New Clause.—(COMPANIES IN WHICH THE PUBLIC ARE SUBSTANTIALLY INTERESTED.)

HC Deb 06 July 1965 vol 715 cc1461-504

(1) A company shall not be treated as a close company in any accounting period if 25 per cent. of its ordinary shares as defined in subsection (2) hereof are held on the last day of the accounting period in question by persons who are neither directors of the company nor associates of the participators who control the company and if a class of its shares is quoted in the official list of a recognised Stock Exchange in the United Kingdom on such day or, if no official list has been published on that day, then on the next preceding day on which an official list has been published, and if any shares of the company have been the subject of dealings on such a Stock Exchange in the course of such accounting period.

(2) For the purposes of this section ordinary shares shall mean a class of shares with voting rights not less proportionally than those attaching to any other class of shares of the company and entitling the holders thereof to a dividend other than a dividend at a fixed rate only or at a rate fluctuating only with the standard rate of income tax.—[Mr. Barber.]

Brought up, and read the First time.

Mr. Anthony Barber (Altrincham and Sale)

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

The purpose of this new Clause is in substance the same as that of Amendment No. 362 to Schedule 17 which we moved in Committee and subsequently withdrew. Before I deal with the reasoning behind the new Clause and the details of it, I will try to state as briefly as possible what it purports to do.

The new Clause would exclude from the provisions governing close companies any company in which members of the public are substantially interested—that is, where not less than 25 per cent. of the shares with voting rights are held by the public. It would thus limit the ambit of the close company provisions to the same extent as they are limited under the existing legislation governing what are known as Surtax companies. Nobody who gives consideration to the provisions about the close companies would deny either their importance and stringency or the fact that the Chancellor of the Exchequer intends to bring within the net many great public companies which hitherto have had no fiscal control over their distribution policy.

When I first raised this matter in the early hours of the morning of 23rd June and complained that such an important issue was being debated at such a time, the Chief Secretary observed that it was open to my hon. Friends and I to defer its consideration until the Report stage. I think he mentioned that this had been common practice in the past in certain circumstances. But I remind the House that until the Chief Secretary rose to reply to that Amendment two and a half months after the Chancellor of the Exchequer's Budget statement, we had had no explanation whatsoever of a proposal which, whatever its merits, certainly is of the utmost importance to British industry and commerce. The Chancellor, in his Budget speech, merely said that the existing provisions must be tightened up in a number of respects. But, of course, he is doing far more than that. He is not merely tightening up the existing provisions by putting more stringent provisions in the Bill, but extending very considerably the scope of those special provisions. But at that stage there was not a hint that anything of such a character was forthcoming.

9.0 p.m.

When the Financial Secretary moved the Second Reading of the Bill there was again no explanation. Indeed, after referring to the existing legislation, he said: We are continuing to apply the same precaution for preventing tax avoidance in relation to this system."—[OFFICIAL REPORT, 10th May, 1965; Vol. 712, c. 54.] I know that when the Financial Secretary moved the Second Reading of the Bill, he was obviously speaking in general terms and had a great deal of ground to cover. It is, however, surprising that he did not deem this major change of sufficient importance to warrant detailed explanation.

Perhaps the kindest construction to put upon all this, and I do not doubt that it is the true one, is that the Chancellor of the Exchequer and those with him on the Front Bench did not appreciate at the time the importance of what he was doing. This is apparent from the fact that Treasury Ministers seemingly had no idea that a company like British Petroleum was caught and was subject to the same special provisions as the smallest incorporated family business. In Committee, that was put right as the result of an Amendment put down by one of my hon. Friends.

I mention this background for two reasons; first to stress that I believe quite genuinely that Treasury Ministers did not realise the extent and the importance of what they were doing, and secondly, to show that it was quite reasonable to insist upon an explanation in Committee so that the whole House could consider the Government's explanation before Report.

I want to make two things abundantly clear. I quite recognise, as do my right hon. and hon. Friends, that in the case of small, closely controlled companies, special provisions are necessary to prevent tax avoidance. The Chief Secretary would, however, agree that certain of the tax avoidance devices which are known to the Inland Revenue could have been dealt with without this wholesale extension of the close company provisions to a new category of public companies.

Perhaps I may explain the sort of thing I have in mind. I do not know whether this is the case, but I am told on good authority that there is, apparently, doubt about the voting requirement referred to in Section 256 of the Income Tax Act, 1952. If that is so, it could most certainly have been put right independently of the Chancellor's present proposal. Again, I learned at the end of last week that there is a device whereby the existing provisions in the 1952 Act can be avoided by establishing control of the company in question in an investment company in which 25 per cent. of the shares are held by the public. Obviously, that device also could have been dealt with quite independently. There is a further device involving what, I understand, are known as dividend waivers, which I do not pretend to comprehend in full but which again, on the information which I have, could have been dealt with quite independently. Bearing in mind what I have already said, it must be for the Government to justify the increased powers which they are giving to the Inland Revenue. This most certainly they have not so far done.

Our objections to the extended definition of a close company fall, as the Chief Secretary knows, under two broad heads. First, some of the Inland Revenue's powers over purely commercial and financial matters which form an integral part of the close company provisions are quite inappropriate for many of our great public companies, which are now, for the first time, to be brought within what I might call the Callaghan net. Let it be remembered that the great majority of British companies are in future to be subject to the close company provisions.

I quite understand the proper desire of the Chancellor—indeed, of any Chancellor of the Exchequer—to prevent avoidance of tax, but there must surely be a limit to the extension of near-penal provisions to cover the case of companies when not even the Chancellor of the Exchequer would suggest that there was either any attempt improperly to avoid tax or any actual tax avoidance. It seems to us that this is just one more instance where, in order to catch the real culprits, the Chancellor is prepared to legislate quite indiscriminately right across the board, with consequences which must be detrimental to sound commercial and industrial enterprise.

I have already made it clear that I am not suggesting that no new provisions are necessary to deal with avoidance devices by public companies, but the Chancellor has ignored completely that in the matter of distribution policy the generality of quoted companies are subject to the discipline of the market and that their object must be to distribute as much as possible with due regard for their current and future requirements. In a laudable attempt to prevent tax avoidance, what the right hon. Gentleman is doing is to subject innumerable companies which have no intention of practising such devices to the same rigours and restrictions as the tax avoiders. We on this side are not prepared to let this legislation pass without full justification, and, so far, that has not been forthcoming.

The second objection, which also in tax matters is a very important one, is that, as a practical matter, I believe that this legislation will be a veritable nightmare to administer. I say that in the light of the reply we had from the Chief Secretary when the earlier Amendment was considered in Committee, and I make no apology for reminding the Chief Secretary of the case which I then put to him. I hope that, as he will now have had time to study it, we shall have a fuller reply, because this is indicative of the sort of thing which can happen.

Mr. Barnett

I have listened to the right hon. Gentleman very carefully, and I am prepared to consider whether or not to support his Clause, but could he give us an instance of how a close company would suffer under the legislation as amended?

Mr. Barber

It is agreed on all sides that the whole gamut of provisions governing close companies is extremely stringent. We went over this in great detail when dealing with it in Committee.

Mr. Barnett

Which ones?

Mr. Barber

The most important of all, the provisions dealing with distribution policy. It is because these provisions are so important and necessary in the case of a small family business where in the past there has been an attempt at tax avoidance that we do not oppose them for that type of company. All I am saying is that if there is justification for extending the provision in the way the Chancellor seeks to do, no doubt with the best will in the world, the House is entitled to a full justification of it. We did not get it in the Budget speech. We did not get it on Second Reading, although that would have been an appropriate time to deal with it at some length.

Let me give the sort of example which can occur in practice. Take the case of a company where the shares are held as follows: 11 per cent. by "the family" 40 per cent. by four institutional investors, such as an insurance company, banks and so on; and 49 per cent. by 10,000 smallholders who have acquired their shares on the Stock Exchange or on a public offer. The company is therefore under the control of five persons—"the family", treated as one person, and the four institutional investors.

Because the four institutional investors have not got control of the company, the company is not excluded under the provisions of Schedule 17. If the company fails to make what the inspector considers to be a sufficient distribution, the shortfall will be apportioned, with the practical consequence that the inspector will have to obtain particulars of the total incomes not only of the members of the family but also of each of the 10,000 smallholders. Very few of these will make returns in the district in which the tax inspector is operating. He will therefore have to obtain particulars in each of the 10,000 cases from the respective tax districts, and as I said the other night, there are between 1,000 and 2,000 districts.

