing goes on quite normally in the world into which we are now venturing.
    I am advised that there is a danger of transactions of that sort carried on by associated companies being caught by Clause 17, and it was suggested to me that the particular mischief might be avoided if at the beginning of Clause 17(1,b) after the word "asset" there were inserted the words "not being stock-in-trade of the vendor" to differentiate between the capital goods which we have all been talking about, and to which Messrs. A, B and C have directed their attention, and the end product, the telephone or the lorry or whatever it may be, which might be caught in the mischief of this Clause.
    8.15 p.m.
    What is the mischief of the Clause? Allowances for tax purposes are limited by the Clause to commercial rentals as defined in subsection (6) which describes commercial rent as
    "the rent which might at the relevant time be expected to be paid under a lease of the assets for the remainder of the anticipated normal working life of the assets, being a rent payable at uniform intervals and at a uniform rate which would afford a reasonable return for its market value at the relevant time…"
    When one turns to the definitions one finds that "anticipated normal working life" has, for any asset, the meaning given for machinery and plant by Section 281(6) of the Income Tax Act, 1952.
    Further consultation of the Income Tax Act, 1952, does not produce any sort of answer to what is an anticipated normal working life. In a happy form of drafting and circumlocution the Section says:
    1350
    "…'the anticipated normal working life' means, in relation to machinery or plant of any class, the period which might be expected, when machinery or plant of that class is first put into use, to be going to elapse before it is finally put out of use as being unfit for further use, it being assumed that it is going to be used in the normal manner and for the normal extent and is going to be so used throughout that period."
    Mr. Callaghan: Very clear.
    Sir H. d'Avigdor-Goldsmid: Very clear. One could not more happily expand four words into 200 words without thereby clarifying them than in this Section of the Income Tax Act, 1952. This is the problem to which we have to address ourselves. I understand that for most purposes the Inland Revenue accept the normal working life of a motor vehicle as being 10 years from the date when it was bought new. But, of course, this is simply not applicable to the little van which rattles about carrying television sets, for instance, which probably lasts for only two or three years. The system does not allow anything for obsolescence. When one is dealing with heavy plant of one kind or another, there is quite an element of obsolescence as well as simple exhaustion, so to speak, in the machine. These are points which I, least of all, can deal with satisfactorily and with which, I think, we as a Committee cannot usefully deal, but they come from people who are engaged in these perfectly legitimate businesses in such a way as to come specifically within the exemption referred to by the Chancellor when he said that these Clauses would not penalise normal leasing arrangements.
    As we have all learned, what is said on the Floor of the House is not binding on the Inland Revenue. The Inland Revenue works to the book. My right hon. and learned Friend seems to have mastered this subject in a way on which I compliment him, and, of course, he is in a far better position to examine the points which I have raised. I hope that he will consider them carefully, not wishing to catch me out because my exposition of them has not been that of a lawyer, which I am not, and will accept that they raise questions which should be looked into. I ask him to give his attention to them from the point of view of those businesses which practise normal leasing arrangements among associated companies.
    Mr. McMaster: Apropos of what has just been said by my hon. Friend the Member for Walsall, South (Sir H. d'Avigdor-Goldsmid), I am a little concerned at the use of the expression "commercial rent" in this Clause and the next one. It seems to imply that there might be a non-commercial or extra-commercial rent. Would it not be better to use the expression "ordinary rent"? Also in subsection (6) one finds the expressions "uniform intervals" and "uniform rate". I am not quite sure what these mean as a matter of interpretation, and I do not know what is meant by the word "uniform" in that context. Perhaps my right hon. and learned Friend can help me on both those points.
    The Solicitor-General: I shall, if I may, deal first with the points raised by my hon. Friend the Member for Belfast, East (Mr. McMaster). The expression "commercial rent" is important. Deductions may be made only in respect of what is meant to be a commercial rent, and, as is set out in the Clause, by "commercial rent" we mean
    "the rent which might at the relevant time be expected to be paid under a lease of the asset for the remainder of the anticipated normal working life of the asset, being a rent payable at uniform intervals and at a uniform rate which would afford a reasonable return for its market value."
    The use of so many words, on which my hon. Friend the Member for Walsall, South (Sir H. d'Avigdor-Goldsmid) commented in another context, arises because the courts have to be given by this Committee and, ultimately, by the House the definitions which they have to interpret. It is right to include in the definition there the word "commercial" and use that as determining the kind of rent in mind for this purpose. As my hon. Friend appreciates, similar considerations arise in relation to land under Clause 18.
    I turn now to the point made by my hon. Friend the Member for Walsall, South. I shall most certainly examine everything he has said on this Question. I repeat now that, in principle, the intention is certainly not in any way to affect the wholly unobjectionable and perfectly proper systems of leasing. My first impression from what he said is that Clause 17 would not operate in
    1352
    respect of plant which is stock in trade of the particular company or companies concerned. My present opinion is that the Clause does not bite where my hon. Friend fears that it does. However, I accept that that is not good enough for him or for the Committee, and I undertake to see that the matter is carefully examined. I shall ensure that the object of the Clause is carried out and that there is no side-wind by which wholly unobjectionable leasing arrangements are in any way caught.
    Sir H. d'Avigdor-Goldsmid: I am much obliged for that reply. May I leave my right hon. and learned Friend with the thought that, if it is not to catch stock in trade, some form of words such as I have suggested for insertion at line 11 might be put permanently in black and white in order to give effect to the point which, no doubt very badly, I have tried to express?
    Question put and agreed to.
    Clause, as amended, ordered to stand part of the Bill.

    Clause 18—(LAND SOLD AND LEASED BACK: LIMITATION ON TAX RELIEFS.)
    The Solicitor-General: I beg to move, Amendment No. 57, in page 18, line 4, after "land" to insert:
    "or any part of the land".
    I suggest that it might be convenient, Mr. Blackburn, if we were at the same time to discuss Amendments Nos. 58, 59, 60, 61, 63 and 64.
    The Temporary Chairman: Yes, if that is the wish of the Committee.
    The Solicitor-General: All the Amendments in this group are designed to deal with a defect which was discovered on examination of Clause 18. The words chosen dealt with the case where a person owning land or an interest in land transferred it and subsequently leased back the same land or an interest in it. Examination showed that the intent of the Clause could be avoided by leasing back part of the land. These Amendments are intended to make the Clause bite where a transaction includes not only the whole of the land but a part of the premises or land, and they will, I suggest, effectively prevent the avoidance which could arise.
    Amendment agreed to.
    Further Amendments made: In page 18, line 12, after "land", insert "or any part of the land".
    In page 18, line 14, leave out "his associate" and insert "any person who is associated with the transferor".
    In line 24, after first "land", insert "or any part of the land".
    In line 27, leave out "his associate" and insert "any person who is associated with the transferor".—[The Solicitor-General.]
    8.30 p.m.
    Mr. W. Clark: I beg to move Amendment No. 91, in page 18, line 31, to leave out from "and" to "surrender" in line 33 and insert:
    "shall be deemed to include a".
    Again, this is purely a drafting Amendment. I am advised, not being a lawyer or solicitor, that the surrender or forfeiture of a lease is not aptly described as a transfer but that it is rather a case of extinguishing the lease. The Amendment would have the effect of making the Clause do what the Revenue want done.
    The Solicitor-General: I am obliged to my hon. Friend the Member for Nottingham, South (Mr. W. Clark) for the Amendment. I am not certain about the necessity or the effect of it. I shall have the matter examined between now and another stage of the Bill and will examine the representations which my hon. Friend has made. In those circumstances, he may feel inclined to withdraw the Amendment.
    Mr. Clark: In view of what my right hon. and learned Friend has said, I beg to ask leave to withdraw the Amendment.
    Amendment, by leave, withdrawn.
    The Solicitor-General: I beg to move Amendment No. 62, in page 18, line 33, to leave out from second "lease" to the end of line 37 and insert:
    "and references to any transaction or series of transactions affecting land, or an estate or interest in land, such that some person is the owner, or one of the owners, before and after the carrying out of the transaction or transactions, but another person becomes or ceases to become one of the owners; in relation to any such transaction or series of transactions any person who is an owner before the carrying out of the transaction or transactions, and is not the sole owner thereafter, shall be regarded for the purposes of this section as a transferor".
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    This is a more substantial Amendment than those which we have just been considering which were in the nature of drafting and technical Amendments. The substituted words are not alternative words setting out the same point which was originally in the Clause. In fact, they raise another point.
    The first main effect of the Amendment is to omit from subsection (3) the exclusion of a transaction which consisted simply of the transfer of the lessee's interest under a lease at a uniform rent equalling throughout the term of the lease the commercial rent of the land. The intention was that Clause 18 should not apply where a uniform and commercial rent was paid and then the lease assigned. But by examination, and after close thought had been given to the problem, it is appreciated that this could be the first of a series of avoidance transactions which would escape Clause 18.
    The hon. Member for Cardiff, South-East (Mr. Callaghan) has left us for a short time, but I think that I should give another example.
    Mr. Diamond: I understand that my hon. Friend has gone to have a word with Mr. F.!
    The Solicitor-General: I think that that is very much more sensible than to listen to the Solicitor-General.
    May I give an example of how the provision could be avoided? If A occupies business premises and holds them on a 50-year lease at a uniform rent of £1,000 per annum, which is the commercial rent, and if he assigns the lease to Mr. F—I might as well introduce him—for no consideration, as the Clause is drafted, it would take Mr. A and Mr. F and the whole transaction right out of the effect of the Clause. That is by reason of subsection (3). If that happens, Mr. F can sub-lease to Mr. A for a substantial sum—say, £10,000 for five years and thereafter at a peppercorn rent. There may be provided, for instance, a break Clause to cancel the sub-lease after five years on payment of a penalty of £35,000. The Clause would not bite on this and therefore this tax advantage could be obtained and repeated. That is because of the assignment of the lease without any consideration. That has the effect of removing the transaction between Mr. A and Mr. F outside the

