FINANCE (No. 2) BILL

HC Deb 05 July 1965 vol 715 cc1204-42

As amended, considered.

7.32 p.m.

The Financial Secretary to the Treasury (Mr. Niall MacDermot)

I beg to move, That Amendments to Clause 1, Schedules 1 to 4, Clauses 2 to 5, Schedule 5, Clauses 6 to 41, Schedules 6 to 9, Clauses 42 to 83, Schedules 10 to 20, Clauses 84 to 90, Schedule 21, be considered in that order, and that new Schedules be brought up after Amendments to the Clauses and Schedules. I need only say that this Motion follows in general the order in which we discussed the Bill in Committee. I think that it will be for the convenience of the House to follow that order again, particularly as we have reprinted the Bill in that order.

Question put and agreed to.

where dividends are paid for the same period in more than one year of assessment, the said amount shall be apportioned rateably between the parts paid in each of those years.

(4) The payment that may be made under this section in respect of a company's dividends shall be an amount not exceeding for the year 1966–67 three-quarters, for the year 1967–68 one-half and for the year 1968–69 one-quarter of the amount (if any) by which income tax at the standard rate on the amount ascertained in accordance with subsections (2) and (3) above exceeds the yield to the company in that year of a water rate of twopence in the pound.

(5) No payment shall be made for the benefit of a company under this section except on a claim made to the Minister of Housing and Local Government in such manner, and supported by such evidence, as he may direct; and it shall be lawful for the Board and their officers to disclose to the Minister such particulars as he may reasonably require for determining whether any, and if so what, payment is authorised by this section in the case of any company.

(6) In relation to water companies whose area of supply lies wholly or mainly in Wales references to the Secretary of State shall be substituted in this section for the references to the Minister of Housing and Local Government.

(7) In this section "water company" means any company (being a body corporate) which is a statutory water undertaker for purposes of the Water Act 1945.

(8) Notwithstanding anything in the Government of Ireland Act 1920 the Parliament of Northern Ireland shall have power to make laws for purposes similar to the purposes of this section.—[Mr. MacColl.]

Brought up, and read the First time.

The Joint Parliamentary Secretary to the Ministry of Housing and Local Government (Mr. James MacColl)

I beg to move, That the Clause be read a Second time.

Mr. Speaker

I would suggest that the discussion on the new Clause be extended to the Amendments to it in the name of the hon. Member for Gloucestershire, South (Mr. Corfield), in line 11, leave out from "year" to the end of line 21; in line 26, leave out "subsections (2) and (3)" and insert "subsection (2)"; in line 27, after "a" insert "domestic"; in line 27, leave out "twopence in the pound" and insert: of such amount as the Minister of Housing and Local Government may prescribe in any particular case", and also new Clause No. 42—Water Companies—if that be thought convenient.

Mr. Edward Heath (Bexley)

May I ask for your guidance, Mr. Speaker? Naturally, we are hopeful, and, indeed, expectant, that the Government will accept the Amendments, but if that should not be so, may we reserve the right to have Divisions on some of them?

Mr. Speaker

Yes.

Mr. MacColl

It has fallen to me to move this Clause, dealing with the transitional assistance to water companies. As the House no doubt knows, this matter arose out of a discussion which took place in Committee about the special position in which water companies would find themselves as the result of practice which they had very properly adopted in past years to minimise the amount of money they had to raise. Broadly, as I understand it, what happened was that they paid dividends by deducting tax net. They did not then have to account for the tax deducted to the Revenue because they had set-offs in other ways from capital allowances. The result was that this was all for the benefit of the consumer, because the consumer did not have to pay out of water rates the cost of this extra money which otherwise would have had to be raised. In doing that they were in a peculiar position rather different from that of the local authorities. This has come up now—

Mr. John M. Temple (City of Chester)

I apologise for interrupting so early in the hon. Gentleman's speech, and I am grateful to him for giving way, but I think that he said that water companies were in a peculiar position. I think that the hon. Gentleman would have to admit that they were in no different position from any other company setting off its taxation in a similar manner.

Mr. MacColl

No, but they were in a different position from local authorities who were providing the same kind of services. I do not know that the analogy with other companies is a very happy one because the whole case, really, is for treating them in a special way.

The proposals which my right hon. Friend suggests in this new Clause seem to us to be a very reasonable compromise to meet some of the main difficulties which have arisen. What is now proposed is that my right hon. Friend the Minister for Housing and Local Government should be able to make some payments to the Inland Revenue as compensation for the extra cost of the money which has to be raised and that will fall on his Vote and not on that of the Revenue.

To decide what amounts he has to pay there will, in respect of each water company, be an assessment made of the dividends which have been paid and from that assessment will be deducted two deductions. The first is that the amount of any franked investment income they receive—something for which they do not have to account. That seems reasonable, that that should be deducted.

The other deduction which is proposed requires a little more explanation and it is the 40 per cent. of the related profits on which the company is charged. That arose because under the present system the water companies are liable to pay Income Tax and Profits Tax, so if there were no deductions of this amount they would, in fact, be better off than other taxpayers. Therefore, it would not be right to leave an unqualified relief. The deduction which is mentioned here of 40 per cent. of taxable profits is designed to put them in the same position as other taxpayers, and it is based on the calculation of Corporation Tax at the highest rate it is likely to be. The point at which the company will break even under the new system is when it distributes approximately 40 per cent. of its net taxable profits. That is why it is accordingly deducted.

The next point, in subsection (4) of the new Clause, is that there will be a tapering of the payment—in the first year three-quarters, in the second one-half, and in the next one-quarter. That means that there will be a gradual assimilation of the position to that of other taxpayers, and it is only fair to say that that will be a burden on the people paying water rates. It is proposed to make a deduction from the payment in relief of the product of a 2d. rate. That is to cut out those cases in which the burden falling on the consumer is not going to be an unduly heavy one. The 2d. rate is a limited amount, and is thought to be an amount which reasonably can be carried.

Those are the main points of the new Clause. I think that there is an appreciation of the special difficulties of the water companies, and indeed of the water consumers. That is why my right hon. Friend the Chancellor has introduced this new Clause, and, from the point of view of the Ministry of Housing and Local Government, I appreciate what he has done in this matter.

Mr. Temple

Can the hon. Gentleman explain subsection (3), which is very complex and difficult, and which he slipped over without any explanation whatsoever?

Mr. MacColl

Subsection (3) provides the method of assessment of the profits. It is the working subsection which describes in detail how it is done.

Mr. F. V. Corfield (Gloucestershire, South)

I welcome the hon. Gentleman the Joint Parliamentary Secretary to the Ministry of Housing and Local Government in the well founded knowledge that, unlike his colleagues in the Treasury, he will be briefed by someone who knows something about water companies. It was evident during the Committee stage that his colleagues were not.

The hon. Gentleman said that the new Clause followed the debate in Committee of Clause 62 of the Bill. The Amendments which my hon. Friend the Member for Newcastle-upon-Tyne North (Mr. R. W. Elliott) moved in Committee were designed to deal with, and directed at, the problem of the burden of Corporation Tax rather than the problem of Income Tax. I said during the Committee stage that I had been invited to become President of the Water Companies Association, and, lest there by any of the sort of nonsense that we had at Swansea over the weekend, I want to make it clear that that is not a financial interest in any way at all, nor am I provided with any services, so my position differs from that of some of the people who talk about vested interests.

I believe that this is a matter connected with a public service on which the Government are making a grave mistake. The Amendments moved in Committee were directed to the burden of Corporation Tax which hit the statutory water companies in a peculiarly harsh manner because of their peculiar status. That status arises from the fact that they are under statutory control as to the amount which they may pay out in dividends. If they have to raise new capital, they have to put their issues out to tender or auction. They are also under statutory control as to the total amount of their reserves, the amount that can be transferred to reserve in any one year and the sum that can be carried forward in any one year.

If there is any income in excess of what is required to meet those commitments—dividends, interest on debenture, and allowable reserves—they are statutorily compelled to devote that surplus to the reduction of water charges and not to any increase in dividends.

During the Committee stage of the Bill I quoted a calculation which showed that under the new tax system introduced by the Bill it will be necessary to raise £284 in water charges for every £100 due on dividends. In other words, from a gross profit of £284 one deducts 40 per cent., which is £113 12s. in respect of Corporation Tax, leaving a sum of £170 8s. Income Tax on that at 8s. 3d. is £70 8s., leaving £100 available for dividends.

7.45 p.m.

As I tried to point out in Committee, it is clear that the main burden is caused by Corporation Tax rather than by Income Tax. This is a particularly vicious tax for a company devoted to a public service because it is a spiralling tax. To meet Corporation Tax, water charges have to be raised. As soon as they are raised the income is increased. As soon as the income is increased Corporation Tax is increased and the whole operation starts again in a vicious circle.

Naturally, any concession by way of tax of any sort, whether Income Tax or Corporation Tax, may help to ease the difficult position in which companies will find themselves, particularly during the transition period, but it is the incidence of Corporation Tax which causes the problem. It is for this reason that I have tabled new Clause No. 42. It is designed to put these companies in the same position as the Government have put local authorities or water boards constituted by a number of local authorities, which is the other form of water undertaking in this country.