I mention this case in detail again because I think that the House should bear in mind the Chief Secretary's comment on that occasion. He did not deny that this ludicrous situation could arise. On the contrary, his only comment was: . . it will be a situation exactly the same as it is now, which has gone on for years and years under the right hon. Gentleman's own Government under the 25 per cent. for Surtax companies."—[OFFICIAL REPORT, 22nd June, 1965; Vol. 714, c. 1686.] But even if that were the case, which I shall seek to show in a moment it is not, what a comment from a Treasury spokesman on behalf of a Chancellor who claims to be the greatest tax reformer for half a century! The truth is that there is no comparison whatsover between the situation which has existed for a number of years, and which I concede can cause practical difficulties, and the situation which will arise under the Bill.

The reason is not hard to find. In future, far more companies will fall within the net. What is perhaps much more important, they will be companies with a far wider range of shareholders. Under the existing legislation, the majority of companies which in practice are the subject of a potential Surtax direction have less than 100 shareholders, but now, in what, as I say, is a laudable effort to deal with certain aspects of tax avoidance, the Chancellor is bringing in companies with perhaps 10,000 or more shareholders, and the practical problems are bound to be infinitely greater than they were in the past. It is because of this that it will be impossible for some companies to know whether or not they are close companies.

I hope that the Chief Secretary will tell us this evening how on earth boards of directors are to know who are the beneficial owners of the shares. After all this knowledge is a pre-requisite to the determination of the status of a company, to deciding whether or not it is a close company. Schedule 17 provides, in effect, that nominee shareholdings and share options shall be treated as the holdings of those beneficially entitled, but the Chief Secretary knows, as do all those who have taken an interest in these matters, that the directors have no right to force those whose names appear on the share register to disclose their beneficial holdings, and I think that we are entitled to an answer on this point. There may be a simple answer. There may be some legislation which empowers directors to ascretain who are the beneficial shareholders, but I do not know of it.

I will not weary the House with a whole string of examples of the ludicrous way in which it can work out, but there is no limit to the complexities which can arise. Let me mention one problem which was put to me only today, though perhaps I might add that there is another good instance which I could pursue, and if necessary bring to the attention of the Chief Secretary. Schedule 17 makes it necessary to look at shareholdings in a parent company if the subsidiary is 100 per cent. owned. If the parent company is a foreign parent, it is necessary, if one is to carry out what is set out in the Bill, to look at the foreign company's share register. In United States law there is no requirement whatsoever for nominee shareholders to disclose the beneficial owner's interest.

I hope that the Chief Secretary will give a clear answer on these genuine points which have been put to him. How are the Inland Revenue, or indeed the directors of the United Kingdom company, in a case such as this, to obtain the information which the Bill makes essential?

9.15 p.m.

I might add in passing that the direct consequence of the provision governing a close company which is a subsidiary of an overseas company is that the close company in this country may well have to distribute to its overseas parent, the overseas holding company, more than it otherwise would have done, and that is an odd way of helping the balance of payments. In the light of what the Chief Secretary says, we shall consider whether we ought to put down an Amendment to Schedule 17 to cover this point.

We on these benches are not wedded to this new Clause, which I quite recognise may well be technically defective. Nor, in fairness to the Chancellor, are we wedded to the figure of 25 per cent. But if the Chief Secretary agrees that some revision should be made of his right hon. Friend's present proposals, then, as we have raised the matter as a new Clause, it would be open to the Chancellor to amend the Bill by amending Schedule 17, and because we have raised it at this early stage on Report this would not mean that the Bill would have to be recommitted. I mention this because I recognise, in view of the time factor, that the Chancellor may think that a recommittal in present circumstances is undesirable.

So far we have had no adequate explanation of the right hon. Gentleman's proposals and we have had no answers to the sort of practical difficulties which I mentioned when the matter was previously raised in Committee. On the explanation which we have had so far, the extended definition of a close company is bound to hinder the proper commercial development of some of the most important companies in Britain on which our standard of living depends. If we do not receive a better answer this evening, I am afraid that we shall have no alternative but to divide the House.

Mr. Harold Lever

I must confess that I approach the new Clause with mixed feelings. The old system of law was illogical and unsatisfactory. It did not call a close company a close company, but it had its own system of close companies, somewhat different from the present system, but, in principle, not very different.

The approach of the right hon. Member for Altrincham and Sale (Mr. Barber) did not seem to me logical. First, he seems to have fallen into an error which I sometimes detect on this side of the House, but never as manifested by the right hon. Gentleman—a supposition that the Government have something against close companies and that these are dirty words. There is nothing improper about close companies or family businesses or anything of that kind, and I am sure that my right hon. Friend agrees. I am glad that he nods his head. But the right hon. Member for Altrincham and Sale repeatedly circulates the suggestion about family companies being guilty of tax avoidance. The fact that he kept mentioning this seemed odd, except that I recall that when I was trying to protect these companies from having the onus of proof thrust on them in connection with Surtax directions, the right hon. Gentleman thought that the onus of proof ought to be on the company and not on the Revenue.

Mr. Barber

On that occasion I was trying to be frank with the Committee because I think that in these matters one should be frank. In considering the Chancellor's attitude to family companies I have been influenced by the fact that the Chief Secretary, in a clear intervention when my right hon. Friend was talking about the breaking up of family companies, said, "And about time too". No Treasury Minister has disowned him.

Mr. Lever

That sort of intervention should not be taken seriously. If one seeks to spell out the political philosophy of one's opponents from jocular interventions when one is making a singularly tedious speech, one must be poverty stricken indeed. We must talk about this matter seriously. The right hon. Gentleman has got his premises wrong. What is wrong with being a close company? The right hon. Gentleman is trying to exempt some companies from being close companies. If there is something wrong and unfair in the treatment of close companies, the remedy is to ensure that close companies are not unfairly treated. The remedy is not to seek to extend in an artificial manner the area of public companies so as to include companies which are not truly public companies and whose shareholding is not widely spread among the public. If the right hon. Gentleman has any complaint, it must surely be that he thinks that close companies are unfairly treated.

Mr. Gower

The hon. Gentleman is saying that it is not desirable to extend the area of public companies so as to include companies which are not really public companies. Surely our complaint is that the Chancellor has extended the area of close companies.

Mr. Lever

The right hon. Gentleman is trying to effect a so-called remedy by extending the area of public companies. The Chancellor will ask, as my hon. Friend the Member for Heywood and Royton (Mr. Barnett) very pertinently asked, what the right hon. Gentleman is complaining about. The right hon. Gentleman said, first, the direction Clause. [HON. MEMBERS: "Only."] As far as I know, he complains only about the direction Clause. No company, close or public, is compellable under our legislation to distribute more than it is reasonably sensible for it to distribute. I will come later to the question whether there is need for this Surtax direction. If I have any complaint about the standard, it is simply that the onus of growth is put upon the company instead of upon the Revenue, where it should be. The right hon. Gentleman, however, is out of court upon this complaint, because he thinks that the onus of proof should be where the Chancellor has put it so that complaint can be left aside.

I come to the single complaint that a close company may be forced to pay more dividend than it wishes to pay. This is what the right hon. Gentleman said. He said that he was afraid that, if a public company of this kind was not given this exemption, it would be subject to a Surtax direction and would be forced to pay more dividend than it wants to pay. It can be forced to pay more dividend than it wants to pay only if it seeks to retain more than is reasonably necessary for the purposes of the business.

The only reason that public companies are given an exemption from Surtax direction is because in the past it has been assumed that the extent of public interest will be sufficient to ensure that what is considered to be a full and reasonable distribution of the profits will take place. This may very well be a not unfair, though a very rough and general, assumption, namely, that where there is a widespread public shareholding—that is, where the public controls the company effectively—the Revenue has been willing to assume that if the board of directors or the controlling influence in the company sought to accumulate the profits instead of to distribute them the average small shareholder, or even the average big institutional shareholder not liable to Surtax, would bring pressure to bear upon the company and force a more liberal distribution. This was important from the Surtax point of view hitherto. It is particularly important now, from an Income Tax as well as from a Surtax point of view, and from the point of view of preserving the revenue, that a fairly reasonable distribution should be made.