    1355
    Clause. The Amendment seeks to ensure that both Mr. A and Mr. F do not obtain that advantage.
    The words to be substituted deal with another point, and that is the point of joint ownership which before was not within the scope of the Clause. Now it is considered essential—and on reflection it was, perhaps, obvious—that the joint owner should also be included. Mr. G now appears and he can be brought in as a joint owner and by this Amendment will be caught by the Clause.
    Amendment agreed to.
    Further Amendments made: In page 18, line 41, leave out "of the land".
    In line 42, at end insert "of the land in respect of which that payment is made".
    In line 46, leave out from "allowable" to end of line 4 on page 19 and insert:
    "and one or more subsequent payments are made by the transferor, or a person who is associated with the transferor, under the lease or other transaction, that part of the first-mentioned payment may be carried forward and treated for the purposes of any such deduction by way of income tax relief as if it were made at the time of when the next of those subsequent payments was made, and so made for the period for which that subsequent payment was made".
    In page 19, line 14, leave out from "made" to end of line 15 and insert:
    "at a time subsequent to that at which they were made, and to the extent that a part of a payment so carried forward under subsection (5) of this section is not so allowable as a deduction by way of income tax relief, it may again be carried forward under sub-section (5) of this section".—[The Solicitor-General.]
    The Solicitor-General: I beg to move Amendment No. 67, in page 19, line 18, after "Act)" to insert:
    "or rates usually borne by the tenant".
    Will it be convenient to consider with this Amendment Amendments Nos. 68 and 69?
    Amendments Nos. 67 and 68 are consequential on Amendment No. 69.
    The Temporary Chairman: If the Committee is agreeable, yes.
    The Solicitor-General: The substantial one of these three Amendments is No. 69, which would substitute a new subsection (9) and insert subsections (10) and (11). The definition in the Bill left a gap in that on examination it was
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    felt that by inserting an onerous condition in a lease, the rent could be artificially inflated. This the Amendment seeks to correct. In addition, the Clause as drafted did not give guidance with regard to a progressive rent. Clearly, there can be occasions when a rent can properly without objection be a progressive rent.
    By Amendment No. 69 the rent is defined as the open market rent of the land at the time when the lease was created, assuming a lease of the same term as the actual lease and assuming the taking-on of the burden of maintenance and repairs and that they fall as provided in the lease. Under this provision, there would be no bunched-up, diminishing rent. Instead of the rent being bunched up at the beginning and a peppercorn rent thereafter, a uniform rent is substituted. If it is a progressive rent, it will be accepted if it is commercial. If it is excessive, it will be scaled down.
    As I have said, however, there can be clearly a commercial rent which might be progressive in certain circumstances. The intention is to prevent, by the insertion of an onerous burden in the agreement, any artificiality or blowing-up of the rent on the ground that it was due to the bearing of that onerous burden.
    Subsection (10) covers rent-charges and subsection (11) deals with premiums. As the hon. and learned Member for Kettering (Mr. Mitchison) and the hon. Member for Gloucester (Mr. Diamond) may recollect, Chapter II of Part II of the Finance Act, 1963, dealt with premiums and with rent charges. Any amount which is treated as a rent and qualifies for tax relief in this way is taken into account when making comparison with the commercial rent. That is the effect of Amendment No. 69.
    Amendments Nos. 67 and 68 are consequential. The former deals with a question concerning rates and provides that where the rent includes rates, the rates should be extracted from comparison to ascertain the commercial rent. Amendment No. 68 is merely consequential upon the other two Amendments. In the circumstances, I commend them to the Committee as being an improvement upon the original Clause.
    Amendment agreed to.
    Further Amendments made: In page 19, line 23, leave out subsection (7).
    In line 40, leave out subsection (9) and insert:
    (9) For the purpose of making a comparison under subsection (4) of this section between a payment consisting of rent under a lease (in this subsection referred to as "the actual lease"), or such payments taken together, and the commercial rent of the land, "commercial rent" shall mean the rent which might be expected to be paid under a lease of the land negotiated in the open market at the time when the actual lease was created, being a lease which is of the same duration as the actual lease, which is, as respects liability for maintenance and repairs, subject to the terms and conditions of the actual lease and which provides for rent payable at uniform intervals and—

    (a) at a uniform rate, or

    (b) if the rent payable under the actual lease is rent at a progressive rate (and such that the amount of rent payable for any year is never less than the amount payable for any previous year), a rent which progresses by gradations proportionate to those provided by the actual lease.

    (10) For the purpose of making a comparison under subsection (4) of this section between a payment which does not consist of rent under a lease (or such a payment taken together with other payments) and the commercial rent of the land, "commercial rent" shall mean the rent which might be expected to be paid under a tenant's repairing lease as defined in paragraph 19 of Schedule 4 to the Finance Act 1963 negotiated in the open market at the time when the transaction was effected under which the payment or payments became due.
    (11) In this section references to rent due under a lease include references to rent which the person entitled to the lease is under Chapter II of Part II of the Finance Act 1963 treated, for any purpose, as paying in respect of land comprised in the lease, and such rent shall be treated for the purposes of this section as having been paid from day to day as it has become due.—[The Solicitor-General.]
    The Solicitor-General: I beg to move Amendment No. 70, in page 20, line 30, at the end, to insert:
    "and 'rent' includes any payment made under a lease as so defined".
    This Amendment merely extends the definition of rent. It is necessary as a matter of drafting.
    Amendment agreed to.
    Clause, as amended, ordered to stand part of the Bill.

    Schedule 7.—(LEASES TO TRADERS AND OTHERS.)
    Amendments made: In page 33, line 2, at end insert: "PART I".
    In line 14, leave out from first "the" to "include" and insert:
    "lessee's interest in a lease of an asset, or in respect of any other interest in an asset".
    In line 15, after "(a)" insert:
    "in the case of a lessee's interest".
    In line 20, leave out from third "the" to end of line 21 and insert "interest in the asset".
    In line 24, leave out "lessee's rights" and insert "interest".
    In line 27, leave out "the lease" and insert "a lease of the asset".
    In line 33, leave out from "of" to "include" and insert "any interest in an asset".
    In line 37, leave out from second "the" to end of line 38 and insert "interest in the asset".
    In line 39, leave out sub-paragraph (2) and insert:
    (2) If an interest in the asset is disposed of by any person to a person who is his associate (as defined in this Schedule), the person disposing of the interest shall (unless in fact he obtains a greater sum) be treated for the purposes of the principal section as having obtained in respect of the interest—

    (a) the value of the interest in the open market, or

    (b) the value of the interest to the person to whom it is, in effect, transferred, whichever is the greater.

    In page 34, line 7, leave out from "of" to "an" in line 8 and insert "an interest in".
    In line 13, leave out from "to" to "an" in line 14 and insert "an interest in".
    In line 26, after "in", insert "the principal section and".
    In page 35, leave out lines 2 to 5 and insert:
    "So far as in respect of a capital sum—".—[The Solicitor-General.]
    The Solicitor-General: I beg to move Amendment No. 84, in page 35, line 13, to leave out "this" and to insert "the principal". This is a drafting Amendment.
    8.45 p.m.
    Mr. Mitchison: Perhaps the right hon. and learned Gentleman can assure us that the remaining Amendments to Schedule 7 have already been discussed or are drafting.
    The Solicitor-General: Yes, I can give that assurance. They are all consequential on the first Amendment that I moved to Clause 16, and we have also discussed the hire-purchase agreements.
    Amendment agreed to.
    Further Amendments made: In page 35, line 17, leave out "such".
    In line 38, at end insert:

    Schedule 7.—(LEASES TO TRADERS AND OTHERS.)

      PART II
      Hire-purchase agreements
      8.—(1) If the lease constitutes a hire-purchase agreement, for the references in the provisos to subsections (1) and (2) of the principal section to the amount of the capital sum there shall, where that capital sum was obtained in respect of the lessee's interest in the lease constituting the hire-purchase agreement, be substituted references to the amount of the capital sum after deducting any capital expenditure which was incurred by the person obtaining the capital sum in providing the lessee's interest and which is, for capital allowance purposes, still unallowed at the time when the assignment or other transaction takes place in respect of which the capital sum is obtained.
      (2) In this paragraph "capital expenditure incurred by the person obtaining the capital sum in providing the lessee's interest" means—

      (a) so much of any payment made under the lease by the person obtaining the capital sum (or, where the capital sum was obtained by the personal representatives of a deceased person, so made by that deceased person) as is not a payment in respect of which a deduction is allowable by way of income tax relief which is one of the kinds listed in subsection (4) of the principal section, plus

      (b) where the lessee's interest was assigned to the person obtaining the capital sum, any capital payment made by that person as consideration for the assignment.

      (3) In this paragraph the reference to the amount of capital expenditure which is, for capital allowance purposes, still unallowed at the said time shall be construed as a reference to the amount of the capital expenditure after deducting any amount which, under section 297 of the Income Tax Act 1952 (definition of "expenditure unallowed" for purposes of capital allowances for machinery and plant), would be deductible in ascertaining as at that time the amount still unallowed of expenditure incurred by the said person in providing the leased asset.
      (4) If the amount to be deducted in pursuance of subparagraph (1) of this paragraph exceeds the amount of the capital sum from which it is to be deducted, no charge shall arise under subsection (1) or subsection (2) of the principal section in respect of the capital sum.
      Disposition of part of rights under hire-purchase agreement
      9.—(1) If the capital sum represents the consideration for part only of the lessee's interest in the lease which constitutes a hire-purchase agreement, the amount to be deducted under paragraph 8(1) of this Schedule shall be such proportion of the capital expenditure which is still unallowed as is reasonable having regard to the degree to which the capital expenditure has contributed to the value of what is disposed of in return for the capital sum.
      (2) If more than one capital sum is, or is to be regarded as, obtained by the same person in respect of the lessee's interest in the lease which constitutes a hire-purchase agreement, then, so far as in respect of one of those capital sums any deduction is made in respect of capital expenditure in pursuance of paragraph 8(1) of this Schedule, that capital expenditure shall be left out of account in applying paragraph 8 of this Schedule to any other such capital sum; and the order in which this sub-paragraph is applied shall be the order in which the capital sums are obtained.
      Meaning of "hire-purchase agreement"
      10.—(1) In this Part of this Schedule "hire-purchase agreement" has the same meaning as in the Hire-Purchase Act 1938.
      (2) In Scotland, for the foregoing definition there shall be substituted the following definition—
      "hire-purchase agreement" means any contract, in whatsoever terms it may be expressed, whereby goods are taken on hire by one person from another person in consideration of periodical payments to be made by the first mentioned person to the other person, with an option to the first mentioned person to become the buyer of the goods.—[The Solicitor-General.]
      Schedule, as amended, agreed to.

    Clause 19.—(COMPANIES DOING "MUTUAL" BUSINESS.)
    Sir Donald Kaberry: I beg to move Amendment No. 31, in page 21, line 8, at the end to insert:
    (2) This section shall not apply to any social club, society or association whether unincorporated or incorporated which amongst other things provides food, drink and other amenities to its members for purposes other than private gain or to any association of such clubs whether incorporated or un-incorporated.
    The Chairman: It will be convenient to take at the same time Amendment No. 93, in page 22, line 10, at end add:
    (7) In this section the word "business" shall not include the sale of goods or the provision of services by a club, society or other body to its members, providing that such

    1361
    club, society or other body, even though incorporated, exists primarily for the purpose of providing social, recreational or educational facilities.
    Sir D. Kaberry: My Amendment is intended to clarify the position about mutual trading so far as it may relate to clubs. When the Financial Secretary moved the Second Reading of the Bill he referred to this matter and offered the thought that the Clause did not extend to any social or other club part of whose function was to supply food and drink and other amenities. I feel that I should tell him that the words that he used rather confirmed some of the fears held by a large number of people who are actively engaged in club life. The object of tabling the Amendment is to put into the Clause the words which were used in order to make it abundantly clear that the terms "mutual business" or "mutual trading" can never he so used as to bring into the operation of the Clause the activities of so many clubs throughout the country.
    I appreciate that the Clause refers to:
    "a trade carried on by a body corporate",
    and I think it is accepted probably in the best circles that a club as such does not "trade". But the wording of the first part of the Clause could leave a doubt in the minds of people in the future who desire to secure additional revenue from social, welfare and all other kinds of clubs. We all know the vast number of clubs that exist, whether they are incorporated or unincorporated, whether they are proprietary or members clubs, whether they are registered under the Friendly Societies Act or the Industrial and Provident Societies Act. There is a whole range of clubs of that kind. The club property is the property of the whole of the members. When they buy anything over the counter or in the club, the members purchase, as it were, part of their own property. To that extent I have no doubt that it could be said that they are not trading as such.
    But the words used in the Clause—"mutual business" or "mutual trading"—could leave some doubt. In order to overcome that doubt, I hope that the Financial Secretary will accept the spirit of the Amendment. The words may not be completely adequate to the purpose, but that can be attended to on a later occasion if necessary. I hope that it can
    1362
    be made clear and put into the Clause that clubs which, in the words of the Amendment, are social clubs, societies or associations, which, amongst other things, provide food, drink, and other amenities to their members for purposes other than private gain—which is the phrase we have discussed in this House during the last few years in connection with other matters—shall not come within the Clause, which clearly is intended to refer to certain restricted trading activities, or mutual insurance, or whatever it might be.
    Mr. R. M. Bingham: I support the Amendment. During the Second Reading of the Finance Bill the Financial Secretary said that the Clause would not affect
    "the provision by a social club to members of amenities such as food and drink, since these activities do not normally constitute trading."—[OFFICIAL REPORT, 7th May, 1964; Vol. 694, c. 1473.]
    It is true that the Clause applies only where trading is carried on, but I share the apprehensions expressed by my hon. Friend the Member for Leeds, North-West (Sir D. Kaberry)., because although it is true that in many cases—in fact in the majority of cases—the provision by a club to its members does not constitute trading, the only reason for that is that in law the sale to a club member is not a sale at all, but a release by the other club members of their interest in joint goods. Thus, the transaction is not one of sale, and it is on that, and that alone, that the whole edifice of non-trading by clubs arises.
    In recent years it has been legitimate in members' clubs and in proprietary clubs for visitors as well as members to be served. Visitors buy rather than obtain a release, and if they buy, I think that it might be difficult to say that a club is not trading with visitors. If a trade is being carried on by the club, it does not matter how substantial the trade is. The gateway is opened to the fact that trade is being carried on, and to the provisions of the Clause.
    Once the gateway of Clause 19 is opened, the phrase "mutual business" come into operation, and undoubtedly a club carries on mutual business with its members, whether or not it trades. Although one can say that in the case of the average club the Clause as drafted