As regards Income Tax, the companies have always recognised the logicality, however inconvenient to themselves, of the new provisions of Clause 43, and during the Committee stage I pointed out to the Chief Secretary that the last of the series of Amendments which we moved specifically provided that the statutory water undertakings should not be exempted from the liability to tax under that Clause. Despite that, the Chief Secretary devoted his whole argument to the Income Tax problem, which was not the subject of the Amendment, and I must therefore try again to explain the problem that arises with regard to Corporation Tax.

It is necessary to raise £284 for every £100 paid by way of dividend. To put this in a slightly different way, if we ignore the Income Tax altogether and account solely for the Corporation Tax, it is necessary to raise £166 13s. 8d. for every £100 of dividend. Thus, it is necessary to raise an extra £66 13s. 8d. as a result of the measures in the Bill with regard to Corporation Tax. This is being done at a time when the First Secretary of State is preaching from the house tops a lot of stuff about the stabilisation of prices. The only effect of these measures is a direct tax on the consumer of water because there is no other way in which the statutory water company can raise the money.

I think that it should be known that by these measures the Government are deliberately increasing water charges in the areas served by the water companies. It is noticeable that this increase is taking place only in those areas. In other words, the Government are putting water companies in a substantially less favourable position than local authorities and joint boards. Some water companies which have recently been expanding their undertakings by large capital investments may not for a period, but only for a period, be liable for the full 40 per cent. Corporation Tax, but whether or not they are depends solely on local needs, on the one hand, and the rate at which locally available sources of water can be exploited. This position is fortuitous; it does not reflect the efficiency of the company, but it will make all the difference as to the incidence of Corporation Tax.

It is quite clear—and I say this with respect to the Chief Secretary—that the Government did not understand the purport of the debate in Committee. As a result, the Water Companies Association asked the Chancellor to accept a deputation so that the problem could be discussed with representatives of the industry. All that we have had is the usual little acknowledgment card, and here we are, on Report, with no attempt at an explanation; merely an opportunity of discovering once again that the Government are not prepared to consult those who will be most concerned. It is not surprising that the Government now have the reputation of being against all forms of private enterprise. It is precisely this sort of thing which makes so utterly hollow the First Secretary's charge about the conspiracy of the Press and industry.

I am at a loss to know how I can explain the position in respect of Corporation Tax any more clearly, but I repeat that its only effect is to put a burden upon the consumer in direct proportion to the amount of the tax. I urge the Government, even at this late hour, to admit that this is something which is quite unjustifiable in respect of organisations which are responsible for a public supply, and are under a large measure of public control. I hope that when the time comes the House will accept new Clause No. 42, although we shall not be voting on it for some time.

I now turn to the Government's new Clause and my Amendments to it. I willingly admit that in assessing the relief provided for it is quite fair to deduct investment income, as provided for by subsection (2,a), but if there is to be a further deduction in respect of a 40 per cent. Corporation Tax the effect of the Clause will be to give the greatest relief to those who are least affected by the new provision and the smallest relief to those who are most affected by it. Those companies which, because of their investment allowances, will pay no Corporation Tax in the next few years will have the greatest relief, because no deduction will be made under subsection (2,b).

The purpose of my first Amendment is to delete paragraph (b) and the whole of subsection (3), which contain the provisions for deduction in relation to liability for Corporation Tax. Whatever the Parliamentary Secretary may have said about the present position in relation to Profits Tax, if Corporation Tax is a bind on those companies, despite the peculiar inappropriateness of this sort of tax, relief should be granted in relation to the amount of Corporation Tax likely to be paid, rather than the reverse.

The second Amendment is consequential upon the first, and the third seeks to clarify the situation. It is not always understood that when we talk about water rate we are talking solely about the means of raising money from the domestic consumer. The commercial and industrial consumer is charged from a meter by a system of water charges which is different. The fourth Amendment, like the third, refers to subsection (4). As I understand the position—and I think that I have understood it, in the sense that my understanding corresponds to that of the Parliamentary Secretary's—that subsection provides that after assessing the deduction authorised to be made by the new Clause, in accordance with subsections (2) and (3) there is, in effect, a further deduction, equivalent to the product of a 2d. in the £ water rate. This means that the further relief depends upon a large number of factors, which inevitably vary from one undertaking to another, and, again, have no conceivable bearing upon efficiency or inefficiency, or anything of that sort.

For example, the effect of this provision upon actual relief will depend on whether, for reasons dictated by nature or the distribution of population in the area of supply, a company operates in an area of high cost or of low cost—an area where the cost of conserving and distributing water is high, for geographical or population reasons, or particularly low. If it is low, and the water rate is low, a 2d. rate may represent a substantial percentage increase on the existing rate.

A number of companies have water rates which are round about the 8d. mark, and a 2d rate therefore represents a 25 per cent. increase. On the other hand, some companies have a 1s. 4d. water rate, in which case the percentage increase is reduced to 12½. I have no doubt that some local authority undertakings have a still higher rate.

The effect of this deduction will also depend upon rateable values in the area. If they are high a 2d. rate will yield a large sum and if they are low it will yield a proportionately smaller sum. This, again, is a matter that is wholly outside the control of a water company, and which has nothing to do with its operational efficiency.

Mr. J. T. Price (Westhoughton)

The hon. Member is pursuing a logical argument, which I am trying to follow. He has been well briefed on it. Since the hon. Member is referring to valuations and their relationship to the rates levied, it is an important factor to remember that water undertakings benefited greatly by the new Act which came into operation in 1963. To my knowledge many of them had an increase of about 300 per cent., on a valuation basis of the property in their areas, but they have not reduced the water rate proportionately to make up for the gap created.

Mr. Corfield

The hon. Member is right. But these provisions apply to all water undertakings and not merely to water companies. That is not the argument that I was trying to make. My argument is that if a water company has a relatively high rate, being in a highly industrialised area or an area with high rateable values, a 2d. water rate will represent a very different factor, for the purpose of this calculation, than if, through the accident of life, it were in an area with a predominantly low rate. That is the crux of the matter.

If there is a high proportion of industrial and commercial consumers, as opposed to domestic consumers, that will also make a difference. The water rate provides the means for charging domestic consumers. If a high percentage or proportion of a company's water goes to industrial consumers the water rate will be relatively less important than it is to a company which predominantly serves domestic consumers, and where the water rate will be the main source of income.

Mr. Norman Cole (Bedfordshire, South)

My hon. Friend may not realise that dividends are controlled, and that any benefit from the Act must have gone back to the consumers.

Mr. Corfield

That is so. Water companies are obliged to devote any benefit that accrues to them from the amenities that I have itemised to a reduction in the water rate.

Again, the effect of this 2d. factor will depend upon the financial structure of a company. A company that has raised its capital predominantly by the issue of shares will be in a different position from one that has raised its capital by means of debentures and fixed interest loans. A company with bulk supply agreements with neighbouring undertakings will probably have raised its capital in the form of issues of shares, and will therefore have increased sums payable in dividends, although mainly for the purpose of providing its neighbours.

The House will be aware that in many cases where available sources of supply are on the boundaries between water undertakings it is not unusual for the water undertaking in which the source falls to exploit that source to a much greater extent than is necessary for its own requirements, because it is cheaper, overall, to make a big reservoir than two small ones, and to enable neighbouring undertakings to benefit in return for contributions. This means that the capital cost must increase the issues of the company which makes the capital investment. This, again, could have a substantial effect on the whole sum calculated under the Clause. As a result, the whole sum payable in dividends can become inflated, well above the needs of a company for the supply of its own area.

Another defect of the Clause, although one which it is possible to put right by administrative arrangements is that, in order to declare the water rate, it will be necessary to know beforehand what the relief forthcoming will be. This is a particularly unhappy form for a Clause of this sort, where certainty in advance of requirements is of prime importance. I presume that there will be either some sort of estimate from the hon. Gentleman's right hon. Friend of the amount of relief forthcoming or there will be a series of post hoc adjustments which are never very satisfactory and always difficult to explain to an undertaker who supplies the public.

For all these reasons, I submit that this 2d. rate is wholly inappropriate. If it is to operate fairly and there is to be a minimum amount, which the Government think reasonable, by which the rate should go up, a minimum which the public ought to accept as a result of their taxation arrangements, it is absolutely essential that the burden imposed should have regard to the individual companies concerned. In other words, it is quite apparent that the relief must, to some extent, be tailored to the conditions under all the heads which I have mentioned which operate in each particular case.

8.0 p.m.

This is why I have put down the last Amendment, which substitutes for 2d. in the £ such amount as the Minister of Housing and Local Government may prescribe in any particular case. That would leave him open to provide a general formula which could, however, be adjusted on representations from the individual companies that it was wholly unsuitable to their particular structure.

There is very little to be said for a Clause in this form, which gives the whole as a discretionary power to a Minister, unless the Minister is to be given a discretion which is of some value in the circumstances of the case. I hope that this Amendment will be accepted.

The more one looks at this Clause—as at Clause 62—with the arguments of the Chief Secretary in Committee, the clearer it becomes that the Government do not understand the problem, although I know that the Joint Parliamentary Secretary, who, unfortunately, is not to reply to us, would at least be properly briefed. In view of the refusal of the Treasury to accept the proposition of a deputation and a discussion with the people in the industry, one has to wonder whether the Government even want to understand or care whether they do or not.

I hope that even at this late stage of the proceedings—although it may be a forlorn hope—the Government have listened to the arguments and that they understand that the problem is Corporation Tax more than Income Tax and that they will accept the Amendments, which will make the Clause much more satisfactory to do what it purports to do and, above all, accept new Clause 42, which goes to the root of the problem which the Government have failed to advert to at all.