Therefore, the Revenue is entitled to have another look at the terms of exemption of quoted companies. The right hon. Gentleman says that the old terms will do, that a 25 per cent. shareholding should be enough. I do not think this is so. I think that, if this system is to be run, the only justification for exempting public companies is that they are subject to such popular pressure, should they pay small dividends, that they will have to pay a reasonable dividend.

It is no answer to say that this might be troublesome to the Revenue in certain cases. I should have thought that that was a cause for comfort rather than a cause for anxiety, because if it is exceedingly troublesome for the Revenue to discover thousands of shareholders and to assess their respective Surtax and Income Tax levels, involving an immense amount of administrative work, this would greatly discourage the Revenue from seeking to impose the Surtax direction upon the kind of companies that the right hon. Gentleman is afraid will be subject to a Surtax direction, except in the most glaring case of inadequate distribution. The Inspector of Taxes, for the purpose of saving his own administrative fatigue, will be forced to let anything on the borderline go. In those circumstances, I do not think there is a remedy in the kind of niceties that the right hon. Gentleman has suggested for dealing with the question of inadequate distribution.

I should like to say a word about the future. If the Clause is not the right remedy—that is to say, if some companies shall be exempt and others shall be liable—Surtax direction is also not the right remedy, and I hope we shall go on from here. There still remains to be explained the odd paradox of saying that in the case of I.C.I. it is a splendid thing if the company pays practically no dividend, on the ground that there are innumerable shareholders, notwithstanding the fact that none of the shareholders pays tax on non-distributed profits and will pay no tax under the new dispensation, but that it is a bad thing in the case of family companies. I do not see the point. I do not see why, if a man invests his money in a family company, it should be more sinful to plough back the profits in order to build up his capital than when it is done for him when he invests in the Legal and General Assurance Society Ltd. or in I.C.I.

The whole thing is a paradox and is illogical. The paradox has got to be tackled at its root, and not in the manner suggested by the right hon. Gentleman. The root may very well be to abolish the whole need for Surtax direction. All one need do to abolish the whole power of Surtax direction on companies, close or open, is to ensure that the shareholder shall not have access to the use of assets except by means of dividends or by some means which makes one pay the appropriate amount of tax. Once we have that system whereby the shareholder cannot touch the assets of the company or enjoy them or spend them or make use of them except when he receives them by way of dividend or by way of realisation of his shares—

Mr. Geoffrey Lloyd

The hon. Gentleman is referring to investment trusts?

Mr. Lever

I am referring to an analogous system whereby a beneficiary under the settlement of a trust, a settlor, ceases to be regarded as a non-beneficiary. The income is deemed still to be his. We are moving in that direction. The Chancellor has moved a good deal of the way towards it. It may be that some of the hardship will be mitigated at the next stage when the Chancellor may indicate the abolition of the whole system of Surtax direction. When he has completed the task of ensuring that what is ploughed back into a company cannot be enjoyed in the same manner as a dividend is enjoyed by a shareholder, or borrowed or manoeuvred by a shareholder without attracting tax, then we shall have moved to a modern system of taxation.

Mr. Graham Page

I intervene because there is on the Notice Paper an Amendment in my name, Amendment No. 277, to Schedule 17, in page 216, line 5, at end insert: (4) A Company is not to be treated as a close company if the public are substantially interested in it and the public shall be deemed to be substantially interested in a company if shares of the company (not being shares entitled to a fixed rate of dividend and without a further right to participate in profits) which:

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1. (a) carry not less than 25 per cent. of the voting power of the Company, and
2. (b) would, if the whole income of the company were in fact distributed to the members, entitle the holders theréof to receive not less than 25 per cent. of the amount so distributed, and
3. (c) would, on a winding up entitle the holders thereof to receive not less than 25 per cent. of the assets of the company

and at the end of the accounting period mentioned in Part II of this Schedule beneficially held by the public and each class of such shares have in the course of such accounting period been quoted in an official list of a Stock Exchange in the United Kingdom and been the subject of dealings thereon Provided that the expression "the public" for this purpose shall not include any associated company nor the directors of the Company or the five participators (other than companies which are not close companies) whose respective holdings, together with the holdings of their respective associates, represent the five largest interests in the capital or income of the Company computed as provided in paragraph 3 hereof, or any associates of such participators. The Amendment has not been selected, Mr. Deputy-Speaker, and, therefore, I do not intend to debate it in any way. I merely call attention to it as being a convenient summary in print of my comments on new Clause No. 35, of my qualified support for this Clause—my support in principle, if qualified in detail, as to the place that it should take in the Bill.

My right hon. Friend has explained clearly the immense difficulties in applying close company provisions to the substantially publicly-owned companies. He has explained the serious hindrance that these restrictions will cause to many of the greatest undertakings in the country—restrictions which are unnecessary to avoid abuse.

9.30 p.m.

The Surtax directions, which is a convenient way of referring to these restrictions, were surely applicable to companies not effectively under public control. I should have thought that it must be generally agreed that the company in which the public has a substantial interest should not come within the close company provisions and that the real debate is on whether we can describe that company so that abuse does not come or escape does not come from the way in which we describe it.

Can we describe in a Clause what we mean by the substantial interest of the public? First, can we describe "substantial" and secondly can be describe "the public"? Unless we can define these specifically there will perhaps be so much abuse that the relief would be impracticable to define, because so frequently in taxation one cannot do what one wants to do because one cannot frame the appropriate Clause to prevent the benefit being given to those who do not deserve consideration.

But I think that we can here describe exactly what is meant by a company in which the public has a substantial interest, and the new Clause goes a great way in describing that in detail and pluging up any holes which there may be in that definition. The limiting factors necessary for plugging up the holes are considerations that the shares concerned must not have a fixed rate of dividend, they must carry not less than 25 per cent. of the voting power of a company, and the shareholders must be entitled to a distribution of not less than 25 per cent. of the amount distributed and, on winding up, must be entitled to not less than 25 per cent. of the assets.

Mr. Deputy-Speaker (Dr. Horace King)

Order. The hon. Member is getting perilously near describing his own Amendment No. 277 which is not selected.

Mr. Graham Page

Although I have that page open in front of me these are provisions which appear in new Clause No. 35 but, as I said, that Clause does not go far enough to my mind in the definition of what is meant by "a substantial interest" and what is meant by "the public".

Mr. Deputy-Speaker

The hon. Gentleman can criticise what is in Clause No. 35 but he cannot replace it by his own Amendment No. 277. That Amendment may be selected ultimately, in which case the hon. Gentleman will have a chance of talking about it. On the other hand, it may not be selected, in which case it is not in order for him to talk about it now.

Mr. Graham Page

I will confine myself strictly to what is in new Clause No. 35 and comment on that in so far as I think it adequate or inadequate. The new Clause contains the expression "25 per cent. of its ordinary shares" and that figure is to be judged as on the last day of the accounting period, and it refers to the voting rights of those shares—the point to which I was previously referring. But to the extent which I mentioned earlier I do not think that it defines that voting right clearly enough.

The new Clause defines what is meant by the public as not the directors of the company nor the associates of the participators. It says that shares must be quoted on the Stock Exchange and that there must have been dealings on the Stock Exchange during the accounting period. These are definite descriptions of what is meant by the public having a substantial interest in the company and therefore it is practical to define this type of company so that one can exclude it from the close company provisions. This is what new Clause No. 35 is intended to do. If accepted by the Government, it would benefit some of the greatest undertakings on which we rely but which will be hindered by the provisions affecting close companies if they are left to apply to that sort of undertaking.

Sir Henry d'Avigdor-Goldsmid (Walsall, South)

Many hon. Members will be grateful to the Chair for a selection which has made it possible for this important new Clause to be debated at a time when a number of hon. Members can be present and when, perhaps, their faculties are not affected by lack of sleep. It is a particularly important Clause, because it brings into our consideration not only the actual companies concerned, whose number is very large, but the whole structure of industry and commerce in this country.

It is now fashionable to declare an interest, or to have an interest declared for one, and perhaps I had better make clear that I speak as chairman of a bank which is not a close company but am also a director of a close company. I propose, therefore, to direct my remarks entirely to the area where I have no interest whatever, and the considerations which I shall bring out will be those applying to banks which are close companies.

I thought that the hon. Member for Manchester, Cheetham (Mr. Harold Lever) had not applied himself with his usual perspicacity to this Clause inasmuch as he seemed to suggest that no particular inconvenience was suffered by companies being close companies.