    1363
    could be invoked only if there was, as it were, a sort of dominant activity by the club in trading with visitors rather than with members, the borderline would be very difficult to draw, and in fact if a club trades predominantly with visitors, under the law as it stands it is liable to be taxed on the proceeds of that trade.
    Therefore, any addition to the law relating to clubs is entirely unnecessary and, furthermore, in certain cases could attract the net of the Revenue not only to the trade receipts, but to the mutual business receipts as well, which are legitimate activities of a club and which, in view of the words of the Financial Secretary, were never intended to be taxed.
    I ask that some consideration be given to that point. It may not arise in the majority of cases, but it will create a nebulous borderline as the wording stands, and in my submission this whole question in relation to clubs, and I think in relation to trade associations, too, requires substantial reconsideration.
    Mr. Frederick Gough: I support the Amendment, and in doing so I must immediately declare an interest. I happen to be the Chairman of the Royal Areo Club, which is a unique club. It has its own social side, but for 50 years it has been responsible for all the private and sporting flying in this country. We have been advised by our legal and accountancy experts that as the Clause stands there is a danger that the club might find itself liable for taxation in respect of a certain amount of profit which I can assure the Committee is used entirely in the amortisation of debt.
    I want to refer to one or two points, and also to one or two activities in which the Royal Aero Club deals. Every air speed record is dealt with by an honorary official of the Royal Aero Club. Such officials receive their out-of-pocket expenses, and very often a fee. I am not a lawyer, and I find it difficult to see whether or not the club will fall into the dangerous position of finding itself liable for a certain amount of taxation.
    The club provides social amenities, including food and drink, and also provides bedrooms. But it goes much further than that. It provides amenities for
    1364
    private fliers. It has a carnet system for travellers overseas, and it provides maps. It gives service and advice, sometimes for fees. In general terms we feel quite sure, from the words used by the Financial Secretary in the Second Reading debate, that it is not the intention of the Clause to attack clubs of this nature, but we feel that this should be made a little more explicit.
    We should be very much happier if my hon. Friend's Amendment, or some form of words, were incorporated in the Clause in order to make it crystal clear that clubs of the nature of the Royal Aero Club will not be assessed for Income Tax on the very modest profits that they sometimes make.
    Mr. W. Clark: You were kind enough, Mr. Blackburn, to say that Amendment No. 93 could be discussed with my hon. Friend's Amendment. The two Amendments have the same objective. Many of my hon. Friends have referred to the question of clubs, and what they have said needs no repetition, but I hope that my hon. Friend the Financial Secretary will accept my assurance that among all those who are interested in this matter there is a great deal of concern about the present wording of the Clause, and who will be caught by it.
    There is no question that the normal legitimate members' club will be caught. Such clubs are not in business for trade or profit. But I want to refer to such organisations as trade associations, whether in industry or agriculture, and whether they exist for mutual health benefits or other reasons. These organisations are not in existence for profit. We must have a clear assurance that, by default, the Clause does not catch them.
    I hope that my hon. Friend will make that abundantly clear. If he cannot assure us that the wording of the Clause is abundantly clear, since the Inland Revenue cannot take what is said in this House as the book of words perhaps my hon. Friend will consider putting down a suitable Amendment so that in future there can be no ambiguity on the question who will be taxed under the Clause and who will be exempt.
    Mr. John Hall: In supporting the Amendment I want to draw attention to another aspect of the problem, namely,

    1365
    the extent to which the Clause affects provident associations. I hope that Amendment No. 93, in referring to
    "social, recreational or educational facilities"
    includes the provision of such things as medical benefits. Perhaps I may give an example of the way in which the Clause would affect a typical provident association. A non-profit-making association is generally limited by guarantee and by its articles surplus assets cannot be distributed to members. The board of governors is not allowed by the articles to receive any remuneration for services. If the provident association is wound up, the surplus assets cannot be distributed to the members, they have to be given to another organisation doing the same kind of work, or to charity—
    9.0 p.m.
    Mr. Angus Maude: On a point of order, Mr. Blackburn. I should like your guidance. It seems to me that the Amendments which we are considering are fairly limited in their scope. I had intended to make a fairly wide statement on the general subject of mutual insurance societies, provident societies, on the Question, "That the Clause stand part of the Bill." I am not clear that this would be covered under the present Amendments. Perhaps it would be a pity if the debate were allowed to continue on these lines while we are discussing these limited Amendments.
    The Temporary Chairman (Mr. F. Blackburn): I am grateful to the hon. Member for Stratford-on-Avon (Mr. Maude). I was just looking at the Amendments to see whether I could find anything in them to indicate that the hon. Member for Wycombe (Mr. John Hall) was in order. I think that some of his remarks would be made more appropriately on the Question, "That the Clause stand part of the Bill."
    Mr. John Hall: I understand the slight bewilderment that may be occasioned by your trying to see, Mr. Blackburn, how this comes into the Amendment. As I read Amendment No. 93, which I understand that we are discussing with Amendment No. 31, it covers,
    "the provision of services by a club, society or other body…"
    1366
    It goes on to refer to a body which
    "even though incorporated, exists primarily for the purpose of providing social, recreational or educational facilities."
    I ask whether this would include medical services. I was given to understand that this is so. It was the intention that the Amendment should cover provident clubs, societies or other bodies.
    The Temporary Chairman: The Amendment does not mention medical services. It mentions social, recreational and educational facilities, but there is no reference to medical services, and I cannot see how that is covered by the Amendment.
    Mr. Mitchison: Further to the point of order. I think I can say that we on this side of the Committee have no objection to a broad debate being conducted now, by consent. In fact, I think that it might be preferable, because it is extremely difficult to separate what is in the Amendments and what is not. I merely make the suggestion.
    Mr. Maude: I appreciate the desire of the hon. and learned Member for Kettering (Mr. Mitchison) to get himself and his hon. Friends home as early as possible, but I cannot see how it is possible for us to deploy a case on mutual insurance societies on Amendments referring to clubs and social and educational facilities. It would be intolerably difficult.
    The Temporary Chairman: I think that it will be more convenient if we try to keep to the rules of order. There are other Amendments which will be called.
    Mr. John Hall: I defer to your Ruling, of course, Mr. Blackburn. The expression "social services" has always been used in this Chamber, so far as I am aware, to cover a wide range of medical and other services, and it was to that word that I was applying my remarks.
    Mr. Green: I appreciate the point that my hon. Friend the Member for Wycombe (Mr. John Hall) is seeking to make, but it seems to me that it would be more appropriate to discuss that and the problem of visitors on the Motion, "That the Clause stand part of the Bill." I agree that they are related matters.
    Mr. Mitchison: To avoid any misunderstanding, may I say that we might wish to divide on these Amendments?
    Mr. Green: Of course it is understood that nothing I have said in any way derogates from anyone's right to divide on any Amendment that may be before the Committee.
    The first thing I say to my hon. Friends the Members for Leeds, North-West (Sir D. Kaberry), the hon. and learned Member for Liverpool, Garston (Mr. Bingham), the Member for Horsham (Mr. Gough) and the Member for Nottingham, South (Mr. W. Clark), is that the point about the exclusion of clubs from this Clause is that they are not judged to be trading. I sought to say this—I admit, in general terms—on Second Reading, and I am now very glad indeed to repeat the assertion. What keeps social clubs out of the mischief of this Clause is the plain fact that they are not judged to be trading.
    If the reason for a mutual association is trading, I believe it is generally accepted on both sides of the Committee that the profits from mutual trading should be taxed, but the fact is that these clubs, the subject of this Amendment, are not judged to be trading. For this reason the anxiety that they might be caught, be they aero clubs or some other kind of club, I assure my hon. Friends, can be set at rest because they are not trading. This is the underlying reason why they will not be caught.
    I appreciate that on certain additional points which have been raised, for example, the problem of reliance upon fees or payments from visitors, some doubt may be raised. This I want to look at in order to make quite certain that the Clause as drafted does not bear unduly heavily upon such activities, but those clubs or mutual associations whose existence is for mutual benefit, comfort or enjoyment of society and for which there is no trading motive are not caught by the Clause.
    The Amendments would be unnecessary. I must advise my hon. Friends that if one puts in wording which is unnecessary the normal consequence is that one confuses the interpretation of the law. I hope my hon. Friends will accept my assurance that clubs which in the ordinary course of events have no element of trading in them but are for the mutual society of their members will not be caught. This is the best
    1368
    advice I have been able to obtain. Of course, I shall look at what my hon. Friends have said, particularly at the points to which they have drawn my attention about additional activities beyond those affecting the actual members of clubs. If I can find ways and means of allaying their doubts further on Report, I shall certainly do so. I hope that on these terms my hon. Friend may feel it right to withdraw the Amendment.
    Mr. Mitchison: I am afraid that I do not agree with what the hon. Member proposes. I owe it to the Committee to put it fairly. What he said on Second Reading was:
    "The Clause does not apply to all mutual trading, but only to mutual trading with or through a body corporate."—[OFFICIAL REPORT, 7th May 1964; Vol. 694, c. 1474.]
    That phrase, this Clause and the rest of the sentence all come from the majority Report of the Royal Commission on Taxation. That is the origin of all this. What these two Amendments propose is to exempt specifically certain clubs. That is what it comes to and although I do not think that they are quite suitable for the purpose, with their intention I entirely agree. I think that they ought to be exempted specifically, and I will make my point clear in a moment.
    We on this side of the Committee have had representations, too, and our representations—or at any rate most of them—have been from the ordinary working men's clubs in the country. It was one of the people who wrote to us who passed the warning on to the Conservative clubs. I am not complaining in the least. It seems to me that we are all on the same wicket, and we are as anxious as are the Conservative clubs that these clubs should not be hit by the Clause. I do not think that there is any way of doing it without specific exceptions.
    The question about a body corporate comes in another way and perhaps not on this Amendment. I will raise it later. But there are some clubs which are bodies corporate—that does not cover the case—although I doubt whether any of the working men's clubs are. I am not sure, and I stand to be corrected if there are exceptions.

