§ The Chancellor of the Exchequer (Mr. James Callaghan)Many firms are very scrupulous about business entertainment. But there has 252 been widespread criticism for some years of the habit in some circles of lavish entertainment by businessmen of one another on the pretext that it is necessary to create goodwill to secure a customer. Something which originally began as the hospitable offering of a modest meal to a client at small expense has grown to such a pitch that luxury penthouse flats are kept on business expense accounts, yachts are hired, and even Scottish landlords can turn a penny by letting their grouse moors. And provided that this is done in the sacred name of business entertainment, the taxpayer pays 10s. or more in every £ of the cost. No doubt because of this fact, expense account living, as it has come to be called, is often on a scale which is a scandal, and is felt to be so not only by the non-business world but by many firms in industry which have a different code of conduct.
In my view, the time has come to apply a radical solution to a problem which is not only a fiscal but a social one. I propose that, subject to a limited exception for the entertainment of overseas buyers, expenditure on business entertainment incurred after today should, in general, be completely disallowed for tax purposes. So far as possible, the disallowance will be made in computing the business profits; this will apply both to entertainment which a business pays for direct and also, for example, to expenditure which is incurred by a director or employee and reimbursed by the employer. Where, however, the cost is borne by the director or employee out of inclusive remuneration, it will be disallowed in computing his liability.
I recognise that this general disallowance of business entertainment for tax purposes will not prevent firms from continuing to entertain on a lavish scale if they desire to do so. But at least the rest of us will have the satisfaction of knowing that from now on the businesses in question are paying for it out of their own profits and are not being heavily subsidised by the Exchequer.