Mr. Harold Lever

I did not say that. I said that, if it were true that making a company a close company would handicap it seriously in its commercial and financial activities the remedy was not to extend the area of non-close companies, but to remove the handicaps because close companies are entitled to have as much commercial and financial opportunity as any other company in the land.

Sir H. d'Avigdor-Goldsmid

The hon. Gentleman is kind enough to help me make my speech and I am very grateful. Unfortunately, we are addressing our minds to a Clause which seeks to widen the sphere of public companies and narrow the sphere of close companies. However much I may applaud the hon. Gentleman's remarks I feel that I should be out of order if I were to follow him. I shall address myself to the Clause which is before us.

The first and major disadvantage—I am speaking now of the banking world—is that there is an active discouragement to people to have their money in their own bank. In my youth, one preferred to do business with people who had their money in their own business.

Mr. Harold Lever

indicated assent.

Sir H. d'Avigdor-Goldsmid

I see that the hon. Gentleman nods approval. This is a prejudice which exists in many countries. One feels slightly more encouragement to do business with an institution which has the benefit of the fortunes of its founders rather than one which is an entirely public company in which the shareholders are, perhaps, in no position to protect their interests until long after they have suffered.

This is an important point. As the Chief Secretary knows, a participator in a bank is actively discouraged from having any of his own money in it. The fact that he has his own money in it disqualifies him from being a whole-time working director. He is disqualified from being a whole-time working director if, directly or indirectly, he has as much as a 5 per cent. interest. That appears plainly in the Schedule. It means that no man will wish to put or invest his funds in the business he is running himself. Why?—because he is a participator, and he is limited in his earnings to the sum of £3,500 if he is chairman or £2,500 otherwise. Equally, there are certain advantages of residence and what used to be known as fringe benefits which he is completely barred from enjoying. If he is a whole-time working director in somebody else's business, he gets them, but if he is a whole-time working director in his own business, he does not.

This is not mere fancy. I am talking about banks, and banks make their name by being reliable and responsible, and the best guarantee of responsibility is that people know that the family's own money is in it. This is a real point, but this is something which is actively discouraged by the provisions of the Bill. [Interruption.] The hon. Member for Cheetham has made several speeches on his feet, and now he seems to make one from a sitting position. I am addressing myself to the narrow point. There is an important national interest here. I know that the word "bank" is regarded with odium, but the fact is that the banks about which I am talking, which are close companies, have added a great deal to our foreign exchange earnings.

Over the last two years there have been floated in the City of London a very large number of loans for abroad which have used not a penny of British capital because they have been floated in dollars. It is a particular triumph for the ability of the City of London that the great £50 million pipeline which is reaching across Europe has been granted to a British consortium which did not invest a penny in it. It invested its "know-how" and skills, and this investment enables it to earn a very substantial commission directly for this country and also indirectly in the expenditure of the actual pipeline.

The institutions which carried this out are just the institutions which by these close company provisions are being invited to lose their standing. There is no doubt that their standing depends as much on the family fortunes which are engaged with them as on the actual balance sheet capital which they show. After the Bill becomes an Act, their legal advisers will tell the families that they are wrong to keep their money in their own bank because they will be penalised thereby. It will be said abroad that because of British legislation those families have had to take their money out of their own businesses and put it elsewhere.

I am not inventing. I am speaking from direct personal knowledge of the way people talk and think. Is it sensible that that sort of thing should happen? Is it in the national interest that such skill and expertness should, through some of the rougher provisions of this close company legislation cause important British interests to lose their standing? My right hon. Friend the Member for Altrincham and Sale (Mr. Barber) made what might sound a fanciful suggestion, that one might have an institution in which the family had 11 per cent. interest and 40 per cent. was held as to 10 per cent. each by four important public companies, which would result in the business being a close company.

9.45 p.m.

I can give the Government particulars of one of the three or four largest merchant banks in this country which is 69 per cent. publicly owned. It has 17,000 public shareholders, but it is caught as a close company. What is its position? The family, obviously, will be advised that it is wrong for it to keep its money in that bank because the interest will be penalised and, furthermore, that the chairman will never be allowed to consider more than £3,500 of his earnings as earned income. This is really silly. One does not get people capable of being chairmen of important public companies of this size unless they are worth an earned income of rather more than £3,500.

Mr. Eric Lubbock (Orpington)

Sometimes one has to pay them £270,000.

Sir H. d'Avigdor-Goldsmid

That characteristic intervention from the hon. Member shows that he does not know the difference between a public company and a close company. I am talking about a close company in banking—a subject of which his father had a great deal of knowledge It is a pity that the father did not have a chance of passing it on to his son.

I am entitled to ask the Chief Secretary whether he intends what he said concerning the close company provisions in so far as they apply to a number of international institutions which are earning for this country and whose standing and earning ability will be damaged if these provisions go through without amendment. I hope that I shall be forgiven for dwelling on the narrow rather than the wider point, but it is important and I hope that the right hon. Gentleman will answer it.

Mr. Barnett

As hon. Members will know, I do not like penal taxation, but I do not think that the right hon. Member for Altrincham and Sale (Mr. Barber) made a case for his claim that the effect on close companies which he is attempting to remove from the net will be penal. Indeed, his argument was somewhat perverted. He stood it on its head.

What are the disadvantages for close companies as defined by the Bill? I intervened to ask the right hon. Gentleman and the only disadvantage he could give concerned compulsory distribution. Now the hon. Member for Walsall, South (Sir H. d'Avigdor-Goldsmid) has talked about the remuneration of directors. Amendments that have been made to the Bill now allow for large companies with larger profits up to 15 per cent. of profits as directors' remuneration, and I am hoping for even greater concessions when we discuss smaller companies.

The only other penal effect on close companies was that of loan interest as previously defined. This has been conceded and the right hon. Gentleman did not feel it necessary or important or penal enough to mention it now, although there is still some of the old provision left. The only example the right hon. Gentleman gave was that regarding compulsory distribution.

When dealing with an attempt like this to stop a form of tax avoidance—and I do not think that any hon. Member would dispute that that is the intention—and when we are considering whether we should effect a law which will prevent the avoidance of taxation in any way, we should ask ourselves whether it will hurt people more than it will help the Revenue.

If I thought that this would have such a penal effect as to hurt a large number of people I would say, "Let us have a little avoidance", but no hon. Member has yet proved to me that the penal effect of this stopping of Surtax avoidance is such as to warrant the inclusion of the Clause, because the maximum distribution of trading profits, assuming a Corporation Tax rate of 40 per cent., would be 36 per cent.

If that is penal, hon. Members opposite are now arguing a rather different case from what they have argued previously when they have said that we should do everything possible to encourage distribution. Their argument has been that the effect of the Bill will be to discourage distribution and that the Bill should have been so framed as positively to encourage distribution so that it would then come back in the form of new equity.

We now have a situation in which the most a closed company will be compelled to distribute will be 36 per cent. Providing that a company could show without too much difficulty—and from my experience it is not difficult to show—that it was ploughing back profits for use in the company, even in years ahead, it would not have to pay a penny in dividends. If the effect of the tax on close companies as now defined and including those which hon. Members opposite wish to exclude is not so terribly severe, what is the purpose of the new Clause?

Surely it must be accepted that in many cases the sole purpose of retaining, as opposed to ploughing back, profits is to avoid Surtax. Hon. Members opposite are now taking the heart out of the argument of the right hon. Member for Bexley (Mr. Heath) about the survival of the fattest, because that is precisely what they are now proposing. They are now saying that we should give every possible encouragement to those companies now defined as close companies to retain, as opposed to ploughing back, profits; in other words, allow the fattest to survive.

One can only assume that the right hon. Gentleman has put on some weight since the start of our discussions of the Bill some months ago, but it should be made clear to the House and the country, that those companies, close or otherwise, which wish to encourage growth and which are ploughing back profits rather than retaining them to avoid Surtax have every encouragement to do so and will pay less tax for so doing.

Mr. A. P. Costain (Folkestone and Hythe)

I wish to support the Clause merely by declaring my interest. I am a director of a close company of which I hold 98 per cent., a director of a close company of which I own a majority and a director of a public company. I do not have a clue whether it is a close company or not. Its shares are dealt with in some of the world's stock exchanges and at one moment it may be a close company and at another not.

I support the Clause because I do not see why someone dealing in shares in Australia should be able to affect the taxation position in this country. The Clause is designed purely to put some sense into a provision designed only to take every possible step to stop tax evasion and which goes so far that it will stop normal business.