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    The hon. Member referred to co-operative societies and to mutual insurance, which no doubt we shall discuss later, but I turn to the clubs themselves. Like other hon. Members, I have been in the clubs and am a member of one or two of them. Their ordinary practice is to receive members of other clubs and to allow them to buy drinks. Where has the mutual trading got to? Are they mutually trading with their own members or within the whole framework of membership of clubs and associations?
    Again, in some cases—and here I cannot speak at first hand and I stand to be corrected—I believe that they allow visitors to the club, not necessarily members of other working men's clubs, to buy drinks. Once we get into all that, it seems to me that whatever the right hon. Gentleman says, they are getting very near to doing trading as an activity.
    If one looks at the language of the first of these Amendments, its very wideness lends some support to this, because it says,
    "This section shall not apply to any social club…which amongst other things provides food, drink and other amenities to its members…".
    What are the other things? The door is wide open. Apparently one might say that an association for the purpose of avoiding tax, and making considerable profits out of the advice which it gives to its members, could not possibly be taxed if at the same time it stood them a drink. This is sweeping.
    It is for that reason that, although I entirely agree with the principle behind both Amendments and wish to see it supported in the Lobby shortly, by the hon. Members who moved the Amendment, it seems to me that the wording is too wide and needs reconsideration. But if all the Government say is, "We think that they are not covered anyway", then with great respect to the Government I do not think that they have been into enough working men's clubs, and they had better start their rounds. It seems to me clearly that they go beyond mutual trading when they serve drinks to members of other clubs, even if they do not serve them to comparative outsiders. I do not want to provoke the Revenue into taxing anyone they have never taxed before, but it seems to me that somebody or another will say, "Here is trading going on." There are other things. Questions about the letting
    1370
    and hiring of rooms, and so on, might well come into this.
    9.15 p.m.
    Mr. Maude: Is the hon. and learned Gentleman sure that the selling of drinks to visitors who have not been given even temporary membership of a club is legal under the existing terms of the licence? I very much doubt it.
    Mr. Mitchison: It may not be, but once when Canada was dry there was a bootlegger called Mr. Smith. Mr. Smith made a considerable income out of selling illicit drink. He was taxed on it. When the case went to the Privy Council, the Revenue, in this instance the Canadian Revenue, was quite clear; it said: "We are not concerned with where it comes from. It is income, and we tax it". If I may follow it up a little further, Mr. Smith's case was, "But you cannot be partners with a bootlegger". Mr. Smith, I regret to say, lost. That might happen also in this case.
    I do not want to provoke the Government in any way. If I were to be asked whether I am certain whether there is trading, I would hesitate to answer. This is a terribly complicated matter. If the hon. Gentleman cares to talk about mutual insurance, he certainly knows about that. Therefore, I would not say that. I would say that the Government have made it perfectly clear that they do not intend to cover these cases. They have not offered—they still could offer—to put in a specific exemption in respect of these clubs. On that we should not wish to divide.
    Does it make any difference, if the Government do not intend to cover these clubs, if they put it into the Statute and say so? The Government need not necessarily accept the Amendment. The Financial Secretary could merely say that he will produce one in slightly different terms to make it quite clear that the ordinary working men's clubs, including the Conservative clubs, are not covered in this case. That is what I am on. If he is prepared to say that, we will not divide. Otherwise we will.
    Mr. Green: I do not want there to be any misunderstanding. I said that we would consider what had been said by my hon. Friends. I have attempted to

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    obtain the best advice I can, and am at present advised that the clubs sought to be covered by these Amendments, if I have understood my hon. Friends correctly, would not be caught within the Clause. This is my clear present advice. The reason why they would not be caught within the Clause is that they are clearly not trading. What matters is whether an association or organisation is trading.
    I have already given the undertaking for which the hon. and learned Gentleman asked. Between now and Report I will carefully consider what has been said to see whether it is necessary to put anything into the Bill to cover these cases. If it is not necessary to put anything into the Bill to cover these cases, this is clearly a waste of time, not merely in Parliamentary terms. It may be a waste of time in the processes of the law subsequently.
    Mr. Mitchison: I do not want to take up too much of the Committee's time, but in one way this is rather ridiculous. The Government do not intend to cover these clubs. That is clear. I take leave to doubt whether the advice the Government have received is correct. It is not either the Government or I who will have to decide the matter finally. It will have to be decided in the courts. Whoever is right about it, there is at any rate a sufficient element of doubt, and an obvious element of doubt, as to who is being mutually traded with to justify one asking the Government, as I do once more, to put in a short subsection exempting working men's clubs. That is all. I do not mind so much about the other ones. It is a simple matter. What is the harm in it? If we all mean the same thing—there is some doubt whether we have expressed it properly—let us undertake to do it.
    Mr. Green: I said that I would consider what had been said. I cannot go further than that tonight.
    Sir D. Kaberry: I have listened to what the Financial Secretary has said and, as I understand it, he has given a clear undertaking that he will examine the whole of the discussion which has taken place. In view of that, I beg to ask leave to withdraw the Amendment.
    Mr. Mitchison Mr. Mitchison rose—
    The Temporary Chairman: If the hon. and learned Member speaks, the Amendment cannot then be withdrawn.
    Mr. Mitchison: I do not think that matters; we need not say anything when the Question is put. What my right hon. and hon. Friends and I propose to do is this. We think that such a provision ought to be put in. We shall remain of that opinion, but we would go this far, if we may, to meet the Government in the matter: let them think about it, let them say what they decide, and we shall put down, if they do not put down, an Amendment to deal with the matter at a later stage. For the moment we propose to let this pass.
    Amendment negatived.
    Mr. W. Clark: I beg to move Amendment No. 92, in page 22, line 6, after the first "section" to insert:
    "and with the insertion of the words 'or any earlier' after the words 'in the said' in section 444(2)(i) of the Income Tax Act 1952".
    This is a simple Amendment. It is designed to permit companies engaged in mutual trading to deduct the dividends paid to members in respect of their mutual transactions even though the dividends may be paid in a year subsequent to that in which the profits were made. I need not elaborate on this. Quite obviously, whether it is mutual trading or not, one has to know whether one has made a profit before declaring a dividend, and sometimes it is impossible to pay the dividend in the actual year in which it is earned. I am not committed to the wording of this Amendment but if my hon. Friend would accept the spirit of it I would be most grateful.
    Mr. Green: I do not want to use unnecessary words about this. I think that I can put it to him in this way. In practice, I am told, the spirit of this Amendment is already accepted. In that sense, it is unnecessary, in that under the ordinary Income Tax principles—may I take, for example, the co-op, which is not wide of the mark here—payments of late dividends would be deductible. In order to be quite sure that this is the case—I agree with him that what he has produced is a relatively narrow point—I will certainly give the undertaking to make quite sure that I have the facts and

    1373
    the interpretation of the facts correct; and if I have not I shall certainly undertake to produce something at the Report stage. I believe that in practice what my hon. Friend wants to do is already being done, and my advice to him is that this Amendment is unnecessary. But if he will take my assurance that I shall certainly look at it again and that he is not in any way committed to leaving the Report stage alone, if I may put it that way, perhaps I might ask him to withdraw the Amendment.
    Mr. Clark: I am most grateful to my hon. Friend, and in view of his assurance I beg to ask leave to withdraw the Amendment.
    Amendment, by leave, withdrawn.
    Mr. Bingham: I beg to move Amendment No. 42, in line 10, at the end to add:
    (7) A body corporate carrying on a trade to which this section applies shall be entitled, on giving notice in writing to the surveyor within two years of the end of the year of assessment 1964–65, to require that this section shall have effect as though for references to 1964–65 were substituted references to such earlier year of assessment as may be specified:
    Provided that—

    (a) the year of assessment specified shall not be earlier than the year of assessment 1958–59.

    (b) for the purposes of the profits tax, where notice has been given under this subsection, references in this section to March 1964 shall be deemed to be references to the month of March immediately preceding the year of assessment specified in the notice.

    The Temporary Chairman: I think it would be for the convenience of the Committee to discuss at the same time Amendment No. 43, in line 10 at the end to add:
    (7) A body corporate carrying on a trade to which this section applies shall be entitled, on giving notice in writing to the surveyor within two years of the end of the year of assessment 1964–65, to require that for all the purposes of the Income Tax Acts the trade shall be deemed to have been set up and commenced on 6th April, 1964.
    Mr. Bingham: That will be satisfactory, Mr. Blackburn.
    The purpose of the Amendment is to enable a mutual trading concern, if I may use that phrase, which has had the misfortune to trade at a loss over the
    1374
    years to carry forward its losses into the period when it will be taxed. I cannot see that there is any inherent vice or mischief which the Amendment would promote because any mutual trading concern which wanted to use its position for the avoidance of tax would hardly be likely retrospectively in the past to have run up losses. The only vice I can see—and I cannot think that it is a real one; although, in any case, it could be guarded against—is that if the losses were carried forward there would, theoretically, be the possibility of a mutual trading concern which happened by chance to have a record of losses converting them on transfer to something tangible.
    However, that could be provided against and, as against that possible loophole, the circumstances I have in mind seem to be compellingly and overwhelmingly in favour of the Amendment which arises out of a particular case in Liverpool involving what I can only describe as a semi-charitable concern, founded for the promotion of travel among youths. The directors are all voluntary, with the exception of one full-time executive. It is open to receiving donations and subscriptions, but finds itself in the unhappy position of having run up substantial losses in the past six years. The concern is getting on its feet but apprehends that it is a mutual trading concern within the meaning of the Clause.
    The concern intended, until the Clause was brought forward, to recoup its cumulative losses by a more realistic rate charge to its members, but it will take two or three times as long to do that if the Amendment is not accepted. It may be that it is not a mutual trading concern, but that is a matter yet to be decided. Any concern which finds itself in the circumstances I have described should, in equity, be allowed to bring forward its losses, which could not have been anything but genuinely incurred.
    If this concern had been taxed over the past six years it would have been able to bring its losses in, and I cannot see why, because by chance it happens to be taxed in this year, it should be deprived of the benefits and advantages it would have had had it been subject to tax in the past. I hope that the Financial Secretary will look at this matter seriously