Mr. R. W. Elliott (Newcastle-upon-Tyne, North)

When those of us on this side of the House put down our Amendments to Clause 62, we did so because we wished to emphasise that—as had been impressed upon us in various parts of the country by those concerned—statutory water boards were, through the Clause, placed in a comparatively unhappy position with regard to their consumers to those water undertakers who are local authority water undertakers.

We attempted, by way of our Amendments, to obtain the same exemption from Corporation Tax for the statutory water companies which was to be afforded to local authority undertakings. At the time, the Chief Secretary promised to examine our speeches, though he made it quite clear that he would not commit himself in any way. We are very grateful to him for that promise.

We waited with some interest to see the result of that study and what the further thinking which we asked the right hon. Gentleman to undertake on this matter would yield. I must confess that, having looked at the new Clause, I feel that he has had a very unsatisfactory new thought. As my hon. Friend the Member for Gloucestershire, South (Mr. Corfield) has well and truly pointed out, we tried to emphasise in Committee that we were concerned with Corporation Tax rather than Income Tax. This new Clause can give little comfort to such companies as my own in Newcastle-upon-Tyne and, I am sure, to companies in other parts of the country. I was distressed—as, I am sure, were many of my hon. Friends—to hear that the Government, the Chief Secretary and others concerned, had not seen the deputation which offered to see them on this subject. I should like to stress to the Chief Secretary the very real concern which people associated—

Mr. David Webster (Weston-super-Mare)

Is this complete lack of interest not shown by the fact that there is only one back bencher on the other side?

Mr. Elliott

As my hon. Friend pointed out, we began to suspect a complete lack of regard for the statutory water company and an emphasis in favour of the local authority undertaker in this matter.

I would impress on the Chief Secretary and the Government the fact that they should take heed of those concerned with the provision of water for one-fifth of this country's population under the working of the statutory boards. They are extremely concerned. I do not propose to follow my hon. Friend's excellent speech by covering again the case which I attempted to outline in Committee of the unfortunate effect of Corporation Tax on these companies.

The proposed deduction under subsection (2,b) will apply, it seems, only to those companies liable to Corporation Tax in the first three-year period. It is these companies which will be hardest hit. As my hon. Friend has emphasised, it is the customers of these companies—because of increased charges being the only source of increased revenue—who will suffer. It is companies affected by the combination of handing over that tax deducted from dividends and the paying of Corporation Tax who should obtain the suggested transitional relief, yet it seems that they are to be less favourably situated.

With regard to subsection (4), we can only presume that where the increased burden of taxation involves an increase of a 2d. rate or less, the consumer should bear this increase and that no transitional relief is necessary. Again, my hon. Friend has pointed out how much water charges vary throughout the country from one statutory water undertaker to another. Twopence may well represent as much as a 25 per cent. increase in some parts of the country and less than half that in others. This, we can only suggest, is an arbitrary standard and will lead to most unfair discrimination between consumers. In the main, this new Clause gives no relief with respect to proposed Corporation Tax for statutory water companies.

Our appeal, made at the Committee stage, seems to have fallen on deaf ears. I must express my deep disappointment.

Mr. Frederic Harris (Croydon, North-West)

I also will not take up much time, because my hon. Friend the Member for Gloucestershire, South (Mr. Corfield) put the case so extraordinarily well and with such facts to support his argument that one would have thought that automatically the Government would accept the situation and realise, as my hon. Friend has said, that they were making a grave mistake. Many of us are used to the grave mistakes that the Government have made during the last eight or nine months. This, therefore, is just one more.

For my part, anything that smells of increased rates, whether the general rate or water rate, concerns me and should concern every hon. Member. I am amazed at the lack of interest which is displayed in this debate by the Government and their supporters. Although they are, presumably, all here somewhere under a three-line Whip, there is nobody whatever on the Government back benches. The Ministers who are present do not even have a P.P.S. to support them, unless one happens to be coming back suddenly as I am speaking. [An HON. MEMBER: "Where are the Liberals?"] They, too, have disappeared.

Those of us who are concerned about increased rates realise that what the Government are doing in the Bill with the Corporation Tax must mean, certainly after a period of three years, that water rates will rise substantially. Lip-service is constantly paid by the Government to rate reform on the basis that they will try to ease the ratepayer's burden. What they are doing in the Finance Bill, however, is going completely in the opposite direction.

Suggestions have been made that water rates might rise by 25 per cent. There certainly can be no doubt that in my town of Croydon, where the water rate is approximately 10 per cent. of an already high general rate, in the years ahead a substantial increase in the water rate will be added to the burden to be borne by the ratepayers because of the Government's action in this Finance Bill alone.

My hon. Friend the Member for Gloucestershire, South has said that the water companies are public undertakings giving a public service. I cannot see the sense of the Government in wanting to raise further taxation by this form and then suggesting that possibly they will give it back by some method of rate reform later. What foolishness. Why not accept new Clause 42? What would be the complication in doing so? The Joint Parliamentary Secretary to the Ministry of Housing and Local Government, the one man who, with his Minister, should be directly interested in such a matter, gave no explanation to indicate that the Government would exempt water companies from this taxation. Why not? Why cannot somebody drum some common sense into the Government? Why cannot somebody make them realise that people are sick and tired of ever-increasing rates?

Sir Stephen McAdden (Southend, East)

Has my hon. Friend noticed that the Joint Under-Secretary of State for the Home Department, whose interest in water is well known, has at last arrived to attend the debate? Does my hon. Friend think it possible that the complete absence of anyone on the Government side, except for three Ministers, one Whip and one back bencher, as well as the whole of the Liberal Party, may be due to the fact that they are drinking as much water as they can before the price goes up?

Mr. Harris

I thank my hon. Friend for that interesting intervention.

The ratepayers are sick and tired of the ever-increasing burden of rates. The Bill is another direct attack upon the ratepayer. The rate issue is a real hot potato, but nobody on the Government side seems to realise how serious it is.

Surely, even at this late stage, the Government can change their minds. When the Chief Secretary replies to the debate, cannot he take a different view and accept new Clause 42? That would be common sense. Why put up the backs of everybody by charging more because of the Corporation Tax and possibly, in due course, having to suggest that some of it will be handed back to the ratepayer through general rate reform?

This is a serious matter. We on this side are treating it seriously. Nobody on the Government side cares a twopenny whatever it is.

The Chief Secretary to the Treasury (Mr. John Diamond)

Perhaps the hon. Member is referring to a 2d. increase in the water rate.

Mr. Harris

Possibly so. Even if it were limited to that, I should be surprised. I doubt whether the right hon. Gentleman can say that in Croydon the water rate will not be increased by more than 2d.

8.15 p.m.

Mr. Corfield

The figure of 12½ per cent. is applicable only to this transitional Clause. Once it runs out the estimates are much more in the neighbourhood of 16 or 20 per cent.

Mr. Julian Ridsdale (Harwich)

The increase in my part of the world would be nearly 100 per cent.

Mr. Harris

We can see how serious it is. People have tried to keep quiet about this, particularly the Government and their supporters. They do not want ratepayers to know what they are in for. The sooner the public realise what the Government are doing to them, as they are in this case, and turf them out, the better.

Mr. Temple

I am glad to support my hon. Friend the Member for Gloucestershire, South (Mr. Corfield), who has taken such a great interest in the welfare of water consumers, particularly in areas served by the statutory water undertakers. It is certainly not my wish to reiterate any of the excellent arguments which have already been put forward. I wish, therefore, to put three entirely new points to the Committee and to re-emphasise one point which I regard as being of particular importance.

The first fresh point which I draw particularly to the attention of the Joint Parliamentary Secretary to the Ministry of Housing and Local Government is to ask him what precedent there is for a new Clause of this nature. I asked this relevant question on Clause 87, when it was commented upon by his hon. Friend the Joint Parliamentary Secretary, who told me that he was not able to quote a precedent for the Clause and that he would be writing to me subsequently to explain something about it. I am still waiting to hear. That appears to be the way in which the Government are carrying on. There has been no explanation to me of the precedents for Clause 87, which, strangely enough, precedent or no precedent, has been followed in the new Clause.

The precedent to which I refer gives the Minister of Housing and Local Government power to grant remissions of taxation. In Clause 87, he has that power with regard to housing societies. In the new Clause he has it with regard to statutory water undertakings. In both these Clauses, significantly there is no appeal procedure. In the new Clause, however, we have a different position. Whereas, in Clause 87, the Minister of Housing and Local Government is able to give whatever tax remission he thinks fit, in the new Clause he is encumbered all round by all kinds of formulae. If the Joint Parliamentary Secretary understands those formulae, I do not. They are extremely complicated and their effects will be widely different in the areas of different statutory water undertakers.

This is another example of sheer ad hoc-ism by the Government. To paraphrase what the Chief Secretary said in Committee, they did not anticipate the position which faced them concerning statutory water undertakers. They should have anticipated it because it stuck out like a sore thumb. It was obvious to dozens of my hon. Friends on this side immediately the Bill was brought in that the position of statutory water undertakers would be prejudiced by an approach of this nature. Now, we are met with another example of sheer ad hoc-ism which does not meet the case.