Mr. W. R. van Straubenzee (Wokingham)

I think that there are two answers to the well-argued case put to the House by the Member for Heywood and Royton (Mr. Barnett), which ought to be answered, because the House is accustomed to his arguments being backed by considerable experience. The first answer, and I think that this was demonstrably shown by my right hon. Friend the Member for Altrincham and Sale (Mr. Barber), when the Bill was first drafted and presented to the House, is that it was not appreciated that it affected so wide a range and number of companies as it is now shown to affect. It is this which this Clause seeks to rectify.

As additional evidence of that I take the example given by the hon. Gentleman the Member for Heywood and Royton himself. The upper limits of remuneration in Clause 69(1) would never have been so full if the other effects of this Clause had been appreciated in the first place. It is all very well, if I may say so in a friendly way, to say that as a result of pressure "we have now got changes". It is as a result of pressure from this side of the House that we got the change, and that had better go quite firmly on the record.

The second answer to the hon. Gentleman the Member for Heywood and Royton is that the primary reason behind the rejection, if it be so, of this Clause, is the absolute rooted preoccupation of the Treasury benchers with tax avoidance.

The Assistant Postmaster-General (Mr. Joseph Slater)

Hear, hear.

Mr. van Straubenzee

The hon. Gentleman has taken a very active part in our proceedings. That is the sort of speech which I am sure his own Front Bench welcomes.

The right hon. Gentleman the Chief Secretary, speaking when we last debated this matter, said the reasons for these provisions were perfectly simple, that … the need to protect the Revenue is greater now than it was before …."—[OFFICIAL REPORT, 22nd June, 1965; Vol. 715, c. 1685.] There have been schemes by which closely controlled companies have avoided their proper taxation. My right hon. Friend the Member for Altrincham and Sale showed exactly that correct measure of discretion, and indicated that he clearly understood at least three of them, but went no further than was necessary to convey to the Treasury Bench that he understood what was in their minds.

It is conceded that this is a power which is proper and requisite in the hands of the Treasury. But this absolute preoccupation, this feeling, particularly now that larger companies are in the net, that they are busily engaged in the business of tax avoidance and that there is need for these massive powers—this is not in tune with the realism of business life.

An interesting example of this type of thinking is given in a paper of which some hon. Gentlemen may have heard, called the New Statesman. It is a paper which I only read on those useful occasions when I do not have to pay for it. In an issue of it there is an article by Mr. Michael Posner, who is an intelligent young economist, close to at least one of the authors of the Bill He described my hon. Friends, and possibly even myself—those of us who have interested ourselves in this section of the Bill—as "an ugly lobby of the tax avoiders".

I do not suppose that he used the word "ugly" in relation to my hon. Friends in a physical sense, because no one could conceivably apply that to my hon. Friend the Member for Wanstead and Woodford (Mr. Patrick Jenkin), and my hon. Friend the Member for Belfast, North (Mr. Stratton Mills), though possibly it could be applied to myself. [HON. MEMBERS: "Oh."] I trust that HANSARD will record those cries of dissent. To think that anybody can describe the efforts to improve these unthought out provisions—and, by Heavens, the improvement is shown on the Notice Paper—as "an ugly lobby"! What a revealing expression this is. This is the basic thinking behind the new provision the effect of which the new Clause seeks to alleviate. This is the second answer to the hon. Gentleman.

10.0 p.m.

The object of the close company provisions is the greater supervision and control of what I might loosely call the everyday affairs of a very substantial number of companies which are public companies in the minds of ordinary members of the public. I am well aware of what I think are some of the most hopeful words ever recorded in HANSARD by any Minister.

On 22nd June, the Chief Secretary said: There are no major difficulties"— he told us blandly— whatever for the company which finds itself a close corporation. If it is concerned to expand its business, not to avoid tax in the way indicated, it will have my right hon. Friend's full support and encouragement"—[OFFICIAL REPORT, 22nd June, 1965; Vol. 714, c. 1686.] In future years, when the right hon. Gentleman is in private practice, we shall remind him of those words until he winces. What he forgets is that Ministers and Governments come and go but that Treasury officials remain.

I accept the good intent of the Chief Secretary and the Chancellor of the Exchequer, but Treasury officials are not affected by words in HANSARD. They are concerned only with the words which we write in a Bill; and the Bill will be a better Bill if we write in the words of the new Clause.

Mr. Stratton Mills (Belfast, North)

My hon. Friend the Member for Wokingham (Mr. van Straubenzee) spoke about accepting the good intent of the Treasury Bench and their attitude towards close companies. I am sorry to disagree with him, because I am not prepared to accept it. I wish to make two points.

It is clear that the Government's attitude to close companies is one of basic hostility, for two reasons. First, their basic attitude is to prefer the larger company and to base their arguments on the larger company being more dynamic and having a greater growth potential and the smaller company being potentially more inefficient. This is a basic simplification of the situation.

Secondly, in preparing his economic plans, and in the various other activities which he gets up to between weekends, I think that the First Secretary prefers always to deal with the large company. He can rap his desk and get the chairman of the large company to come along. He can invite him to lunch, or make a speech at him or suggest honours to come. But the Government do not care a twopenny damn about the small man, who is concerned with looking after his business and improving its position. I make those purely preliminary remarks on the Government's attitude to small close companies.

My hon. Friend the Member for Wokingham quoted some revealing parts of the Chief Secretary's speech on 22nd June. If he were to refer to col. 1867 of the OFFICIAL REPORT for that date. he would see expressed in seven lines the Treasury attitude to the 25 per cent. public participation provision. I do not propose to read what the right hon. Gentleman said, but the argument basically was that this has been used as a method of tax avoidance. I ask the Chief Secretary, when he winds up, to outline the specific points of tax avoidance which are troubling the Revenue and to say clearly why it is impossible to deal with them by amendment of the existing legislation rather than by this broad, blanket provision. That is the crucial point in this debate and I hope that the right hon. Gentleman will be able to deal with it.

A further point which I want to make concerns the practical effects on public companies which, having quotations in recent years, have sold off 25 per cent. of their equity to the public. They will now be faced with having to sell off a further 25 per cent. of their equity or accepting the penal provisions of the Bill, which my hon. Friend the Member for Wokingham and my hon. Friend the Member for Walsall, South (Sir H. d'Avigdor-Goldsmid) have outlined. To sell off another 25 per cent. of the equity creates great problems, because it cannot be done by an offer for sale, as may have been done originally, or by placing, but presumably it will have to be done through the market. The Government's economic activity has not really made the Stock Exchange much stronger.

This type of small company has a narrow market for its shares. I imagine that one could sell £10,000, £20,000 or £30,000 of I.C.I. shares in a day and not affect the market, but in the case of a small company with a market value of £200,000, to sell £50,000 worth of shares over the course of a couple of months would seriously affect the market price. My other point under this heading is that the family have to agree among themselves who is to sell the shares and the 25 per cent. of the capital. This is a difficult point. The share capital may well be spread throughout a number of different branches of the family and it would be necessary to go into the problem of who is to sell and who is not.

I return to the point with which I began. The Chief Secretary is the most reasonable of men and cannot fail to have been impressed by the arguments which he has heard tonight. Before we consider Schedule 17, he has the chance to put down a Government Amendment. He may not be able to make a clear announcement tonight, but if he would undertake before we reach Schedule 17 to consult Mr. Kaldor, that would go a long way to meet our point.

Mr. Diamond

Whether I am reasonable is for the House to say. I am anxious to try to understand why this curious idea of a stigma seems to have grown up with regard to close companies. There is no stigma in referring to a company as a public company or a private company. It is merely a description of the way in which shares are held. It is neither good nor bad, neither pejorative nor the reverse. It is simply a description. I am sorry to have stimulated the hon. Member for Walsall, South (Sir H. d'Avigdor-Goldsmid) already.

Sir H. d'Avigdor-Goldsmid

If the right hon. Gentleman wants to know why it is pejorative, I have only to call his attention to Clause 69, which limits the amount which close companies can deduct for directors' remuneration, to Clause 70, which stops up a device under which close companies obtain tax benefits in respect of certain loans, to Clause 72, which concerns the shortfall in distributions by a close company with Income Tax at the standard rate, and Clause 73, which provides for the apportionment for Surtax of a close company's income. If the right hon. Gentleman wants to know why it is pejorative, he gets the answer from his own Bill. Why peer into the crystal when one can read the book?