    1375
    because although the wording may contain unsuspected defects the intention of the Amendment is clear.
    Amendment No. 43 is even more minor and I will not delay the Committee over it. It is intended to give to mutual trading concerns which are brought into the tax charge for the first time the benefit of the commencing provisions applicable to new concerns. It is clear that once a mutual trading concern is brought in it will, sooner or later, when it comes to a natural end, have to be met by the Revenue with the cessation provisions. Therefore, the option conferred by the commencing provisions is designed to be provided by Amendment No. 43.
    If the concern preferred to go into liquidation and start again it would get the benefit of the commencing provisions. I do not think that any particular vice or mischief can be occasioned. This would be a marginal advantage to certain mutual trading concerns. It is equitable and I hope that my hon. Friend will either accept the Amendment or consider it in the spirit in which it is moved.
    Mr. Green: Let me first clear up one point. The youth travel organisation that my hon. Friend used as an illustration is not judged to be a trading concern, so I do not think that it need have any anxiety about its position.
    9.30 p.m.
    I quite understand the logic of my hon. Friend's case. Both sides of the Committee would agree that if trading profits are made they should be taxed, but my hon. Friend says that, if there is to be tax, the profits of these associations should be brought in on the same terms as they would have been if they had originally, as was the original intention of the law, been taxed on their mutually arising profits. I understand that process of logic and have a considerable amount of sympathy with it, but I cannot tell my hon. Friend here and now that either of these Amendments would achieve this process of logic without doing some damage elsewhere.
    Obviously, I cannot accept the Amendments as they are drafted, but I will look again at the matter, discuss it further, and see whether it is necessary to have something of the type of either Amendment—the Amendments are essentially alternative—to achieve the equity which
    1376
    I believe my hon. Friend seeks. If I am convinced of that, we will willingly put down an Amendment on Report. However, I must tell my hon. Friend that I am not satisfied that the Amendments, as worded, would achieve his objective without doing some actual damage to the real purposes of the Clause. I hope that he will accept this assurance and withdraw the Amendment.
    Mr. Bingham: I am not quite certain why my hon. Friend said that it was so obvious that the drafting could not be accepted, but, subject to that point, and on his assurance, I beg to ask leave to withdraw the Amendment.
    Amendment, by leave, withdrawn.
    Question proposed, That the Clause stand part of the Bill.
    Mr. Mitchison: I can put my anxieties about the position of co-operative societies quite simply and shortly. The co-operative societies are at present taxed under Section 444 of the 1952 Act, which, among other things, specifically exempts the "divi" as being involved in their tax liability and, broadly, seems to follow the kind of line indicated here.
    The history of this is that the Clause in question first appeared in the 1933 Act. There was a Report by the Raeburn Committee on the matter, and Section 444 of the 1952 Act follows the Report of that Committee. It has of course been the position for a very long time. They are, therefore, taxed on their surpluses. The present Clause proposes to deal with a trade carried on by a body corporate, which the Clause says
    "…consists of or includes…any business of mutual insurance, mutual trading…"
    and so on. Those words quite clearly cover co-operative societies, and the Government produce the rather curious reason that the Clause did not affect the co-operative societies because they were being taxed already.
    If the Government intend not to affect the co-operative societies they should say so, otherwise the societies will be under an alternative rather than a double liability. We shall have the questions which were before the Raeburn Committee on dividends, and so on, arising again under this Clause instead of being dealt with under Section 444 of the 1952 Act. It is obvious that the Government did not intend to cover the societies.

    1377
    I do not know why they put the words "mutual trading" and "or other mutual business" in the Clause. I know that the historical reason is that the Royal Commission on the Taxation of Profits and Income when it considered this matter and recommended a general taxation in all these cases said at the end—and I paraphrase—that the associations directly affected by the change which the Commission proposed were those for mutual insurance other than life insurance
    "and any other mutual undertakings—and they might take a number of diverse forms—which supply services to their members in the way of trade or business but are exempted from taxation on their surpluses by virtue of their mutuality."
    In the references to cases of mutuality I cannot find any body which was not some sort of co-operative association.
    What is really intended to be hit here are mainly the mutual insurance bodies. The Commissioners at the time referred to a rather obvious test case where there ought to have been tax liability but it escaped on mutality, and the Commissioners gave their reasons why it should not have escaped. It is not good enough to urge that the inclusion of the cooperatives societies in another Section in another Act excludes them from this Clause when the Government leave a phrase in the Clause which quite clearly covers them in general terms. I hope, therefore, that the hon. Gentleman will assure us that they will be specifically exempted in this case and that they will not be left under an alternatively liability under either Section 444 or this Clause. This seems to me a very dangerous position indeed.
    I mention one other group of bodies. The argicultural co-operative societies are very apprehensive about their position. I do not know whether it is intended to cover them or not. I gather from what the hon. Gentleman said that it is not so intended. I am not quite sure what language would be used, but, whatever it be, it seems to me that they, too, ought to be included in the exclusion.
    I shall not ask the hon. Gentleman to give us the drafting of that now, but I hope that we shall have it clearly expressed by him that, since there is some obvious doubt in the matter, a specific exclusion will be made to cover the co-operative societies and the parti-
    1378
    cular case of the agricultural ones. He must have had representations.
    Mr. R. H. Turton: I share the anxieties expressed by the hon. and learned Member for Kettering (Mr. Mitchison) about this Clause particularly from the point of view of developments in agriculture, the agricultural co-operative societies and even the group trading which is now becoming a feature of agricultural marketing efficiency. It would be a great pity if any of these developments were hit by the Clause.
    There were references earlier to the special position of clubs. I am sure that my hon. and learned Friend the Member for Liverpool, Garston (Mr. Bingham) is right when he says that they are not covered because there is no mutual trading; there is a release, not a sale. On the other hand, there are many associations which do trade among members. A regimental association is an example. It sells to members regimental badges and sidelines of that kind, and it also sells papers, for instance, the journals which go to both members and non-members.
    I beg my hon. Friend to look into the ramifications of the Clause. We must have a more rigid definition showing what is excluded. It is not clear at present. I do not press my hon. Friend to give such a definition at this stage, but I beg him to realise that the Clause has aroused anxiety among bodies which are either charitable or non-profit making but which go in for these sales as a sideline to their endeavours. Bearing this in mind, I hope that my hon. Friend will look into the matter between now and Report stage.
    Mr. Maude: There can be little doubt that this is a bad Clause, and I think that one should begin by saying so. It is riddled with doubt. It may include a great many more things than it is, apparently, intended to include, and the one thing which it certainly purports to do is, in my submission, wrong. Therefore, there is very little to be said for it as it stands.
    The one thing which the Clause would clearly succeed in doing, which is to make mutual insurance societies liable to tax on their surpluses, is not even the thing

    1379
    which my right hon. Friend the Chancellor said in his Budget speech he intended to do. There was a considerable amount of surprise when, after my right hon. Friend had said that he intended to stop a loophole for tax evasion of a particular kind, we found in the Finance Bill that the Treasury had taken the opportunity to go far wider than that and to seek to restore in a new form the provisions of Section 31 of the Finance Act, 1933, which is a totally different kettle of fish.
    There is, I think, no secret that the particular tax evasion loophole which the Chancellor had in mind was that thrown up by the decision of the House of Lords in the Staffordshire Coal and Iron case. This is a very particular case. What happened was that in a liquidation a terminal distribution was made of surplus assets which were held by the House of Lords to be capital rather than income in the hands of the liquidator.
    9.45 p.m.
    It seems clear that this is a perfectly legitimate object of the Chancellor and the Treasury. There is no doubt that this is a loophole which it is reasonable to seek to stop, and I do not think that anybody objects to it being stopped. But it is quite a different kettle of fish when we go beyond the originally expressed intention of my right hon. Friend in his Budget speech and seek to replace the provisions of Section 31 of the Finance Act, 1933, which were held to be invalid by the decision of the House of Lords in the Ayrshire case.
    There is a very long and complicated history behind this, but it all seems to point in one direction. Before the 1933 Act, there had been a long series of legal judgments, beginning with the case of the New York Life Insurance Company v. Styles in 1889 and ending with the case of Municipal Mutual Insurance Ltd. v. Hills in 1932. But it had been settled in all these cases that the surpluses arising from transactions which were of a purely mutual nature between members of an association and the association or between the association as insurers and the policy holders were not profits which were assessable to Income Tax.
    Section 31 of the 1933 Act purported to make these surpluses liable to Income Tax, and for a number of years—in fact, until 1946 when the Ayrshire
    1380
    judgment was handed down—tax was paid on these surpluses. Then, by what must be regarded by the mutual insurance societies as a happy co-incidence, a case which had started on entirely different grounds finally developed into a House of Lords judgment which overthrew the validity of the 1933 Act provision.
    It is, I think, worth while looking at one passage in the judgments of the House of Lords in the Ayrshire case. It is worth noting the words used by the learned Lord Macmillan in his judgment. He said:
    "The legislature has plainly misfired."
    He went on—and these are the significant and even fascinating words—
    "Its failure is perhaps less regrettable than it might have been, for the subsection has not the meritorious object of preventing evasion of taxation, but the less laudable design of subjecting to tax as profit what the law has consistently and emphatically declared not to be profit."
    He added:
    "I should dismiss the appeal",
    and that is what their Lordships did.
    The plain fact is that the law had always held before 1933 that the surpluses of genuine mutual insurance transactions were not profits and were not taxable. An attempt was made in the 1933 Act to render them liable to Income Tax. It was held in 1946 that, in the words of the learned Lord Macmillan, the Legislature had misfired, and rightly so.
    Now, on the pretext that we are trying to stop the loophole shown up by the House of Lords judgment in the Staffordshire Coal and Iron case, which is a comparatively narrow point, namely, whether in a terminal distribution surplus assets should be regarded as capital or income in the hands of the liquidator, the Treasury is seeking to reverse again the whole series of judgments, starting with the New York Life case and going on as far as 1933, and again to render liable for tax the annual surpluses of mutual insurance societies which they are apparently still anxious to do, the previous attempt in 1933 having failed.
    Two things should be said. First, it is extremely arguable whether it is desirable that genuinely mutual transactions of this nature should be liable

    1381
    to tax. Secondly—I am perfectly aware of what the Royal Commission said about the matter, but Royal Commissions can be wrong—it is a debateable proposition whether, when this sleeping dog has been allowed to lie for a reasonable time, it should now be awakened with a weapon which failed in 1933 and which may well fail again, because this is a bad Clause, subject to the most extraordinary amount of doubt and confusion.
    I cannot, for example, imagine that it was the intention of the Government that medical benefit associations of the kind of B.U.P.A. and others should be caught by the Clause, yet it seems likely that they will be caught by it. It could, I suppose, be argued that B.U.P.A. and such like associations are trading, but that would be a far-fetched use of the term. These are mutual associations of individuals coming together to have a specialist service performed for a limited purpose. This is also the case with many mutual insurance societies.
    I make no secret of the fact that my main interest in the matter is in one of the most important mutual insurance societies, the National Farmers' Union Mutual Insurance Society, whose headquarters is in my constituency and, indeed, is one of the leading industries of my constituency. I have, of course, no financial interest in it.
    This insurance society consists of farmers who must be members of a farming union. The policyholders must all be members and the members are all policyholders. There are no distributions of surpluses, profits or dividends to shareholders. All surpluses are devoted to two purposes, one of which, on ordinary actuarial principles, is to ensure that the reserves are adequate for any calls ahead in the form of benefits. If there are any changes in trends, risks, and so on, obviously the actuaries decide whether the reserves should be increased or diminished. Any surpluses not allocated to contingencies reserves are applied solely to the reduction of premiums to members, or, if not to reduction, at least to holding premiums steady when, perhaps, commercial companies night be increasing them.
    That is, and always has been, regarded as a specialist service performed solely for members. For example, there is
    1382
    special expertise in such matters as the insurance of livestock, crops, agricultural machinery and so on. If the Clause catches thin society, the inevitable result must and will be that the premiums paid by farmers for their specialist insurance would increase. I find it difficult to believe that this is the desire of the Government.
    Certainly it can be argued whether that is trading. To my mind, trading requires a transaction between two people in which both sides receive satisfaction or consideration for the deal. When something is sold over the counter, the customer gets the article which he is buying and the retailer gets his money, part of which will be profit. They both receive satisfaction and consideration, and that is trading. In the case of members of a mutual insurance society, it can by no stretch of the imagination be held that the body corporate is getting a consideration or satisfaction out of it, because it consists solely and entirely of its members.
    If there should be any doubt about this, and since I am using the example of the National Farmers' Union Mutual Insurance Society, let me put it this way. This society found that there was a demand for the services which it rendered which spread beyond its original members, who were the members of the National Farmers' Union and other unions, and it set up an independent commercial company to deal with non-members on an ordinary commercial basis, and this company has always paid Income Tax and Profits Tax in exactly the same way as an ordinary commercial insurance company would do.
    It seems to me that where this is so—and it was accepted that this was a perfectly reasonable thing to do—it can scarcely be held now that the two companies, the limited mutual insurance society and the commercial company, are exactly on all fours. Of course they are not. Yet this is what Clause 19 seeks to do.
    To go back to the judgments made in the past, it has been held that the nature of the transactions taking place is of importance in deciding whether or not this is trading. But the real point is whether or not one is dealing exclusively with one's members and whether or not all surpluses and all benefits accrue to