My second point concerns new Clause 42. My hon. Friend's proposal is, I suggest, entirely the right approach to this matter and I hope that the Government will accept his new Clause. However, I have a suspicious mind. I listen to the radio, even over the weekend. I heard last weekend what the Minister of Land and Natural Resources was reported to have said in regard to the grouping of water undertakings. Is the right hon. Gentleman foreshadowing the nationalisation of water companies? Having a suspicious mind, I suggest that he may be, for I believe that the Government, through their taxation policies, will be putting the water companies in an unplayable position. They would like to see them in such a position because they could then say, "The statutory water undertakings are failing the consumer". That will be the terminology which hon. Gentlemen opposite will use—although the undertakings will be failing the consumer because they will have been put in a position where they cannot keep their charges down to reasonable proportions.

There is a significant point about new Clause 42 in connection with Capital Gains Tax which has not been mentioned today but which I mentioned in Committee. Capital Gains Tax will be a comparatively serious and extraordinarily difficult matter for all water companies and I cannot think that the Government want to exempt local authority water undertakings from the Tax. It is extraordinarily difficult to value a water undertaking. It is a costly operation, and, unless new Clause 42 is accepted, every time a small parcel of land is taken from a statutory water undertaker we will have to go through the whole rigmarole of valuing it, above and below the ground, to ascertain the value of the land being taken away.

In these circumstances, new Clause 42 would represent a magnificent holding operation. If accepted, the consumers of water in these areas would be in no worse a position than they are today and it would give the Government, or any Government, time in which to look at the position and have the proper consultations which are necessary in a matter of this kind.

My third point concerns the three year transitional period. I suggest that this period is an insult. Statutory water undertakers have planned all kinds of new equipment and impounding reservoirs on the basis of being able to make full use of the depreciation allowances. I am not an accountant, but I understand that depreciation allowances are allowed over a period of 10 years. Therefore, any statutory water undertaking would naturally say during consultations in the board room, "We are looking at this proposition on a 10-year basis". Such undertakings reckon to write off certain capital charges in 10 years, yet here we are giving a derisory transition period of only three years.

I anticipate that the Government expect to be out of office long before the end of that three-year period. They are now trying to cushion the effect for 18 months or so so that the consumers do not realise that the blame for any increase in charges should be laid at the door of the Labour Party. If we do not alter this when we return to power the main effect of the increased charges will be felt by the consumers under a Conservative Government.

What the Government propose is monstrous and, as my hon. Friend the Member for Harwich (Mr. Ridsdale) said, the consumers of water under the Government's proposals will pay increased charges of I believe up to 40 per cent., although my hon. Friend suggested up to 100 per cent. at the end of the three year period. It is monstrous for this Committee even to be considering that charges could go up at that rate in such a short period. I wonder what the Chief Secretary would say if he knew that water charges were going up by between 40 per cent. and 100 per cent. in the next three years. I am sure that he would immediately refer the matter to the Prices and Incomes Board.

Mr. Ridsdale

I should perhaps make it clear to my hon. Friend that the charges might go up by that much in five years and not three years. I hope to have an opportunity of speaking, when I will say why.

Mr. Temple

Even over a three-year period the increase is tremendous. Based on simple arithmetic it is 20 per cent. a year, giving 100 per cent. in five years. That would be the result in my hon. Friend's constituency, although I hope that he will have an opportunity of explaining the matter in full shortly.

The extraordinarily illogical point is whether, in sub-paragraph (4), the determining factor in regard to the relief will be a 2d. rate. That seems extraordinary by any standard, particularly when one considers that water rates vary throughout the country. I believe that they vary from between 7d. and 2s. 6d. in the £. In the area where there is a charge of only 7d., the rich area, the consumers will tend to benefit greatly, whereas in an area with an already heavy charge the consumers will be charged even more. This is an unfair provision and I suggest that the approach of my hon. Friend in new Clause 42 is more realistic, for it would give the Minister of Housing and Local Government power to fix the rate by 2d. or 3d. or the appropriate proportion of the present rate.

I would have gone along with a proposal which suggested "the appropriate proportion of the present rate", for that would have been more logical. I am indeed surprised at the Government's approach to this matter. They should at least have had consultations because I am sure that, having had them, they would have come forward with something better than their proposed new Clause.

Mr. Ridsdale

I am pleased to support the remarks of my hon. Friend the Member for Gloucestershire, South (Mr. Corfield), particularly in regard to new Clause 42 and the exclusion from this type of taxation for the statutory water undertakers. I am indeed surprised that the Government have not been willing to receive a deputation to discuss the problem of increased water rates because a serious situation is bound to be created in many parts of the country, particularly in north-east Essex.

I have also been surprised at the uncompromising attitude of the Government, particularly after the strong pleas which were made by my hon. Friends and myself in Committee. Having re-read the words I uttered on that occasion and having had consultations with the statutory water undertakers in my constituency, I realise that I was far too moderate in putting my case at that stage, especially when I said that I thought that the Chief Secretary was a sympathetic and understanding man. This new Clause shows that to be far from the truth. I assure him that this kind of transitional assistance to the water companies will come nowhere near to meeting the problem in north-east Essex.

8.30 p.m.

The failure to do anything substantial shows a complete ignorance of the kind of burden that the right hon. Gentleman is placing on people in north-east Essex that are served by the statutory water companies. For the Chancellor's information, I must explain that this area has been expanding very rapidly. The company has had to supply a population of 90,000, plus the temporary population received in the holiday resorts, and the existing trades for a capital expenditure of £1 million. In order fully to provide for the new development envisaged at 1971, a sum of £2⅓ million of capital expenditure is required to meet the needs of about a further 30,000 residents, and ancillary expansion.

That means that the water company by 1971 has to face an increase in capital expenditure of over twice the present amount. It is estimated that the annual costs entailed will increase from £215,430 to £320,600. Running costs are up 20 per cent. This includes negotiated wage increases and extra national Insurance contributions. Another 29 per cent. of the increase will be in capital charges; 8 per cent. goes for depreciation of company assets, and 43 per cent. of the increase, or £42,000, will result from the fiscal changes in the Budget.

That the water company should have to face the burden of extra running costs is bad enough, and increased capital charges will mean very heavy burden in an area that has a very high proportion of retired people, but to face an increased burden of 43 per cent. because of this Budget is something for which I know the inhabitants of north-east Essex will find it very hard to forgive the Chancellor.

Like my hon. Friend the Member for the City of Chester (Mr. Temple) I ask the Chief Secretary: what is the motive behind trying to force this kind of charge on a statutory company? I hope that the right hon. Gentleman will bear in mind that these statutory charges are in addition to the increased charges that people in my constituency will have to face. It it estimated that these increased charges will add 50 per cent. to the domestic water rate in 1966 and 1967, and by 1970 and 1971 the estimate is that the increase will be 100 per cent. This is a conservative estimate. Such increases in charges, to which the Government by their fiscal action have become a party, make nonsense of their election promises of helping the retired. This proposal will mean an increase in the price of water supplies for trade purposes of 60 per cent. over five years—something hardly likely to help those engaged in the export trade.

To me, this is typical of the ineptitude of the Government. It is no good their preaching about keeping wages steady and increasing productivity when immediately afterwards the Chancellor carries out this stupid and incomprehensible action, so deliberately putting up costs, not only for retired people but for the trading community as well. The Chancellor now offers relief, but it is a purely transitional relief, reducing quite rapidly to nil by the end of the third year. It will not help very much bringing in this increase by gradual steps—in the end the increase will have to be paid.

I hope that the right hon. Gentleman will listen to my plea, and the pleas of my hon. Friends, which is simply to put statutory water companies in an exactly similar position for taxation purposes as local authority and statutory water board undertakings. Whether or not the Chancellor denies it, he is now altering the basis of taxation and placing an extra burden on those least able to afford it. The result will be that old-age pensioners will have to pay more for their water. I therefore hope the Chancellor will adopt the simpler means offered in new Clause 42.

Mr. Cole

It is most difficult to try to arrive at the mind of the Government on this and other matters which have been before the House in recent months. Obviously they appreciate that there is a problem here, so they come forward with a half-baked Clause to put off the evil day, or to offer some concession, possibly in the hope that we would keep quiet on Report.

The best expression with which to try to summarise the attitude of the Government in this and so many other things is uninspired hesitancy. They think that there may be something here and that if they go too far someone may make something out of it. We are dealing with the all-important matter of water, a commodity which no householder and no industrial undertaking can do without. The commodity is ringed around with statutes, rules and regulations, and those concerned have a limited dividend basis. Just in case something might slip through all the rules and regulations, the Government put on 40 per cent. Corporation Tax.

My hon. Friend the Member for Gloucestershire, South (Mr. Corfield), in an excellent speech, the points of which I shall not attempt to underline, referred to the fact that this cost will be passed on to the consumer in due course. If this were an ordinary product these sort of charges when put on to the commodity might be passed on to the community, but then one could choose whether or not to use that commodity. If the practice became too extensive it would have the attention of the First Secretary of State and Secretary of State for Economic Affairs and of the Prices and Incomes Board, but this commodity is as essential to life as the air. Statutory undertakings alone are to pay tax on any profits which they make in the course of their undertaking.

Can the Government by any stretch of imagination reconcile this with the threat we heard recently from the First Secretary about taking the Electricity Authority before the Board? How can these two opposite things be thought of by the same Government? This proposal will lead to an increase in the cost of something which everyone has to use, yet suggested increases for electricity which not everyone has to use, it was suggested, should go before the Prices and Incomes Board. What sort of Government can think two ways at once in this manner? If we were dealing with a special type of company which had a monopoly to which no one else had access, we could begin to understand what was in the mind of the Government, but here we are dealing with something which is essential. Like gas, before it was nationalised, it is ringed around with all kinds of laws and regulations. The dividend used to be 5 per cent. before the war and now it can go up to 7 per cent., but there is still limitation.