Mr. Diamond

I repeat, I fail to understand why a stigma has become attached to a description of a company which merely relates to the manner in which its shares are held. The hon. Gentleman himself referred to the phrase "a family company" with benevolence. He thought a family company was something which in banking terms might carry strength and confidence, and I share that view. There is nothing wrong in calling a company a family company and, by and large, a family company would be a close corporation. Perhaps the hon. Gentleman would prefer us to alter the name. We will not get very far with the problem unless we remove the suspicion with which right hon. and hon. Gentlemen are approaching it.

It is accepted on all sides—and the right hon. Gentleman the Member for Altrincham and Sale (Mr. Barber) started on this—that our tax system at present is such as to protect those who play the game in their tax affairs and to protect the honest and fair taxpayer. It is necessary to see that tax avoidance does not take place through income which is really the income of a proprietor and should be taxed as part of his income and subject to Income Tax at the present time. It must not be so dealt with as to avoid a fair measure of taxation.

This is common ground between both sides, and the right hon. Gentleman who opened the debate said he recognised that the present system, which for shorthand purposes I will refer to as "the Surtax provisions"—the Surtax direction and the Surtax company—was necessary, because otherwise there were clearly opportunities for large-scale tax avoidance, which means opportunities for certain people to avoid paying their fair share and therefore for other people to be called upon to pay more than their fair share.

If the Treasury and the Government and, indeed, the whole House do not have the responsibility of seeing that everyone pays his fair share of tax, I do not know why we are here. We are taxing the public. Surely it is our duty to see that we tax people in such a way that everyone pays his fair share, and the right hon. Gentleman recognises that under the present system it is necessary to have what we call the Surtax provisions dealing with "the Surtax companies".

It is true, as the hon. Gentleman the Member for Wokingham (Mr. van Straubenzee) said, that under the new system there will be a greater incentive to avoid tax in this way. It is true that under the new system we want to encourage firms either to plough back and use the money they have made in the development of their industry, if necessary up to 100 per cent. of their profits so that not one penny need be declared in dividend, or to declare dividends, but not to sit idly on their resources and, as the right hon. Gentleman said in an earlier debate, grow fat on them.

For these two reasons, therefore, it is necessary that the protection which the fair-minded taxpayer had should remain or be increased. But the proposal which the right hon. Gentleman is putting before us, and which has been supported by a number of speeches, is that the present protection should be mightily reduced; that whereas, at the moment, there is some incentive to tax avoidance which will be greater under Corporation Tax, the protection should be reduced.

That is wholly illogical. It will be vastly reduced, because the proposal deliberately uses words—I say "deliberately", because the right hon. Gentleman referred to them—which make the proposed protection much less than the present protection. It will not surprise the House, therefore, that I could not possibly recommend the acceptance of this Clause.

10.15 p.m.

There are other Clauses and other Amendments which seek to do different things, but what this Clause seeks to do is to reduce the present protection. It seeks to do it in a particular way, namely, by removing the word "beneficial" from the ownership of the shares. This means that it will be possible to drive a coach and horses through the anti-avoidance devices which exist. I said that I was sure the right hon. Gentleman had deliberately left out the word "beneficial" because a good deal of his speech was devoted to the difficulty of determining whether a beneficial shareholder was a nominee of some other shareholder.

Mr. Barber

Whatever may be the terminology of the proposed Clause, it was not our intention to provide fewer safeguards for the Revenue than existed before. I thought that I had made that clear. Indeed, I thought that I had made it clear that in my opinion there was no substantial difference between this Clause and the new Clause which we considered in the middle of the night in Committee.

Having made that point, may I say that if the right hon. Gentleman wishes to amend Schedule 17 to restore the position to that which existed before the Bill was introduced, we would be happy to accept his Amendment.

Mr. Diamond

Then there is very little more for me to say. I do not know whether the House would like me to go through the four major ways in which the proposal is less protective than the existing Surtax provisions. I have mentioned only one because the right hon. Gentleman dealt at length with the problem of ascertaining beneficial share ownership. However, if he agrees that in the new circumstances it would be wrong to introduce a protective measure which was less protective than the existing one, I do not think that I need detain the House long at all, because there will be other opportunities for discussing other proposals which it would not be in order for me to anticipate.

There is one thing to which I must refer, and that is the right hon. Gentleman's repeat performance—I do not use the words discourteously—perhaps I might say his repeated reference, to the difficulty of ascertaining whether a shareholder is a beneficial shareholder or not. The hon. Gentleman described a company in which he is interested and said that he had not the foggiest idea whether the shares were beneficially held, or who held them. I hope that he will consult his right hon. Friend, who will tell him that this is a situation which existed hitherto, and has done for many years, because the present limitations are based on a 25 per cent. holding by the public.

Mr. Barber

indicated dissent.

Mr. Diamond

The right hon. Gentleman shakes his head. I hope that he will tell me in what respect I am wrong.

Mr. Barber

I was called out of the Chamber a few minutes ago to receive what I thought was an urgent telephone call. It was, in fact, a call from somebody who is closely concerned with a highly reputable merchant bank. He tells me that he has more than 15,000 shareholders and that, having taken the best possible advice, the position is that without the most meticulous examination of the share register it is not possible to decide whether or not it is a close company. This sort of thing never arose before.

Mr. Diamond

The right hon. Gentleman must not say that this sort of thing never arose before, because it is the situation which exists now, even as I am speaking, and as the right hon. Gentleman is sitting there. The present position provides for exclusion from the Surtax provisions if 25 per cent. of the shares are held by the public. One first wants to find out whether the shares are held by a bank, whether Mr. Smith is a shareholder, whether X Bank Ltd. or its nominees are shareholders, and so on. The situation about which the right hon. Gentleman was complaining exists at this very moment.

The right hon. Gentleman does me the courtesy of reading what I say and quoting it from time to time. I hope, therefore, that he will be a little more careful to put my remarks in context. This is the second occasion on which he has not done so. In his quotation tonight the right hon. Gentleman put an answer of mine against a question which it was not answering. What I said is absolutely clear, and it is rather unfortunate that the right hon. Gentleman tried to tie an answer of mine to something which was totally different. As reported in c. 1686, I said: The right hon. Gentleman now produces a new argument and says that our proposal will not work, that there will be a ridiculous situation on the Stock Exchange where, completely outside the control of the company, shares will be bought and sold on the public market and directors will not know from day to day whether control is so placed that they are a close corporation. In short, of course, it will be a situation exactly the same as it is now …".—[OFFICIAL REPORT, 22nd June, 1965; Vol. 714, c. 1686.] I said that the situation will be exactly the same as it is now. The right hon. Gentleman quoted my remarks very much out of context, but we do not want to waste time on that.

Mr. Patrick Jenkin (Wanstead and Woodford)

Will not the Chief Secretary recognise that the major change effected by the exclusion from the Bill of any provision dealing with public companies is that in future all companies which are or could be controlled by five or fewer persons will have to be scrutinised for the purposes of this part of the Bill, however many thousands of shareholders they may have? In the present situation it is in the highest degree unlikely that one would ever consider for the purpose of Section 245 a company which had as many as 100 shareholders.

Will the right hon. Gentleman accept that practitioners in this field—and I have consulted them on this point—say that it is extremely improbable that they would ever have had to offer advice to a company on Surtax direction which had more than 100 shareholders? This is the major difference.

Mr. Diamond

The hon. Member is making a totally different point. I hope that he will accept it from me that it is a different point, otherwise I shall have to say that it is totally irrelevant when looking at the Clause which we are discussing. The Clause provides for the same 25 per cent. except, as I repeat, that it excludes beneficial ownership and, therefore, anybody can own the shares. It refers to registration on one day in the year, which can easily be avoided.

I repeat that it does not follow that if we had not introduced Corporation Tax we should not have been dealing with this avoidance device and we should not have had to look at the 25 per cent. limitation. The 25 per cent. limitation, which was a method of exempting from Surtax that category, did not work, and it did not work at the time the right hon. Gentleman was a Treasury Minister. We should have had to give close attention to the matter and we should have had to remove that exemption. It does not follow that the problem would have been discussed in the present form. Suffice it to say that although the new Corporation Tax will increase the incentive to tax avoidance, we have a new Clause which proposes to reduce the limitation and to give greater opportunity for avoidance. I cannot possibly recommend it to the House.