    1383
    the reduction of premiums to one's members.
    What the Clause seeks to do—it is a most fantastic thing to try to do, and I hope hon. Members will perceive that this is what the Clause does—is simply to say that a mutual insurance society is not a mutual insurance society at all. What it says in subsection (1) is:
    "Where a trade carried on by a body corporate consists of or includes the conducting of any business of mutual insurance, mutual trading or other mutual business (whether confined to members of the body corporate or not)—"
    This is the real mischief of the subsection.
    "then for the purpose of income tax persons entering into transactions"
    and so forth.
    In other words, the Clause is saying that a society set up to perform a particular limited service to its own members and only for its own members, whose surpluses have been consistently held by the law not to be profits assessable to Income Tax, shall now be treated as if it were not a mutual society at all and as if the members were not members of it. This is midsummer madness.
    I beg the Government to realise not only that this is a complicated, doubtful and difficult Clause but that it goes far beyond seeking to stop the loophole of tax evasion thrown up by the Staffordshire case, which the Chancellor said that he was trying to stop. Nobody has the slightest objection to the loophole being stopped. Moreover, we who are worried about this have readily said that there are potentialities in the mutual trading and mutual insurance set-up for, so to speak, laying the foundations of just such a piece of tax evasion as was obvious in the Staffordshire case. There is no objection in the world to this being prevented.
    What we say is that it should not be beyond the wit of the Treasury to devise a form of words which will prevent tax evasion through terminal distributions on liquidations without catching for Income Tax as trading profits what in the words of Lord Macmillan the law has consistently said were not profits and not assessable to Income Tax.
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    10.0 p.m.
    This is a very difficult Clause to amend, and I have not sought to draft an Amendment, because in my view it would need a battery of Parliamentary draftsmen to do it justice. I beg my right hon. Friend between now and Report to consider very carefully whether what the Clause now does is what the Government really want it to do, and to make it clear, whether by writing in specific exemptions, or by redrafting the Clause, that provident associations, medical benefit societies, and mutual life companies, dealing entirely and exclusively with their members and members' interests, should not be caught in respect of their annual surpluses.
    I do not expect my right hon. Friend to give an absolute assurance that he will do that. This is a matter which he will no doubt wish to study with his experts, but I reserve to myself the right to put down an Amendment on Report if the point that I have made is not met by the Government, but I hope that it will be.
    Mr. Arthur Creech Jones: I agree wholeheartedly with the argument deployed by the hon. Member for Stratford-on-Avon (Mr. Maude), and I do not wish to repeat it. We have covered the matter pretty thoroughly in this discussion, but I want to give just one instance of the way in which this rather comprehensive Clause would operate if it became law.
    I must declare an interest. I am a trustee of the Municipal Mutual Insurance Co. It is a co-operative body, merely doing the job of insurance as between one local authority and another. It is primarily a local government organisation. It seeks to make no profit. It is co-operative in action. It does not work for private profit, or private gain. It is concerned merely with meeting the need for insurance amongst local authorities.
    One is at a loss to understand why an organisation which is performing such a useful task should be brought within the terms of a Clause such as this. There is some consternation among local authorities about what the Government are proposing to do. I therefore endorse the view expressed by the hon. Member for Stratford-on-Avon, and I sincerely hope

    1385
    that the Government will reconsider the whole matter to see whether certain organisations at least can be excluded from the effects of the Clause.
    Mr. John Hall: Although I disagreed completely with the point of order raised by my hon. Friend the Member for Stratford-on-Avon (Mr. Maude) when he interrupted my earlier remarks, nevertheless I agree with what he said about the effect of the Clause on mutual assurance societies or associations, and I want to draw particular attention to one or two rather narrow points which arise out of the Clause.
    When endeavouring, incorrectly, to speak or a previous Amendment, I tried to explain to the House how the provident associations, for example, were organised, which showed beyond doubt that their operations were not conducted on any form of profit-making basis, and indeed, any net surpluses arising out of their operations could not be distributed to their members, nor could their surplus assets. At present, surpluses arising out of their underwriting funds—the premiums or subscriptions, less the benefits—are free from tax. But they pay tax on investment income or on income arising from other sources.
    If the Clause is passed unchanged I am advised that in future any surpluses which arise out of the underwriting fund will be taxable and, further, that if they are so unfortunate as to have a deficit in their underwriting fund they will not be able to set it off against any investment income they receive, because under Section 20 of the 1960 Finance Act, which would otherwise allow this, an organisation benefits only if it can show that it is trading at a profit and is a commercial undertaking, or is endeavouring to trade as such. That is not the case with a provident society.
    It is, therefore, caught both ways. For the first time it is to be taxed on its surpluses, if any, on underwriting income, and it is also caught because, unlike a commercial undertaking, it will not be able to offset any deficit on its underwriting fund against investment income. When the Chancellor introduced the Clause I am sure that it was not his intention to penalise mutual insurance societies or provident associations, which do excellent work and render valuable service to the community. I am certain
    1386
    that now that this problem has been brought to his attention he will, on Report, introduce the necessary Amendment to make it clear beyond doubt that these societies and associations will not have their present tax position changed.
    Mr. Bingham: I want to make one or two points. I agree with my hon. Friend the Member for Stratford-on-Avon (Mr. Maude) that this is a bad Clause. It is vague in its wording, it is incomprehensible in parts, and in those parts that can be comprehended it seems to be contradictory. I cannot allow this opportunity to pass without referring to the fact that the Clause is an example of modern darftsmanship at its worst. I hope that something will be done to make the Clause comprehensible not only to hon. Members but to the lay public, and also to the accountancy world whose members will have to try to interpret it.
    Two accountants with whom I am acquainted have read the Clause, and both in a particular case reached a conclusion exactly opposite to that which my hon. Friend the Financial Secretary has announced, that the concern I referred to at an earlier stage will be caught. I am now glad to be told that it will not be caught, because of the wording.
    This is not a problem that has come before the House for the first time. In 1933 Parliament passed the Finance Act and made a complete air shot in attempting to deal with the problem. Then in 1920, when corporation profits tax was introduced, this problem had also arisen. Parliament then wanted to tax surpluses arising from mutual trading concerns, and it did so in simple terms, which were considered by the House of Lords in one case and said to have a clear meaning. The relevant words were:
    "Profits shall include in the case of mutual trading concerns the surplus arising from transactions with members…"
    I should have thought that that wording was comprehensible and capable of exact qualification and exemption, where necessary. It is a much more suitable basis on which to draft the Clause than the present one, which is not clearly understood by any hon. Member who has spoken so far. There are all sorts of difficulties which might occur and one does not know whether they will occur in practice, because no

    1387
    one knows what interpretation individual inspectors of taxes will seek to put on this Clause.
    In the 1920 Act the accent was on mutual trading concerns, which served to emphasise one point which I think should be emphasised. It is hinted at vaguely in the Clause, but it is not clear whether it is intended—namely, whether it is only concerns which have a whole or main activity of mutual trading which should be caught. Some trade or professional organisations carry on some form of subsidiary activity such as selling forms to their members. I believe, for example, that the Royal Institute of British Architects supplies building contract forms to its members. That would be trading, although the Institute would probably not be caught because of the wording of Clause 19. I know that they are exempt for other reasons, but agricultural shows or agricultural co-operatives, in which the trading element is quite substantial, would, but for the exemption, be brought in, although their main activity would not be trading. I ask that consideration be given to making quite clear that the first qualification for admission to the provisions of Clause 19 shall be that the trading activities should be the main, substantial or predominent activity of the concern in question.
    My second point concerns the segregation of trading from non-trading activities of mutual concerns which are within the Clause. Although I do not know much about them, I select an agricultural co-operative as a good example to illustrate the general point. Such a co-operative may buy, for example, apples from its members and sell them, and that would be a trading activity. It might also engage in activities connected with publicity and general agricultural administration. According to the wording of Clause 19, it is fairly clear that once it has been established that such a co-operative is carrying on a trade, all its receipts from both non-trading and trading activities will be taxed. It will probably pay tax on the aggregate surplus of its trading and non-trading activities.
    To guard against that I suggest that there should be done in connection with
    1388
    this Clause what is already done in connection with clubs which receive a substantial number of visitors so that this activity becomes a trading activity. There should be an apportionment between trading activities or profits and non-trading profits. Only those profits which arise from trading should be brought in. My first point, therefore, is that there should be some gateway to bring in those organisations whose main activity is trading. Secondly, the non-trading activities which lead to profits should be excluded from the computation of profit.
    My third point is that there should be a clear list of exemptions, indicating those bodies which it is intended shall be exempted. We are told that clubs may be exempted and I know that this is to be reconsidered. I suggest that there is a clear case for exempting clubs. The tax position in respect of clubs is perfectly satisfactory under the existing law. Their trading activities are taxed and their non-trading activities are not. Any tampering with club law would lead to considerable confusion, dissatisfaction and injustice. There should be a clear list of exempted organisations. I suggest that trade associations and those I have already mentioned might be considered for exemption. If the Financial Secretary feels that he can accede to the tenor of my remarks, no one will be more contented than I, but, I think in common with everyone who has spoken on this subject, I feel that Clause 19 has so many defects that it requires drastic reconstruction.
    10.15 p.m.
    Sir Douglas Glover: I wish to congratulate my hon. and learned Friend the Member for Liverpool, Garston (Mr. Bingham), who for the first time has made this Clause intelligible to me. When I read it I was very worried as to what the implications of the Clause were and, frankly, I did not understand it. After listening to my hon. and learned Friend and to my hon. Friend the Member for Stratford-on-Avon (Mr. Maude), I realise the great implications of the Clause. I was not happy about it when I read it in the Bill. I hope that the arguments which have been put forward and which appear to be conclusive will be taken into consideration before we reach Report.