In the face of all this, the Government are frightened to take a risk. This is something which we can level at the Government in many respects. They are frightened that someone might make a pound. As a result millions have to suffer to make sure that no one gets anything out of the transaction. This is a very dismal, sordid arrangement. I hope that we of the Opposition will go into the Division Lobby against it. It would be far too much of an adventure on the part of the Government to accept new Clause 42, but I hope that they will think again on this matter for they should be under no delusion about the strength of feeling on this side of the House.

Mr. Diamond

I think that it would be convenient if I intervened now because, with great respect to hon. Members who have spoken so far, so many of their criticisms, which have been violent and aggressive, are based on a misunderstanding. There is not much point con- tinuing to listen to criticisms which do not apply to the new Clause, which has been introduced because, although I did not commit the Government to do anything of this kind, I was anxious to meet the request by a number of hon. Members opposite that the impact of the new tax should be alleviated as far as possible.

I have been asked time and again by many people to put the stautory water undertakers in the same position as local authorities. That is what the Bill does. Whereas statutory undertakers have had a tax advantage hitherto, they are now being put in identically the same position as the local authorities inasmuch as they will now have to account to the Inland Revenue for tax deducted just as much as the local authorities always have done and will continue to have to do.

Local authorities, when they have deducted tax on the interest or whatever it may be, have had to account to the Inland Revenue, and they still do. Statutory water undertakers have been, many of them, paying dividends, deducting tax from the dividends and not accounting to the Inland Revenue. The whole of this debate is based on the change whereby, under the new circumstances of the Corporation Tax, they will for the first time have to account to the Inland Revenue for tax which is being deducted. I say therefore, first, in reply to requests made to me on this point, that whereas statutory water undertakers have had a tax advantage hitherto, they are now having that advantage removed and are being put on all fours with the local authorities.

Secondly, the other kind of advantage which they have had hitherto is now being removed also. This second advantage is that their consumers have, in effect, been receiving a subsidy at the cost of the general body of taxpayers. As I explained on the last occasion and will repeat briefly, as a result of not having to account for the tax previously, they were able to do what the Public Accounts Committee of the House of Commons roundly criticised—declare dividends, allegedly net, allegedly after deduction of tax, and issue accordingly tax deduction certificates or warrants to dividend recipients who, in turn, in appropriate circumstances, could claim back from the Inland Revenue tax which had never been accounted for to the Inland Revenue. That is what the Public Accounts Committee so roundly criticised and that is what is being stopped by the Bill.

There are those who have argued that, if Corporation Tax had not been introduced, this procedure, perfectly legal but roundly condemned, would have continued. That assumption does not necessarily arise. It does not follow at all that under this Government that procedure which the previous Government accepted would have been allowed to continue. Nor does it follow that this Government would not have introduced alterations to the tax system under which a dividend payer would have had to account to the Inland Revenue and that, when a secretary signed a dividend warrant saying "I undertake to account to the Inspector of Taxes for the tax deducted, he might not have been called upon to do so.

First then, the Income Tax advantage of the water undertakers over and above the local authorities is being removed and they are being put on a par with the local authorities. Secondly, their advantage which amounted to a subsidy at the expense of the general body of taxpayers is being removed.

8.45 p.m.

Mr. Corfield

The right hon. Gentleman keeps referring to this tax problem, and he really must remember that in the original set of Amendments we specifically moved an Amendment that: Nothing in this section shall exempt a statutory water undertaker from liability to income tax under section 43 of this Act". There is no assumption on this side at all that had there not been a Corporation Tax the ability to deduct tax from the dividend would have been continued.

Mr. Diamond

I am grateful to the hon. Gentleman, because he anticipated the next point I was coming to, namely, that the Amendments which had previously been put down in Committee would have been practically of no help whatsoever to the statutory water undertakers, because the incidence of Corporation Tax does not provide a burden of Corporation Tax at all.

Mr. Corfield

Yes, it does.

Mr. Diamond

It is no use the hon. Gentleman saying, "Yes, it does", because he does not know the figures and I do. The water undertakers are making such large profits that, after the deduction of investment allowances, the liability to Corporation Tax will be very small indeed. The problem does not arise there at all, and to relieve them of that is to relieve them of practically nothing.

The real difficulty is that under the Corporation Tax system, no one can deduct tax from a dividend without accounting to the Revenue for it, and we are not budging from that system for anyone or any corporation of any kind. Therefore it follows that the statutory water undertakers will no longer be able to pay dividends without accounting for tax, and, as has been said, in order to account for the tax, in certain circumstances they will have to increase their charges. By doing so, they will be removing from their consumers the subsidy which has hitherto been paid by the general body of taxpayers throughout the country.

Mr. Webster

The hon. Gentleman said that the profits of statutory water undertakers are immense. Would he say what is the average cover for dividends in these water undertakings?

Mr. Diamond

I am coming to that point when I deal with the 40 per cent. As I have given way twice now to hon. Gentlemen who have, with intelligence, anticipated what I am going to say next, perhaps I may now continue so as not to delay the House to long.

We are in the situation under which it is right that this subsidy should be recognised and removed, but it is wrong that it should be done quickly so that the impact falls too suddenly on people. What the Government are doing is introducing in this new Clause a method whereby the impact will be cushioned over three years. No one suggests it is other than transitional. There is a principle about taxation involved here that he who deducts and undertakes to account for it to the Inland Revenue should in future account for it. That is what it is all about. We are doing our best to meet the statutory water undertakers and, I repeat, putting them on the same basis as the local authorities, namely, having to account to the Inland Revenue for tax deducted.

The hon. Member for Weston-super-Mare (Mr. Webster) asked me about the 40 per cent. and perhaps I should say a word about it because, understandably, it has been confused with the rate of Corporation Tax. It has nothing to do with that whatsoever. The reason why the 40 per cent. has been put in the Clause is that, making the worst assumption against the Government and making the best assumption in favour of the water companies as to what the rate of Corporation Tax might be in the future, those water companies which pay a dividend of as much as 40 per cent. will break even at about 40 per cent. or a little under—39 per cent. plus. I am sure the right hon. Gentleman understands the point.

Therefore, in order to avoid the water companies being better off as a result of the Clause than they would otherwise have been, we have to put in that limitation so that the effect of Corporation Tax plus the new Clause will not make them better off. Those who would have been batter off will now be level and those who would have been worse off will, subject to the minimal variation of a 2d. water rate, recover in a decreasing fraction over three years the excess tax which they are being called upon to bear as a result of the institution of Corporation Tax.

I hope that I have explained why it is right and proper that the new Clause should be brought forward to help the statutory water undertakers over a difficult period and why it is quite clear that there has been some considerable misunderstanding which has given rise to the criticisms which would not otherwise have been made.

Finally, I am bound to say that I very much regret that the request for a delegation has gone without acceptance. Many delegations have been received. There was a request for a delegation to my right hon. Friend, who has been in America for the whole week, as the House knows. He got back only on Friday and received delegations even on that day. I myself have been in Germany, but I have received delegations the whole time I have been back. It has not been possible to accommodate everybody we would have liked to have met, but I doubt very much whether it would have made the slightest difference. However, that is not the point and we would have been only too willing to receive the delegation had time permitted.

Mr. Anthony Barber (Altrincham and Sale)

It is not for me to determine the debate at this juncture, but perhaps it is only courteous if I follow the Chief Secretary now. I should like to say at the outset that I am extremely disappointed that he spent so much of his time demolishing a proposition which, so far as I know, none of my hon. Friends has put forward. He spent a good deal of time talking about a water company having to account for tax deducted on the payment of dividends, and yet, when we considered this matter in Committee, quite clearly in the Amendment were the words: Nothing in this section shall exempt a statutory water undertaker from liability to tax under section 43 of this Act. After the cogent arguments of a number of my hon. Friends, I can be brief. The debate is concerned with the taxation position of statutory water undertakings. At a time when the First Secretary of State is appealing for price stability, the country should know that, as a direct consequence of the introduction of the Corporation Tax, the Chancellor of the Exchequer is ensuring that there will be an increase in water rates for about one fifth of the population of England and Wales and, as we have heard, in some areas an increase which in due course will amount to as much as 100 per cent.

The new Clause merely seeks to moderate the increase over a period of three years and is not intended to prevent an increase. Indeed, when we were considering the matter in Committee, the Chief Secretary went out of his way to explain why he thought that water rates "should go up". Those people who have been listening to the First Secretary's strictures on the pricing policies of private enterprise will think it very odd, to say the least, that the Labour Government should now, quite deliberately and needlessly, set out to increase the cost of the first necessity of life for millions of people. It is significant that until a short time ago no Labour back benchers were present to consider this, a matter of great importance to many millions of people. There may or may not be merit in the fiscal reasoning of the Chief Secretary, hit let no one be unaware of the consequences of what he is advocating.

As this is the first debate on the Report stage of the Bill, I would like to point out the sequence of events which have led up to this debate, because I think it typical of what has been happening, and what is still happening, throughout our consideration of the Bill. The first stage was the publication of the Bill. At that point, it had never occurred to the Chancellor of the Exchequer that the Corporation Tax would mean an increase in water rates. Indeed, as the Chief Secretary put it in Committee, with his usual fairness and frankness: It is a situation which I do not think was anticipated and, therefore, one finds that it takes a little time to sink in."—[OFFICIAL REPORT, 16th June, 1965; Vol. 714, c. 662.]