Mr. William Clark (Nottingham, South)

The whole debate on the new Clause has revolved around the difference between the old Section 245 Surtax and the new so-called close company. The Chief Secretary made great point about a suggestion which he said had been made that there was a stigma on a close company, but none of my hon. Friends made such a point. They were pointing to the penal effect of Corporation Tax for a close company.

As my hon. Friend the Member for Wanstead and Woodford (Mr. Patrick Jenkin) said in a very adequate intervention, what the close company definition now does is to include a much bigger range of shareholders. No matter what the Chief Secretary says, this is the position. The Chief Secretary argues that with the old Section 245 company there was a certain amount of tax avoidance and there were difficulties in relation to whether a company was 25 per cent. publicly owned. There will be precisely the same difficulties with close companies in relation to Corporation Tax.

The Chief Secretary, as my hon. Friends the Members for Wokingham (Mr. van Straubenzee) and Belfast, North (Mr. Stratton Mills) have said, has not dealt with the question of how the close company provisions will affect small companies. Some hon. Members opposite, particularly the hon. Members for Heywood and Royton (Mr. Barnett) and Manchester, Cheetham (Mr. Harold Lever) have pointed out that there is no question of there being any penal effects on close companies, particularly with regard to distribution, because there is the loophole that, if a company wants to retain its profits, the 60 per cent. distribution need not necessarily apply. There is the whole concept under the Bill of a close company as compared with the old Section 245 Surtax company. We have not as yet mentioned the question of participators, the question of loan interest, or some of the charges which are not allowed. This gives a completely new concept to the effect of close companies.

It was wrong of the hon. Member for Heywood and Royton to accuse my right hon. Friend for Altrincham and Sale (Mr. Barber) of dealing only with the distribution element. My right hon. Friend pointed out the penal effects, not only on distribution. He certainly mentioned distribution, but he dealt with the whole new concept of what a close company means.

Mr. Harold Lever

My whole speech was directed to saying that in so far as close companies were under penal difficulty, the Clause would remedy those difficulties only for the larger companies, namely, those quoted on the Stock Exchange.

Mr. Clark

I intend to come to that point. My hon. Friend the Member for Walsall, South (Sir H. d'Avigdor-Goldsmid) made a very valid point, which the Chief Secretary made no attempt to answer. That is the question of merchant bankers. It was coincidental that my right hon. Friend the Member for Altrincham and Sale received similar information from a different company over the telephone during the debate. I am certain that, when in moving the Clause my right hon. Friend said that those on the Government Benches did not understand the effect of close companies, he under-estimated the position. I am certain that the Government were staggered at the effects that their close company provisions had on close companies. It is all very well for the Chief Secretary to nod his head. I can assure him from personal experience that this is the position. People are staggered at what the implications of close companies are.

The Chief Secretary rightly spoke about tax avoidance. It is accepted in all parts of the House that nobody wants either to allow tax avoidance or to increase it. All of us have one object in mind, which is to close any tax loophole there may be. What I could not understand about the Chief Secretary's speech was that he said that as to tax avoidance what we must do is to ensure that the income of the close company is the income of the proprietors of the close company. I was very careful to write down what the Chief Secretary said. I hope that he will study HANSARD in the morning. He said that the income should be treated as the income of the proprietors. We moved a similar Amendment in Committee, when we said that a company which is a close company should not pay any more tax than a partnership. What I cannot understand is that the Government then said that we could not have it this way and that it would not do.

The Chief Secretary and his colleagues on the Treasury Bench are obsessed with the fear of tax avoidance. There is no need to catch all the fish just to ensure the apprehension of one devious sprat. This is what the Government are doing. We are all at one on tax avoidance; we all want to prevent it, but the Government are obsessed on this subject. My right hon. and hon. Friends cannot understand why we must have a complicated tax such as Corporation Tax to close some loopholes which the Government could deal with individually.

10.30 p.m.

The hon. Member for Manchester, Cheetham, when speaking about distribution, agreed that the terms of exemption should be re-examined, and we think so too. All we are saying is that the present qualification for a Section 245 Surtax company should be exactly the same. By all means, close any loopholes there may be. But there is a lot of argument bandied backwards and forwards about tax avoidance. Have the Treasury estimated how much tax avoidance there has been in the case of the Section 245 Surtax companies? My hon. Friend the Member for Belfast, North, asked this question. What is the extent of tax avoidance? We are in a vacuum when the accusation is merely made that there is tax avoidance.

Mr. Diamond

Perhaps the hon. Gentleman will consult his right hon. Friend and decide whether the line they are taking is that they do not want provisions which are less restrictive than the Surtax provisions or ones which are different.

Mr. Barber

With all respect, I intervened to make it absolutely clear that what we were aiming to do was to reestablish the position which existed under the 1952 Act. I also made it clear in the opening sentences of my speech.

Mr. Clark

The Chief Secretary is usually extremely fair. He has great experience of these matters, and I say this in all sincerity. But here is this Clause. We are not necessarily wedded to its wording. He said that there were four snags in it. One was the point concerning the beneficial ownership of shares. We accept this. But we put down the Clause in order to give the Government notice that under Schedule 17, to which my hon. Friend the Member for Crosby (Mr. Graham Page) attempted to refer, the Government can remedy this position about close companies. Do not let us throw out this Clause simply on the technical point of its wording. The Chief Secretary knows that we have not got the machinery to get the correct wording. It is the spirit behind the Claues that really matters.

The Chief Secretary has not really answered the debate at all. His answers have been most unsatisfactory. He says, "The House will not want me to go into all the reasons", but, of course, we want him to go into all the reasons. We on this side of the House are convinced that the definition of close companies at the moment is far too wide. Of course, stop tax avoidance, but do not stop it so much that the ordinary, honest businessman is penalised.

Mr. Lubbock

I wish to add a few words before, as I hope, we divide on this Clause.

First, I want to say to the hon. Member for Walsall, South (Sir H. d'Avigdor-Goldsmid) that I think he misunderstood my intervention. What I was attempting to show was the enormous discrepancy which exists between the provisions with regard to close companies and any other type of company. He said that a director's remuneration could not exceed £3,500 in a close company, and I pointed out that we have been reading in the last few days about remuneration of £270,000 in a company which is not a close company. Therefore, I was underlining what he had been saying.

I should like to ask the Chief Secretary one question about his speech. He said that it was important not to whittle down any of the tax avoidance provisions which we had in the old Surtax legislation. I agree with him in principle there, although I agree with the hon. Member for Worcester (Mr. Peter Walker) that the Chief Secretary almost tends to see tax avoiders under the bed, if he ever gets there. I cannot understand why he should contend that, if we accepted the new Clause, the tax avoidance provisions are so much lighter than those which we had under the old Surtax companies legislation, to use his own short hand.

If a company did not pay a dividend in the old days under the Income Tax and Profits Tax legislation, the total amount of taxation on its profits, with the 8s. 3d. rate, was 56¼ per cent., whereas with the proposed new taxation it will be first of all 40 per cent. Corporation Tax and 30 per cent. on the remain-60 per cent. when the shareholder disposes of his shares, making a total of 58 per cent. Therefore, if we accept the Clause we shall be in almost exactly the same position, within 2 per cent., of the total taxation that we had before.

I appeal to the Chief Secretary to think about this again. If he will now say that when we reach Schedule 17 he will put back into the Bill the same provisions as we had with regard to the Surtax companies, I would be prepared to accept that and advise my right hon. and hon. Friends not to vote for the Clause. [HON. MEMBERS "Where are they?"] I would not presume to give any undertaking on behalf of the right hon. Member for Bexley (Mr. Heath) and his colleagues in this respect, but I think that most of the House would be satisfied, and that the hon. Member for Manchester, Cheetham (Mr. Harold Lever) would agree, if the Chief Secretary would now give us the undertaking that he will put into Schedule 17 exactly the same provisions with regard to tax avoidance as we had under the old legislation.

Mr. Heath

The new Clause is probably the most important single thing that we have debated on the Report stage of the Bill. It was of such importance that when we discussed a similar new Clause, and one which was not as well drafted, in Committee at ten minutes past one in the morning the Chief Secretary suggested that it was so important that we should withdraw it and debate it at a time more suitable to hon. and right hon. Members. We did that, and we have now had a long and most interesting debate to which the Chief Secretary has given us the most lamentable reply given on the whole Bill so far.