    1389
    If they are not taken into consideration, and if there should be a division of opinion in this House on the Clause as at present drafted, with all the ramifications to which my hon. Friends the Members for Garston and Stratford-on-Avon have referred, I shall find it very difficult to support the Government on the implementation of this legislation. [HON. MEMBERS: "Oh."] Hon. Members opposite may make cheap party nonsense about a division of opinion in Committee, but the hon. and very thin Shadow Chancellor would have done better if he had been awake instead of asleep on the Opposition Front Bench. References have been made to "this tired, exhausted Government"—
    Mr. Charles Loughlin: How many times did the hon. Member for Ormskirk (Sir D. Glover) vote against the Government in the last few months? Will he tell us?
    Sir D. Glover: The occasion to which the hon. Member is referring was one on which I supported the Government. I made it clear—
    The Deputy-Chairman (Sir Robert Grimston): Order. We are not discussing the r.p.m. Bill now.
    Sir D. Glover: I apologise, Sir Robert, but I think you will admit that I was under certain provocation from the uninstructed hon. Members of the Committee, many of whom have been in this House for many years but do not understand the proceedings. They put themselves forward as an alternative Government, although after years in the House they do not know how to conduct proceedings. I revert to the hon. Member for Cardiff, South-East (Mr. Callaghan) who, as I say—
    Mr. Callaghan: I am not in the Bill either.
    Sir D. Glover: The reply to that is, thank goodness, because any activity in which the hon. Member takes part is certain to end in disaster. I am delighted that he is not part of the Bill because, as a result, the Bill has a reasonable chance of being a success.
    I now revert to the Bill and the Clause under discussion, despite the enormous provocations from irresponsible Members
    1390
    opposite. I have made my point—that my hon. and learned Friend the Member for Garston and my hon. Friend the Member for Stratford-on-Avon have made the point of this Clause clear. There is worry about it, and I hope that my right hon. Friend will look at it very seriously, and at its implications, between now and Report, and I hope that by Report we shall have our fears put at rest.
    Mr. Green: Perhaps I should start by saying what may not be too apparent from some of the points made—that I believe that it is common ground to both sides of the Committee that we ought to stop up a clearly signalled avoidance hole which was shown by the Staffordshire case. There is common ground on both sides of the Committee about this, even if at times it has not appeared to be so from the points which have been made.
    The way in which this piece of avoidance is most easily contrived is if a mutual society proceeds to charge a higher premium or some other kind of charge than is warranted by the risk purported to be covered or the service purported to be rendered. The accumulated surpluses have a double effect, because the premium can be charged as a business expense in most cases, too, and therefore may be tax-free twice, since these accumulated surpluses do not themselves carry tax. On cessation of trade, one has a nice capital distribution at one's disposal. This is the simplest possible way in which I can explain what is a potentially large device of avoidance, and I think that both sides of the Committee desire to stop it.
    Having said that and, I hope, demonstrated unity on both sides of the Committee in the intention of the Clause, perhaps I may have a brief word on the points raised. The hon. and learned Member for Kettering (Mr. Mitchison) raised a question about co-operative societies. He told me that the fact that they are already taxed under a different guise was not in his view sufficient, and he wanted something specific which would protect them from being the victims of what I think is called the double option. I do not think that I am misquoting what he said and certainly I am not misinterpreting it.

    1391
    I will look at that question. I have an assurance that they could not be subjected to a second option, but I will look at the matter again and make as such sure as I humanly can that co-operative societies are not suffering a penalty as a result of this Clause which nobody has the smallest intention of putting upon them. I will most certainly look at that. If between now and Report I can make that plain and spell it out. I shall seek to do so.
    My right hon. Friend the Member for Thirsk and Malton (Mr. Turton), my hon. and learned Friend the Member for Liverpool, Garston (Mr. Bingham) and my hon. Friends the Members for Wycombe (Mr. John Hall) and Stratfordon-Avon (Mr. Maude) were, I think, saying, "Although your general purposes are acceptable and agreeable to us, you are catching in the mischief of this Clause some extremely admirable and wholly ethical operations." In response to them I will say that my right hon. Friend the Chancellor is genuinely and personally interested in securing an effective tax avoidance Clause, and he does not desire to drag other bodies artificially into taxation—I stress the word "artificially"—any more than he desires people artificially to escape tax. My hon. Friend the Member for Stratford-on-Avon perhaps gave me some hope that we might between now and Report come to an amicable solution when he pointed out, for example, that the N.F.U. very properly hived off its commercial activities. This is fine. If it is left only with activities that on any reasonable definition are not trading, on what I have said on the Clause previously they will not be caught. We must make this as clear and as plain as we can.
    Mr. Maude: My hon. Friend said that one of the most dangerous methods by which the stage could be set for this form of tax evasion was by the charging of unduly high premiums which would build up a surplus which could then be distributed as capital. My hon. Friend will recognise two things. First, if very high premiums are charged, in the meantime the competition of commercial companies would tend in cases such as the N.F.U. and others to drive business away and cause them to go
    1392
    elsewhere in what is a very competitive field. Secondly, surely it must be possible to catch these at the terminal distribution stage without necessarily catching them annually.
    Mr. Green: I think that the first leg of my hon. Friend's argument, namely, that this is a competitive business, is one of the safeguards when considering the drafting of a Clause such as this. That is genuinely so. If competition is to be flouted by a deliberate device, it almost certainly shows itself as a deliberate device.
    My hon. Friend has drawn my attention to the possibility of dealing with the matter by directing attention primarily, though perhaps not solely, to the terminal distribution when made. I will certainly consider the matter. I am not too happy about it off the cuff.
    I hope that the Committee will accept my assurance that my right hon. Friend the Chancellor of the Exchequer is aware of the difficulties involved in the Clause. His attention has been very specifically drawn to them tonight. He will certainly take into account everything that has been said. I hope that at the end of the day he will have the support of the House of Commons in stopping tax evasion. My right hon. Friend will certainly do his level best to ensure that those organisations which are not engaging in mutual trading and thereby giving rise to normally taxable profits are not caught within the mischief of the Clause artificially and unnecessarily. I hope that with that assurance and a further very close look at the matter we may now pass on.
    Mr. John Hall: I hope that in considering this my hon. Friend will bear in mind that I pointed out to him—I stress it again, in case it has escaped his notice—that provident associations are forbidden by their constitutions from distributing their assets to their members; they must pass them on to similar organisations with identical constitutions.
    Mr. Green: Where the nature of the constitution prevents abuse and avoidance, I am sure that the organisation could not be damaged by a Clause of this kind. If its constitution is such—and if it keeps to its own rules—that it

    1393
    cannot in practice indulge in trading of a kind which will build up the assets for subsequent distribution, I would think—this is only my opinion—that they would not be caught in any case.
    Question put and agreed to.
    Clause ordered to stand part of the Bill.

    Clause 20.—(AMENDMENTS OF SUGAR ACT 1956.)
    10.30 p.m.
    The Joint Parliamentary Secretary to the Ministry of Agriculture, Fisheries and Food (Mr. James Scott-Hopkins): I beg to move Amendment No. 71, in page 23, to leave out lines 1 to 3 and to insert:
    "orders under subsection (2) of this section shall be included among the orders to which section 33(2) of that Act (which makes certain orders subject to annulment in pursuance of a resolution of either House of Parliament) applies."
    This is a technical drafting Amendment. Its purpose is to ensure that Orders made under subsection (2) shall be subject to the same negative Resolution procedure in Parliament as already applies to Orders made under Sections 14 and 15 of the Sugar Act, 1956. The original wording might have been read to mean that these Orders should not be subject to any Parliamentary procedure. This is purely a clarifying Amendment.
    Amendment agreed to.
    Clause, as amended, ordered to stand part of the Bill.
    Clauses 21 and 22 ordered to stand part of the Bill.

    Schedule 8—(MODIFICATION OF ENACTMENTS FOR PURPOSES OF SECTION 22).
    The Economic Secretary to the Treasury (Mr. Maurice Macmillan): I beg to move Amendment No. 25, in page 36, line 11, at the end to insert:
    3. Part III of Schedule 11, so far as applicable in relation to securities of the United Kingdom Government entered in the register of the Bank of Ireland in Dublin shall apply in relation thereto notwithstanding its repeal by the Statute Law Revision Act 1950.
    This is purely a drafting Amendment, as is the next. Clause 22 applies various items of United Kingdom legislation affecting the National Debt and United Kingdom Government securities held in
    1394
    the Bank of Ireland register in Dublin. The Schedule lists modifications of the National Debt legislation consequential on Clause 22 and which apply certain items of United Kingdom legislation to those securities. These two Amendments correct what were, frankly, two small oversights in drafting this Schedule, and, in moving them, I ask the indulgence of the Committee for this omission.
    Amendment agreed to.
    Further Amendment made: In page 36, line 16, after "and", insert "paragraph 6 of Part I of".—[Mr. Maurice Macmillan.]
    Schedule, as amended, agreed to.
    Clauses 23 and 24 agreed to.
    Mr. Boyd-Carpenter: I beg to move, That the Chairman do report Progress and ask leave to sit again.
    I think the Committee will feel that we have made very reasonable progress during the day—and I am sure the hon. Gentleman the Member of Sowerby (Mr. Houghton) would not regard it as unreasonable. It would be for the convenience of the Committee if we were to be able to start afresh next week on the new Clauses.
    Question put and agreed to.
    Committee report Progress; to sit again Tomorrow.

  EMERGENCY LAWS (RE-ENACTMENTS AND REPEALS) [MONEY]
  Resolution reported,
  That, for the purposes of any Act of the present Session to repeal the remaining Defence Regulations (that is to say the Defence Regulations set out in the Emergency Laws (Repeal) Act 1959), and to re-enact certain of those Defence Regulations with modifications, it is expedient to authorise the payment out of moneys provided by Parliament of any expenses incurred by any government department which are attributable to the provisions of the Act.
  Resolution agreed to.

  NEW FOREST [MONEY]
  Resolution reported,
  That, for the purposes of any Act of the present Session to alter the perambulation of the New Forest, to make further provision

  1395
  for the New Forest, to amend the New Forest Acts 1877 to 1949 and for purposes connected with the matters aforesaid, it is expedient to authorise the payment out of moneys provided by Parliament of—

  (a) any expenses incurred under the said Act by the Minister of Agriculture, Fisheries and Food;

  (b) any increase attributable to the said Act in the sums payable out of moneys so
  1396
  provided under Section 17 of the Ministry of Transport Act 1919 or Section 236 of the Highways Act 1959; and

  (c) any increase attributable to the said Act in the sums payable out of moneys so provided by way of Rate-deficiency Grant or Exchequer Equalisation Grant under the enactments relating to local government in England and Wales or in Scotland.

  Resolution agreed to.

  HOSPITAL BEDS, CROYDON
  Motion made, and Question proposed, That this House do now adjourn.—[Mr. Pym.]
  Mr. Frederic Harris: I am grateful for this opportunity to raise what is unquestionably a constituency problem, but one which has worried me considerably for quite a long period. It is a problem which affects a large number of people in my area; namely, the shortage of hospital beds in the Croydon area.
  Since 1948, we are told, about 40,000 new hospital beds have been provided throughout the country in line with the increasing population. To have kept pace with this general improvement Croydon should have had an additional 200, but while in 1951 Croydon had 1,651 beds, by 1963 the number had fallen by 143 to 1,508. While allowing for many of the various medical reasons why one can claim that hospital beds are, fortunately, not so much needed now as they were, say, 10 years ago, there is still little doubt that Croydon has not had its fair share of the necessary improvement that has gone on.
  I have had much correspondence about this matter with both my right hon. Friend the Minister of Health and my hon. Friend the Joint Parliamentary Secretary, who will be replying to this debate. Although my right hon. Friend obviously does not completely agree with all my figures, the Joint Parliamentary Secretary will recall that he admitted in a letter which he sent me on 17th April last that on Croydon's present population there is definitely a deficiency of about 50 acute geriatric and maternity beds. This was, in my view, a real admission of shortage.
  I was disturbed to find that my hon. Friend also had to convey to me the fact that the South West Metropolitan Regional Hospital Board, which is responsible for this area, has no short-term plans for an immediate increase in the number of hospital beds in the Croydon area. In that letter my hon. Friend went on to say that planned developments at Mayday Hospital, which is in my constituency, and which are planned to
  1398
  start some years ahead, will eventually result in an increase of about 100 beds.
  In considering the long-term plans for Mayday Hospital I respectfully suggest that those plans may not even now be providing for sufficient maternity beds. In any case, I stress that my hon. Friend's letter talks about "some years ahead" and this seems to be the only crumb that has been held out. This is a completely unsatisfactory position.
  Because of the limited time available tonight I will not go into the reasons for the reduction in the number of beds, but many reasons could be advanced, including closures, minor structural alterations and other general adaptations and improvements to the existing local hospitals. I also fully realise the difficulties of recruitment of nursing and ancillary staff, which goes hand in hand with this difficult problem. It is a vicious circle and unless there is a determined effort to provide additional beds to meet the needs of this important area there will never be the necessary pressure for recruiting essential staff. The Minister has advised me that even in this regional area there are other estimated deficiencies of beds as great as those in Croydon, but I respectfully suggest that two blacks do not make a white, and I want the position in Croydon to be put right as soon as possible.
  Because of lack of time I shall not quote the various long-term developments which I know are planned but, as has already been admitted—and this is the vital point—there are no short-term plans. My hon. Friend will no doubt tell us something more definite about these long-term plans. I realise, too, that it will be claimed that there is urgent need for other improvements in our existing hospitals, such as out-patient and accident services, which might, perhaps, be said to have priority, but I cannot see why the problem cannot be tackled as one. Is the Minister seriously restricting the regional board's present capital expenditure plans?
  I have gone to some lengths to discuss the problem with doctors in the Croydon area, and there is no doubt at all that there is deep concern about the length of time that patients have to wait, not only for admission to hospital but for out-patient appointments, which are the