Mr. Diamond

I was referring to the fact that it was not anticipated that a subsidy was being paid. There was no question of my referring to the effect of it so far as the Government were concerned. I was referring to the fact that the House would find this a novel argument and take a little time to accept it.

Mr. Barber

I accept what the Chief Secretary says. But he did say in Committee: On examination, it reveals a situation which I doubt that all of us had expected. and then he went on to say: It has given concern to me and to the Government. But at that stage the Government intended to do nothing about it. The second stage was reached when the Opposition brought to light the unhappy consequences of this change in taxation advocated by the Chancellor. Thus it was that the Chief Secretary, again with his usual courtesy, promised the Committee that he would look into the matter. Even at that stage, with our Amendments having been down on the Notice Paper for some time, the Chief Secretary said that it was quite impossible to undertake that anything at all would be done about it.

The third stage was last Wednesday, when the Chancellor put down a new Clause to give some minor transitional relief. The fourth stage was on the very next day, when the Chancellor found that he had made a mistake and withdrew his Clause, which he had put down previously, amending his own Bill. He put down another new Clause in its place. Meanwhile, as we have heard in the course of this debate, the statutory water undertakers were asking to see the Chancellor to explain to him, if I can put it bluntly, that the right hon. Gentleman was barking up the wrong tree. But all the Treasury Ministers were either away or busy with their last-minute Amendments, and none of them had the time to receive a deputation. I do not doubt that if the right hon. Gentleman the Chief Secretary had had the time, he would have seen these people.

This sequence of events which I have outlined is typical of the muddled and incompetent way in which the whole of this debate has been handled. In the light of what I have just set out, it would be a miracle, if now, at the eleventh hour, the Government's latest version on the Notice Paper was the right one. Of course, it is not the fault of the Chief Secretary, or the Parliamentary Secretary. It is the fault of the Chancellor of the Exchequer, who is determined to press on regardless, without heed to the Government's Parliamentary programme and to the consequences for the taxpayer.

I certainly hope that in the light of these facts and the argument put forward by my hon. Friends my hon. Friend in whose name the Amendment stands will seek the leave of the Chair to move it and to press it to a Division.

Mr. Webster

I noticed that the Parliamentary Secretary to the Ministry of Housing and Local Government, who has at least been a new face on the Front Bench during this stage of the Bill, addressed most of his remarks to Income Tax, as did the Chief Secretary. We are also very much involved with the Corporation Tax aspect of this matter. Being involved with the Bristol undertaking area, and having had the advantage—and it is an advantage—of having the First Secretary of State in Bristol last weekend, when he said "We have been taken for a ride", I must say that that was certainly the feeling of the Bristol waterworks authority. I very much regret that this arbitrary action has been taken, as usual with no consultation.

The Chief Secretary says that my hon. Friends do not know what they are talking about. The opinion which they have stated has been given to them by the British Waterworks Association which has not had the opportunity of addressing itself directly to the Chief Secretary. It would have been better if he had agreed to meet a deputation from the Association. I notice with regret that when we ask a Minister to meet a deputation there is an increasing reluctance to do so.

9.0 p.m.

This flat-rate 2d. interim rise strikes me as a direct parallel with what the Chancellor of the Exchequer said in the House at eleven o'clock one night about redeemable gilt-edged securities. He made the most arbitrary decision which threw up more anomalies than it prevented. It threw the whole gilt-edged market into complete confusion and chaos. This proposal, also, will throw up more anomalies than it prevents.

As my hon. Friend the Member for Gloucestershire, South (Mr. Corfield) ably said, the two main objections are that this proposal will apply to companies liable to Corporation Tax only in the initial period, and the maximum 2d. increase over the three-year period can vary from 11 per cent. to 100 per cent. This will mean an increase in charges, which will mean more income to the company and more Corporation Tax to be paid. This escalation will continue.

Again, I ask whether the First Secretary was consulted about this. Has the National Board for Prices and Incomes been consulted on this subject? My hon. Friend the Member for Gloucestershire, South, who is Chairman of the British Waterworks Association, may have to advise members of the Association whether they should increase their rates. If they propose to increase them, the matter will be referred to the Board, which will say that this is a blanket increase and that it should be vetoed. This is what happened to the road hauliers. This is an unfortunate practice which is likely to recur in future. Bristol, which is a particularly excellent and responsible undertaking, is caught on a Morton's fork. This proposal will result in a direct tax on the consumer.

During this debate, when so many of my hon. Friends have been present in the Chamber and anxious to speak, there have been practically no hon. Members opposite present. It is not surprising to me that they should take no interest in the affairs of water undertakings. They think that we should have new voting procedures to steamroller through measures like this. They take not the slightest interest in them and treat with callous disregard, as the Government have done, the interests of the consumer, particularly retirement pensioners who will suffer considerably pro rata from this proposal. Hon. Members opposite brashly put forward suggestions for reforming the procedure of the House of Commons. It would be better if they reformed themselves.

Mr. Robert Cooke (Bristol, West)

One thing which has emerged from this long and intense discussion is that the Government do not give a damn for those people who will be caught by this iniquitous proposal. They say that some people have been subsidised in the past. We have heard that about one-fifth of the water consumers of this country have been subsidised.

I could not possibly let this go without saying something on behalf of the citizens on Bristol. For many years they have enjoyed a splendid water undertaking, the Bristol Waterworks Company, which has handled its affairs efficiently and with humanity. In no case which I have taken up with the company on behalf of a constituent has the company not dealt with the matter immediately and in a most efficient and humane fashion.

My hon. Friend the Member for the City of Chester (Mr. Temple) suggested that the Government's policy was to get all the water undertakings into the claws of nationalisation. That is where I see it all leading, and that is why I support my hon. Friends.

The citizens of Bristol will be affected by this proposal. The Chief Secretary has given the game away on that. He has admitted that the citizens of Bristol will be worse off as a result of this proposal. Where are the Labour Members for Bristol? It is obvious that they will follow the Government like a lot of sheep into the Lobby and will do nothing whatever to protect the rights of the citizens of Bristol.

It is not too late for the Chief Secretary to do something about this, even if he discovers in his labyrinthine mind a method which is not that which we propose. The Government can at any time recommit the Bill and thus have a chance to think again. There are procedural ways in which the Government can deal with this problem, and I hope that they will do so.

Mr. John Harvey (Walthamstow, East)

I had not intended to intervene until the Chief Secretary sought to persuade the House that the analogy between public companies and local government was one which needed to be examined in greater detail. He omitted to remind us that under Clause 62 local authorities are specifically exempt from Corporation Tax. There is, therefore, a significant difference between the position of the companies and that of the local authorities which calls for a great deal of further consideration.

The Chief Secretary and his colleagues on the Government Front Bench must bear in mind that the Bill is not capable of further improvement on being sent to the House of Lords. This Bill stops here. Whatever we leave amiss after Report stays amiss until a better Government has an opportunity to put it right.

I urge the Chief Secretary to think again, because the difference between the company and the local authority is that

by virtue of the tax requirements a company immediately becomes liable to find under Corporation Tax a much larger sum of money to pay the tax deducted from dividends. Hence the increase, which some of my hon. Friends think will be a considerable increase, in water rates in different parts of the country. Before we hear it suggested that these are wealthy companies which can afford the extra charge, we should emphasise that these companies act under very severe limitations in the charges which they can impose and the rates of dividend which they can declare.

There is no scope for speculation. Additional share capital has to be raised by tender. Maximum and actual amounts which can be allocated to reserve and contingency funds are restricted, as is the amount which can be carried forward, and all the surplus has to be devoted to reducing the water rate. That should be compared with the Government's action, which makes sure that water rates will be increased.

Question put and agreed to.

Clause accordingly read a Second time.

Amendment proposed to the proposed Clause: In line 11, leave out from "year" to the end of line 21.—[Mr. Corfield.]

Question put, That the words proposed to be left out stand part of the proposed Clause:—

The House divided: Ayes 282, Noes 278.

