§ Sir Donald Kaberry (Leeds, North-West)
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 such1361club, 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 (Liverpool, Garston)
I support the Amendment. During the Second Reading of the Finance Bill the Financial Secretary said that the Clause would not affectthe 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 (Horsham)
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 tosocial, recreational or educational facilitiesincludes 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 (Stratford-on-Avon)
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 whicheven 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.
1369 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. 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 1371 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.
§ 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. Mitchisonrose—
§ 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.
§ 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.
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 insuranceand 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 (Thirsk and Malton)
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.
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 transactionsand 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.
1384 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 (Wakefield)
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 (Ormskirk)
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 (Gloucestershire, West)
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—
§ 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—
§ 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.