  1399
  usual prerequisite to hospital administration. Croydon doctors are compelled to use hospitals outside the area and this, in turn, causes difficulties to the patients and considerable problems for the doctors.
  Some doctors, I know, have even had difficulty in getting emergency obstetric cases admitted to local hospitals, and have frequently had to use the emergency bed service. They do not like using that service, as they cannot exercise any choice of the hospitals to which the patients are to be admitted. There is also the uncertainty of the patients' destinations, which causes considerable distress and concern both to patients and to their relatives. It is obviously wrong that in many cases hospital admission can be secured only when the patient's condition has reached an urgent and emergency stage. Even then, admission often cannot be obtained to a local hospital.
  I understand, too, that there is a definite policy these days to move some patients out of hospital as soon as possible, presumably to ease the pressure on beds. Apart from the person who particularly wants to go home, I should have thought that the patient is best in hospital, where all the facilities are available for a final cure. Rightly or wrongly, this seems to me to be rather a policy of desperation, and it adds to my concern over the whole problem.
  As I say, I fully realise that, tied up with all this, is the complex question of the recruitment of nursing and ancillary staff. Although we have a wonderful number of young girls always prepared to go into nursing as a vocation, it is surely not fair just to rely on those people. I understand that we also have to depend a great deal on nurses from overseas, who likewise do a first-class job. I do not doubt that the status of nursing and the ancillary services should be raised, and the remuneration and conditions of service improved in order to induce more people to enter. The Minister might also consider the need to establish a nurses' training centre in Croydon, which would be a really important development.
  Whilst making all these observations, I want to make it abundantly clear that I think that all those involved in the provision of the health services in the area do an excellent job. I have always found
  1400
  them extremely helpful whenever I have had to approach them, but if they do not have all the tools necessary they cannot possibly provide the 100 per cent. service that we all want to see achieved for the people of Croydon. In fairness to them all, I make this strong plea of my hon. Friend by asking him whether he can tell us what he is going to do about it, for the inspiration and indeed the approvals must of course come from the Minister himself.
  10.45 p.m.
  The Joint Parliamentary Secretary to the Ministry of Health (Mr. Bernard Braine): Before I speak about some of the particular matters which my hon. Friend has raised I should like to make it clear, in case there is any doubt on the point, that there has always been a first-class hospital service in Croydon, and by any yardstick Croydon has a good hospital service today. I do not wish to be unkind to my hon. Friend, who I know has raised this matter tonight in the interests of his constituents, but he should be on guard against exaggerating difficulties by making assumptions based on purely mathematical calculations.
  I can illustrate the dangers by looking at my hon. Friend's own constituency of Croydon, North-West. Here are located the Mayday Hospital, which provides acute and maternity services, St. Mary's Maternity Hospital, and Queen's Hospital which provides geriatric services. Together these three hospitals have 1,023 beds for a constituency population of about 58,000. On the normal ratios of beds to population my hon. Friend's constituency, taken on its own, might be said to have three times as many beds as would normally be provided. We know of course that this is not the case, since the service provided by these three hospitals extends to people beyond the constituency boundaries. I thought, however, that the point was worth making as an illustration of the danger of relying on a simple application of statistics without taking account of other factors.
  My hon. Friend has suggested that because some 40,000 additional beds have been provided in the country as a whole since the National Health Service was introduced, Croydon, which includes three constituencies, ought on

  1401
  the basis of its population figures to have an additional 200 beds. This I suggest is just the kind of mistaken conclusion that results from a simple application of statistics. I will say something in a few moments about additional beds that have been provided in the country, but let us look first at the position in the Croydon area.
  The three hospitals which I have mentioned are not the only hospitals that serve the population of Croydon. The Croydon General Hospital, the Purley and District War Memorial Hospital, and the Waddon Hospital lie in the constituency of my hon. Friend the Member for Croydon, South (Sir R. Thompson) who has himself held my present office and has always shown great interest in health and hospital matters. Norwood and District Hospital is in the constituency of my hon. and gallant Friend the Member for Croydon, North-East (Vice-Admiral Hughes Hallett).
  Taken together, these hospitals provide a total of 1,505 beds for a total population of 293,000. Taking the whole of the Croydon area, therefore, there is an overall shortage of about 50 beds, as my hon. Friend has said, on the basis of the usual ratios. But these ratios are not strictly applicable in a large urban conurbation such as Croydon, where people naturally tend to go to the most convenient hospital whether it is strictly in their own area or not, and where teaching hospitals beyond the borough boundaries are within easy reach. We know that minor shortages and minor surpluses occur constantly from one area to another.
  There is a need for maternity beds in Croydon, as in some other areas, and additional beds are now being provided. My hon. Friend referred to a letter which I wrote to him but he did not mention a subsequent letter which my right hon. Friend wrote to him telling him that this additional provision was being made.
  Where there are waiting lists for a particular operation it is common practice for a consultant who has two appointments, possibly in Croydon and Lewisham, to arrange for a patient to go to the hospital which has the shorter waiting list. This is surely a sensible arrangement which ensures that patients
  1402
  do not have to wait for a bed while one is available for them elsewhere. It does not necessarily mean that there are not enough beds for a particular specialty.
  My hon. Friend has mentioned the additional hospital beds provided since 1948. At the start of the National Health Service, the scale of hospital service provision in various parts of the country was patchy, with some areas being very poorly served. We have endeavoured to remedy this situation and, by September last year, the hospital service had provided a further 41,000 beds by major building schemes, while other schemes in progress at that date will provide an additional 9,600 beds. Naturally, these schemes to provide additional beds are being carried out in the areas where there is the greatest need, that is, where there were either no beds at all or where there was a very considerable shortage. As Croydon was not one of these areas—indeed, as I said at the outset, it has been quite well served for years—there has been no need to embark on such a scheme there. There is, however, in many areas such as Croydon a need for more operating theatres and supporting services and outpatient departments.
  It is for this reason that the Regional Hospital Board has given priority to the building of the new out-patient, casualty, pharmacy and pathological department, at Mayday Hospital. Although some delay was at first caused because of difficulties experienced by a private architect employed by the Board, this scheme has since proceeded with all speed and building started in July last year.
  The cost of the scheme at the Mayday Hospital is half a million pounds, a figure which was arrived at two years ago and within which we still hope to keep. In the hospital service the main task in the first 10 to 15 years of the National Health Service was to fill in the gaps and to make good so far as possible many of the dilapidated facilities which existed when the Service came into being. We are now, however, moving into a period of major hospital development and the pace is accelerating.
  In 1962 we started 14 new or substantially remodelled hospitals; in 1963 we started another 21, and this year we shall start on a further 28, and already we are enjoying the first benefits of a

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  plan to provide the people of this country with the finest hospital service in the world. But, clearly, this cannot be achieved all at once. In each area the Board has to consider which is the most urgent priority. In Croydon, as I have said, it is out-patient facilities and the necessary supporting services. The new out-patients' department at Mayday will contain theatres which will help to meet the need for them in the hospital generally.
  I think my hon. Friend knows that major developments are under way in the region, including a new hospital at Crawley, the final stage of which will begin next year. It will cost £3 million and it will relieve the load on Croydon which at the moment takes paients from the north of Redhill who will be catered for at Crawley. As in some other areas, there is a shortage of nursing staff in Croydon. Some beds are closed at Croydon because of the shortage, but the hospital authorities are doing all they can to remedy this.
  My hon. Friend has said that we should consider the establishment of a nurses' training school in Croydon. I am surprised that he should make this suggestion because I am advised that Croydon hospitals have no fewer than seven nurse-training schools. Mayday Hospital and Croydon General Hospital have full training schools for State registered nurses while Queen's Hospital, Purley and District Hospital and Waddon Hospital have training schemes for enrolled nurses and Mayday Hospital and St. Mary's Hospital have full midwifery training to the standards of the Central Midwives' Board. These seven training schools ensure that Croydon is able to train every suitable girl who wishes to take up nursing. I hope that what I have said will serve to reassure my hon. Friend on that score.
  My hon. Friend has referred to nurses in glowing terms, and he is right to do so. I gladly join him in paying tribute to the magnificent job being done by the staff of all hospitals in Croydon.
  The two hospital management committees of Croydon and Warlingham Park were amalgamated in April to form one larger group. This is a development which should broaden the basis of
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  administration as well as provide more flexible arrangements to be introduced for elderly and mentally ill patients. My hon. Friend will know of the close co-operation which has always existed beween the Croydon County Borough Council, the Croydon Hospital Management Committee and Warlingham Park Hospital. This co-operation bodes well for the hospitals in the area and for the service that they will afford their patients in the future.
  I come now to the long-term plan for the future of the hospitals in the Croydon area. The Regional Hospital Board's planning centres round the upgrading and expansion of the Mayday Hospital in my hon. Friend's constituency to provide 800 beds for all types of patient. The hospital authority is now working on further plans for the hospital, and these will probably comprise a new surgical block of 350 beds, eight operating theatres and other departments. This scheme has, of course, to be fitted into the board's plans for the whole of its region and cannot be started immediately. I should be less than frank if I did not say that it will take some years to plan all the details of the scheme and to carry out the work necessary on the sketch plans and working drawings. The board is likely, however, to be able to fit the scheme into its programme in the second quinquennium as proposed in the Hospital Plan.
  My hon. Friend is probably aware that my Department makes an allocation to each hospital board to carry out its capital development schemes. He was concerned about this. We increase the amount which we allocate to boards for capital development each year. Within this allocation, it is for each board to determine the priorities of schemes within its own region. This is, after all, a matter with which they are best placed to deal. It is the kind of task which they exist to perform.
  Further stages of the development of the Mayday Hospital are envisaged so that, on completion, the whole hospital will, in fact, have been rebuilt. When all this has been done, and it will, of course, take many years, the Hospital Plan envisages that a further new hospital will be built between Croydon and Redhill.

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  I do not, therefore, think that there is much justification, taking the hospital picture for the country as a whole, for some of the charges which my hon. Friend has made tonight. I am glad that he has raised this subject because he has given me the opportunity to put the matter into perspective and, I hope, to give him home helpful information. Having said all that, however, I would not wish my hon. Friend, who, like my hon. Friend the Member for Croydon, South, has taken a very keen interest in the development of the hospital service in Croydon, to think that we
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  are in any way complacent about the service in this area. Here, as in every other part of the country, there is room for improvement. We are extending our provision year by year in accordance with priorities which are very carefully worked out, and my hon. Friend can be assured that Croydon will get a reasonable share of available resources.
  Question put and agreed to.
  Adjourned accordingly at one minute to Eleven o'clock.