Division No. 229.]	AYES	[9.9 p.m.
Abse, Leo	Buchan, Norman (Renfrewshire, W.)	Dempsey, James
Allaun, Frank (Salford, E.)	Buchanan, Richard	Diamond, Rt. Hn. John
Alldritt, Walter	Butler, Herbert (Hackney, C.)	Dodds, Norman
Atkinson, Norman	Butler, Mrs. Joyce (Wood Green)	Doig, Peter
Bacon, Miss Alice	Callaghan, Rt. Hn. James	Driberg, Tom
Bagier, Gordon A. T.	Carmichael, Neil	Duffy, Dr. A. E. P.
Barnett, Joel	Carter-Jones, Lewis	Dunn, James A.
Baxter, William	Castle, Rt. Hn. Barbara	Dunnett, Jack
Bellenger, Rt. Hn. F. J.	Chapman, Donald	Edelman, Maurice
Bence, Cyril	Coleman, Donald	Edwards, Robert (Bilston)
Benn, Rt. Hn. Anthony Wedgwood	Conlan, Bernard	English, Michael
Bennett, J. (Glasgow, Bridgeton)	Corbet, Mrs. Freda	Ennals, David
Binns, John	Cousins, Rt. Hn. Frank	Ensor, David
Bishop, E. S.	Craddock, George (Bradford, S.)	Evans, Albert (Islington, S. W.)
Blackburn, F.	Crawshaw, Richard	Evans, Ioan (Birmingham, Yardley)
Blenkinsop, Arthur	Cronin, John	Fernyhough, E.
Boardman, H.	Crossman, Rt. Hn. R. H. S.	Finch, Harold (Bedwellty)
Boston, T. G.	Cullen, Mrs. Alice	Fitch, Alan (Wigan)
Bottomley, Rt. Hn. Arthur	Dalyell, Tam	Fletcher, Sir Eric (Islington, E.)
Bowden, Rt. Hn. H. W. (Leics S. W.)	Darling, George	Fletcher, Ted (Darlington)
Braddock, Mrs. E. M.	Davies, Harold (Leek)	Fletcher, Raymond (llkeston)
Bradley, Tom	Davies, Ifor (Gower)	Floud, Bernard
Bray, Dr. Jeremy	de Freitas, Sir Geoffrey	Foot, Sir Dingle (Ipswich)
Broughton, Dr. A. D. D.	Delargy, Hugh	Foot, Michael (Ebbw Vale)
Brown, Hugh D. (Glasgow, Provan)	Dell, Edmund	Ford, Ben
Fraser, Rt. Hn. Tom (Hamilton)	Loughlin, Charles	Robertson, John (Paisley)
Freeson, Reginald	Mabon, Dr. J. Dickson	Robinson, Rt. Hn. K. (St. Pancras, N.)
Galpern, Sir Myer	McBride, Neil	Rodgers, William (Stockton)
Garrett, W. E.	MacColl, James	Rogers, George (Kensington, N.)
Garrow, A.	MacDermot, Niall	Rose, Paul B.
George, Lady Megan Lloyd	McGuire, Michael	Ross, Rt. Hn. William
Ginsburg, David	Mclnnes, James	Rowland, Christopher
Gourlay, Harry	McKay, Mrs. Margaret	Sheldon, Robert
Greenwood, Rt. Hn. Anthony	Mackenzie, Gregor (Rutherglen)	Shinwell, Rt. Hn. E.
Gregory, Arnold	Mackie, John (Enfield, E.)	Shore, Peter (Stepney)
Grey, Charles	McLeavy, Frank	Short, Rt. Hn. E. (N'c'tle-on-Tyne, C.)
Griffiths, David (Rother Valley)	Mahon, Peter (Preston, S.)	Short, Mrs. Renée (W'hampton, N. E.)
Griffiths, Rt. Hn. James (Llanelly)	Mahon, Simon (Bootle)	Silkin, John (Deptford)
Griffiths, Will (M'chester, Exchange)	Mallalieu, J. P. W. (Huddersfield, E.)	Silkin, S. C. (Camberwell, Dulwich)
Gunter, Rt. Hn. R. J.	Manuel, Archie	Silverman, Julius (Aston)
Hale, Leslie	Mapp, Charles	Silverman, Sydney (Nelson)
Hamilton, James (Bothwell)	Marsh, Richard	Skeffington, Arthur
Hamilton, William (West Fife)	Mason, Roy	Slater, Mrs. Harriet (Stoke, N.)
Hamling, William (Woolwich, W.)	Maxwell, Robert	Slater, Joseph (Sedgefield)
Hannan, William	Mellish, Robert	Small, William
Harrison, Walter (Wakefield)	Mendelson, J. J.	Snow, Julian
Hart, Mrs. Judith	Mikardo, Ian	Soskice, Rt. Hn. Sir Frank
Hazell, Bert	Millan, Bruce	Steele, Thomas (Dunbartonshire, W.)
Healey, Rt. Hn. Denis	Milne, Edward (Blyth)	Stewart, Rt. Hn. Michael
Heffer, Eric S.	Molloy, William	Stonehouse, John
Henderson, Rt. Hn. Arthur	Monslow, Walter	Stones, William
Herbison, Rt. Hn. Margaret	Morris, Alfred (Wythenshawe)	Strauss, Rt. Hn. G. R. (Vauxhall)
Hobden, Dennis (Brighton, K'town)	Morris, Charles (Openshaw)	Stross, Sir Barnett (Stoke-on-Trent, C.)
Holman, Percy	Morris, John (Aberavon)	Summerskill, Hn. Dr. Shirley
Horner, John	Mulley, Rt. Hn. Frederick (Sheffield Pk)	Swain, Thomas
Houghton, Rt. Hn. Douglas	Murray, Albert	Swingler, Stephen
Howarth, Harry (Wellingborough)	Neal, Harold	Symonds, J. B.
Howarth, Robert L. (Bolton, E.)	Newens, Stan	Taverne, Dick
Howell, Denis (Small Heath)	Noel-Baker, Francis (Swindon)	Taylor, Bernard (Mansfield)
Howie, W.	Noel-Baker, Rt. Hn. Philip (Derby, S.)	Thomas, George (Cardiff, W.)
Hoy, James	Norwood, Christopher	Thomas, lorwerth (Rhondda, W.)
Hughes, Cledwyn (Anglesey)	Oakes, Gordon	Thomson, George (Dundee, E.)
Hughes, Emrys (S. Ayrshire)	Ogden, Eric	Thornton, Ernest
Hughes, Hector (Aberdeen, N.)	O'Malley, Brian	Tinn, James
Hunter, Adam (Dunfermline)	Oram, Albert E. (E. Ham, S.)	Tomney, Frank
Hunter, A. E. (Feltham)	Orbach, Maurice	Tuck, Raphael
Irvine, A. J. (Edge Hill)	Orme, Stanley	Urwin, T. W.
Irving, Sydney (Dartford)	Oswald, Thomas	Varley, Eric G.
Jackson, Colin	Owen, Will	Walden, Brian (All Saints)
Janner, Sir Barnett	Page, Derek (King's Lynn)	Walker, Harold (Doncaster)
Jeger, George (Goole)	Paget, R. T.	Wallace, George
Jeger, Mrs. Lena (H'b'n & St. P'cras, S.)	Palmer, Arthur	Warbey, William
Jenkins, Hugh (Putney)	Pannell, Rt. Hn. Charles	Watkins, Tudor
Jenkins, Rt. Hn. Roy (Stechford)	Pargiter, G. A.	Weitzman, David
Johnson, Carol (Lewisham, S.)	Park, Trevor (Derbyshire, S. E.)	Wells, William (Walsall, N.)
Johnson, James (K'ston-on-Hull, W.)	Parker, John	White, Mrs. Eirene
Jones, Dan (Burnley)	Parkin, B. T.	Whitlock, William
Jones, Rt. Hn. Sir Elwyn (W. Ham, S.)	Pavitt, Laurence	Wigg, Rt. Hn. George
Jones, J. Idwal (Wrexham)	Pearson, Arthur (Pontypridd)	Wilkins, W. A.
Jones, T. W. (Merioneth)	Peart, Rt. Hn. Fred	Willey, Rt. Hn. Frederick
Kelley, Richard	Pentland, Norman	Williams, Alan (Swansea, W.)
Kenyon, Clifford	Perry, Ernest G.	Williams, Clifford (Abertillery)
Kerr, Mrs. Anne (R'ter & Chatham)	Popplewell, Ernest	Williams, Mrs. Shirley (Hitchin)
Kerr, Dr. David (W'worth, Central)	Prentice, R. E.	Willis, George (Edinburgh, E.)
Lawson, George	Price, J. T. (Westhoughton)	Wilson, Rt. Hn. Harold (Huyton)
Leadbitter, Ted	Probert Arthur	Wilson, William (Coventry, S.)
Ledger, Ron	Pursey, Cmdr. Harry	Winterbottom, R. E.
Lee, Rt. Hn. Frederick (Newton)	Randall, Harry	Woodburn, Rt. Hn. A.
Lee, Miss Jennie (Cannock)	Rankin, John	Woof, Robert
Lever, Harold (Cheetham)	Redhead, Edward	Wyatt, Woodrow
Lever, L. M. (Ardwick)	Rees, Merlyn	Yates, Victor (Ladywood)
Lewis, Arthur (West Ham, N.)	Reynolds, G. W.	Zilliacus, K.
Lewis, Ron (Carlisle)	Rhodes, Geoffrey
Lipton, Marcus	Roberts, Albert (Normanton)	TELLERS FOR THE AYES:
Lomas, Kenneth	Roberts, Goronwy (Caernarvon)	Mr. John McCann and
		Mr. Joseph Harper.
NOES
Agnew, Commander Sir Peter	Balniel, Lord	Birch, Rt. Hn. Nigel
Alison, Michael (Barkston Ash)	Barber, Rt. Hn. Anthony	Black, Sir Cyril
Allan, Robert (Paddington, S.)	Barlow, Sir John	Blaker, Peter
Allason, James (Hemel Hempstead)	Batsford, Brian	Bossom, Hn. Clive
Amery, Rt. Hn. Julian	Beamish, Col. Sir Tufton	Bowen, Roderic (Cardigan)
Anstruther-Gray, Rt. Hn. Sir W.	Bell, Ronald	Box, Donald
Astor, John	Bennett, Sir Frederic (Torquay)	Boyd-Carpenter, Rt. Hn. J.
Atkins, Humphrey	Bennett, Dr. Reginald (Gos & Fhm)	Boyle, Rt. Hn. Sir Edward
Awdry, Daniel	Berkeley, Humphry	Braine, Bernard
Baker, W. H. K.	Berry, Hn. Anthony	Brewis, John

Brinton, Sir Tatton	Hamilton, M. (Salisbury)	Osborn, John (Hallam)
Bromley-Davenport, Lt.-Col. Sir Walter	Harris, Frederick (Croydon, N. W.)	Osborne, Sir Cyril (Louth)
Brooke, Rt Hn. Henry	Harris, Reader (Heston)	Page, John (Harrow, W.)
Brown, Sir Edward (Bath)	Harrison, Brian (Maldon)	Page, R. Graham (Crosby)
Bruce-Gardyne, J.	Harvey, John (Walthamstow, E.)	Pearson, Sir Frank (Clitheroe)
Bryan, Paul	Harvie Anderson, Miss	Peel, John
Buchanan-Smith, Alick	Hastings, Stephen	Percival, Ian
Buck, Antony	Hawkins, Paul	Peyton, John
Bullus, Sir Eric	Heald, Rt. Hn. Sir Lionel	Pickthorn, Rt. Hn. Sir Kenneth
Burden, F. A.	Heath, Rt. Hn. Edward	Pike, Miss Mervyn
Butcher, Sir Herbert	Hendry, Forbes	Pitt, Dame Edith
Buxton, Ronald	Higgins, Terence L.	Pounder, Rafton
Campbell, Gordon	Hill, J. E. B. (S, Norfolk)	Powell, Rt. Hn. J. Enoch
Carlisle, Mark	Hirst, Geoffrey	Price, David (Eastleigh)
Carr, Rt. Hn. Robert	Hobson, Rt. Hn. Sir John	Prior, J. M. L.
Cary, Sir Robert	Hooson, H. E.	Pym, Francis
Channon, H. P. G.	Hopkins, Alan	Quennell, Miss J. M.
Chataway, Christopher	Hornby, Richard	Ramsden, Rt. Hn. James
Chichester-Clark, R.	Hornsby-Smith, Rt. Hn. Dame P.	Rawlinson, Rt. Hn. Sir Peter
Clark, Henry (Antrim, N.)	Howard, Hn. G. R. (St. Ives)	Redmayne, Rt. Hn. Sir Martin
Clarke, William (Nottingham, S.)	Hutchison, Michael Clark	Rees-Davies, W. R.
Clarke, Brig. Terence (Portsmth, W.)	Iremonger, T. L.	Renton, Rt. Hn. Sir David
Cole, Norman	Irvine, Bryant Godman (Rye)	Ridley, Hn. Nicholas
Cooke, Robert	Jenkin, Patrick (Woodford)	Ridsdale, Julian
Cooper, A. E.	Jennings, J. C.	Roberts, Sir Peter (Heeley)
Cooper-Key, Sir Neill	Johnston, Russell (Inverness)	Rodgers, Sir John (Sevenoaks)
Cordle, John	Jones, Arthur (Northants, S.)	Roots, William
Corfield, F. V.	Jopling, Michael	St. John-Stevas Norman
Costain, A. P.	Joseph, Rt. Hn. Sir Keith	Sandys, Rt. Hn. D.
Courtney, Cdr. Anthony	Kaberry, Sir Donald	Scott-Hopkins, James
Craddock, Sir Beresford (Spelthorne)	Kerby, Capt. Henry	Sharples, Richard
Crawley, Aidan	Kerr, Sir Hamilton (Cambridge)	Shepherd, William
Crosthwaite-Eyre, Col. Sir Oliver	Kershaw, Anthony	Sinclair, Sir George
Crowder, F. P.	Kilfedder, James A.	Smith, Dudley (Br'ntf'd & Chiswick)
Cunningham, Sir Knox	Kimball, Marcus	Smyth, Rt. Hn. Brig. Sir John
Curran, Charles	King, Evelyn (Dorset, S.)	Soames, Rt. Hn. Christopher
Currie, G. B. H.	Kirk, Peter	Spearman, Sir Alexander
Dalkeith, Earl of	Kitson, Timothy	Stainton, Keith
Dance, James	Lagden, Godfrey	Stanley, Hn. Richard
Davies, Dr. Wyndham (Perry Barr)	Lambton, Viscount	Steel, David (Roxburgh)
d'Avigdor-Goldsmid, Sir Henry	Lancaster, Col. C. G.	Stodart, Anthony
Dean, Paul	Langford-Holt, Sir John	Studholme, Sir Henry
Digby, Simon Wingfield	Legge-Bourke, Sir Harry	Talbot, John E.
Dodds-Parker, Douglas	Lewis, Kenneth (Rutland)	Taylor, Sir Charles (Eastbourne)
Doughty, Charles	Litchfield, Capt. John	Taylor, Edward M. (G'gow, Cathcart)
Douglas-Home, Rt. Hnu. Sir Alec	Lloyd, Rt. Hn. Geoffrey (Sut'nC'dfield)	Taylor, Frank (Moss Side)
Drayson, C. B.	Lloyd, Rt. Hn. Selwyn (Wirral)	Teeling, Sir William
du Cann, Rt. Hn. Edward	Loveys, Walter H.	Temple, John M.
Eden, Sir John	Lubbock, Eric	Thatcher, Mrs. Margaret
Elliot, Capt. Walter (Carshalton)	Lucas, Sir Jocelyn	Thomas, Sir Leslie (Canterbury)
Emery, Peter	McAdden, Sir Stephen	Thompson, Sir Richard (Croydon, S.)
Eyre, Reginald	MacArthur, Ian	Thorpe, Jeremy
Farr, John	Mackie, George Y. (C'ness & S'land)	Tiley, Arthur (Bradford, W.)
Fell, Anthony	McLaren, Martin	Tilney, John (Wavertree)
Fisher, Nigel	Maclean, Sir Fitzroy	Turton, Rt. Hn. R. H.
Fletcher-Cooke, Charles (Darwen)	Macleod, Rt. Hn. Iain	Tweedsmuir, Lady
Fletcher-Cooke, Sir John (S'pton)	McMaster, Stanley	van Straubenzee, W. R.
Foster, Sir John	McNair-Wilson, Patrick	Vaughan-Morgan, Rt. Hn. Sir John
Fraser, Rt. Hn. Hugh (St'fford & Stone)	Maginnis, John E.	Vickers, Dame Joan
Fraser, Ian (Plymouth, Sutton)	Maitland, Sir John	Walder, David (High Peak)
Galbraith, Hn. T. G. D.	Marten, Neil	Walker, Peter (Worcester)
Gammans, Lady	Mathew, Robert	Walker-Smith, Rt. Hn. Sir Derek
Gardner, Edward	Maude, Angus	Wall, Patrick
Gibson-Watt, David	Maudling, Rt. Hn. Reginald	Walters, Dennis
Giles, Rear-Admiral Morgan	Mawby, Ray	Ward, Dame Irene
Gilmour, Ian (Norfolk, Central)	Maxwell-Hyslop, R. J.	Weatherill, Bernard
Gilmour, Sir John (East Fife)	Maydon, Lt.-Cmdr. S. L. C.	Webster, David
Glover, Sir Douglas	Meyer, Sir Anthony	Wells, John (Maidstone)
Glyn, Sir Richard	Mills, Peter (Torrington)	Whitelaw, William
Godber, Rt. Hn. J. B.	Mills, Stratton (Belfast, N.)	Williams, Sir Rolf Dudley (Exeter)
Goodhart, Philip	Miscampbell, Norman	Wills, Sir Gerald (Bridgwater)
Goodhew, Victor	Mitchell, David	Wilson, Geoffrey (Truro)
Gower, Raymond	Monro, Hector	Wise, A. R.
Grant, Anthony	More, Jasper	Wolrige-Gordon, Patrick
Grant-Ferris, R.	Morrison, Charles (Devizes)	Wood, Rt. Hn. Richard
Gresham Cooke, R.	Mott-Radclyffe, Sir Charles	Woodhouse, Hn. Christopher
Grieve, Percy	Munro-Lucas-Tooth, Sir Hugh	Woodnutt, Mark
Griffiths, Eldon (Bury St. Edmunds)	Murton, Oscar	Wylie, N. R.
Griffiths, Peter (Smethwick)	Neave, Airey	Yates, William (The Wrekin)
Grimond, Rt. Hn. J.	Noble, Rt. Hn. Michael	Younger, Hn. George
Gurden, Harold	Nugent, Rt. Hn. Sir Richard
Hall, John (Wycombe)	Onslow, Cranley	TELLERS FOR THE NOES:
Hall-Davis, A. G. F.	Orr, Capt. L. P. S.	Mr. R. W. Elliott and
Hamilton, Marquess of (Fermanagh)	Orr-Ewing, Sir Ian	Mr. Geoffrey Johnson Smith.

Clause added to the Bill.

cc1243-58
1. New Clause.—(EXEMPTIONS FROM CAPITAL GAINS TAX IN CONNECTION WITH PRESERVATION OF LAND FOR PUBLIC BENEFIT.) 6,057 words
cc1258-64
2. New Clause.—(FUNDS IN COURT.) 2,387 words
cc1265-73
3. New Clause.—(UNIT TRUSTS FOR EXEMPT UNIT HOLDERS.) 3,261 words
cc1273-307
4. New Clause.—(TRANSFER OF BUSINESS ON RETIREMENT.) 14,110 words, 2 divisions
cc1307-18
5. New Clause.—(ANNUAL ALLOWANCES FOR NEW SHIPS.) 4,093 words