We have heard the right hon. Gentleman in many moods. We have heard him obdurate and sometimes flexible, we have heard him arrogant and sometimes persuasive, but never have I heard him in the whole of the proceedings on the Bill in Committee and in the House give such a display of superficiality and naïvety as we have just heard from him. This is deplorable on a matter which concerns a large number of companies, many of them the great companies of this country. We have said before in these debates that not only Treasury Ministers but the Government themselves have become obsessed with tax avoidance to the detriment of every other single economic interest. This is well known to be the interest of the Revenue. It is not interested in the wealth-creating potential of this country. People at the Revenue are interested in all the petty detail of tax avoidance. That can be said to be their job, but it is not the job of Treasury Ministers. The job of Treasury Ministers and of the Government as a whole is to look at all the consequences of the action which they are taking. The consequences of their action in the definition of close companies which they are maintaining tonight are very considerable. Everyone agrees about that.

The hon. Member for Manchester, Cheetham (Mr. Harold Lever) has said that the answer is to change the arrangements for close companies. Very well. Some of this can be discussed on Schedule 17, and the Government can do more if they are prepared to do it. But it is not right for the Chief Secretary to drop hints about better things in the Schedule, the selection of which Mr. Speaker has not yet moved to make, without saying whether or not the Government are prepared

seriously to look at these matters on Schedule 17.

The Government ought to do so because of the importance of these questions for the economy. The right hon. Gentleman asked, "Why are people suspicious of the term 'close company'?" I will tell him frankly why—because, under this definition as now drawn, controls and regulations are set up which make many great companies and a large number of ordinary companies and their hard-working boards object to being treated as potential criminals because there will be a small number who will try to avoid taxes.

This attitude is typical of the British citizen as a whole. Those of us who have been in government for some years have ourselves made mistakes in this respect—I admit it freely—because the British citizen does not like to see legislation affecting, controlling and detailing his actions which ought to apply only to a very small number of people.

That is the explanation why industry and finance today believe that this Government are against them. It is this—this is what really concerns me in the national interest—which is damaging the British economy at one of the most critical periods of its history since the Second World War. That is why I say to the Chief Secretary that I deeply regret what I regard as his lamentable performance tonight. We shall divide the House, and I sincerely hope that the right hon. Gentleman and his colleagues will think about the matter again and take effective action on Schedule 17.

Question put, That the Clause be read a Second time:—

The House divided: Ayes 272, Noes 277.

Division No. 237.]	AYES	[10.42 p.m.
Agnew, Commander Sir Peter	Bennett, Sir Frederic (Torquay)	Brown, Sir Edward (Bath)
Alison, Michael (Barkston Ash)	Berkeley, Humphry	Bruce-Gardyne, J.
Allan, Robert (Paddington, S.)	Berry, Hn. Anthony	Bryan, Paul
Allason, James (Hemel Hempstead)	Biggs-Davison, John	Buchanan-Smith, Alick
Amery, Rt. Hon. Julian	Birch, Rt. Hn. Nigel	Bullus, Sir Eric
Anstruther-Gray, Rt. Hn. Sir W.	Black, Sir Cyril	Burden, F. A.
Astor, John	Blaker, Peter	Butcher, Sir Herbert
Atkins, Humphrey	Bossom, Hn. Clive	Buxton, Ronald
Awdry, Daniel	Box, Donald	Campbell, Gordon
Baker, W. H. K.	Boyd-Carpenter, Rt. Hn. J.	Carlisle, Mark
Balniel, Lord	Braine, Bernard	Carr, Rt. Hn. Robert
Barber, Rt. Hn. Anthony	Brewis, John	Cary, Sir Robert
Barlow, Sir John	Brinton, Sir Tatton	Channon, H. P. C.
Batsford, Brian	Bromley-Davenport, Lt.-Col. Sir Walter	Chataway, Christopher
Bell, Ronald	Brooke, Rt. Hn. Henry	Chichester-Clark, R.
Clark, Henry (Antrim, N.)	Hirst, Geoffrey	Page, R. Graham (Crosby)
Clark, William (Nottingham, S.)	Hobson, Rt. Hn. Sir John	Pearson, Sir Frank (Clitheroe)
Clarke, Brig. Terence (Portsmth, W.)	Hooson, H. E.	Peel, John
Cole, Norman	Hopkins, Alan	Percival, Ian
Cooke, Robert	Hordern, Peter	Peyton, John
Cooper, A. E.	Hornby, Richard	Pickthorn, Rt. Hn. Sir Kenneth
Cooper-Key, Sir Neill	Hornsby-Smith, Rt. Hn. Dame P.	Pike, Miss Mervyn
Corfield, F. V.	Hutchison, Michael Clark	Pitt, Dame Edith
Costain, A. P.	Iremonger, T. L.	Pounder, Rafton
Courtney, Cdr. Anthony	Irvine, Bryant Godman (Rye)	Powell, Rt. Hn. J. Enoch
Craddock, Sir Beresford (Spelthorne)	Jenkin, Patrick (Woodford)	Price, David (Eastleigh)
Crawley, Aidan	Jennings, J. C.	Prior, J. M. L.
Crosthwaite-Eyre, Col. Sir Oliver	Johnson Smith, G. (East Grinstead)	Pym, Francis
Crowder, F. P.	Johnston, Russell (Inverness)	Quennell, Miss J. M.
Cunningham, Sir Knox	Jones, Arthur (Northants, S.)	Ramsden, Rt. Hn. James
Curran, Charles	Jopling, Michael	Redmayne, Rt. Hn. Sir Martin
Currie, G. B. H.	Joseph, Rt. Hn. Sir Keith	Rees-Davies, W. R.
Dalkeith, Earl of	Kaberry, Sir Donald	Renton, Rt. Hn. Sir David
Dance, James	Kerby, Capt. Henry	Ridley, Hn. Nicholas
Davies, Dr. Wyndham (Perry Barr)	Kerr, Sir Hamilton (Cambridge)	Ridsdale, Julian
d'Avigdor-Goldsmid, Sir Henry	Kershaw, Anthony	Roberts, Sir Peter (Heeley)
Dean, Paul	Kilfedder, James A.	Rodgers, Sir John (Sevenoaks)
Digby, Simon Wingfield	Kimball, Marcus	Roots, William
Dodds-Parker, Douglas	King, Evelyn (Dorset, S.)	St. John-Stevas, Norman
Doughty, Charles	Kirk, Peter	Sandys, Rt. Hn. D.
Douglas-Home, Rt. Hn. Sir Alec	Kitson, Timothy	Scott-Hopkins, James
Drayson, G. B.	Lagden, Godfrey	Sharples, Richard
du Cann, Rt. Hn. Edward	Lambton, Viscount	Shepherd, William
Eden, Sir John	Lancaster, Col. C. G.	Sinclair, Sir George
Elliot, Capt. Walter (Carshalton)	Langford-Holt, Sir John	Smith, Dudley (Br'ntf'd & Chiswick)
Elliott, R. W. (N'c'tle-upon-Tyne, N.)	Legge-Bourke, Sir Harry	Smyth, Rt. Hn. Brig. Sir John
Emery, Peter	Lewis, Kenneth (Rutland)	Soames, Rt. Hn. Christopher
Eyre, Reginald	Litchfield, Capt. John	Spearman, Sir Alexander
Farr, John	Lloyd, Rt. Hn. Geoffrey (Sut'n C'dfield)	Speir, Sir Rupert
Fell, Anthony	Lloyd, Ian (P'tsm'th, Langstone)	Stainton, Keith
Fisher, Nigel	Lloyd, Rt. Hn. Selwyn (Wirral)	Stanley, Hn. Richard
Fletcher-Cooke, Charles (Darwen)	Longden, Gilbert	Studholme, Sir Henry
Fletcher-Cooke, Sir John (S'pton)	Loveys, Walter H.	Talbot, John E.
Foster, Sir John	Lucas, Sir Jocelyn	Taylor, Sir Charles (Eastbourne)
Fraser, Rt. Hn. Hugh (St'fford & Stone)	McAdden, Sir Stephen	Taylor, Edward M. (G'gow, Cathcart)
Galbraith, Hn. T. G. D.	MacArthur, Ian	Teeling, Sir William
Gammans, Lady	Mackenzie, Alasdair (Ross & Crom'ty)	Temple, John M.
Gibson-Watt, David	Mackie, George Y. (C'ness & S'land)	Thatcher, Mrs. Margaret
Giles, Rear-Admiral Morgan	Maclean, Sir Fitzroy	Thomas, Sir Leslie (Canterbury)
Gilmour, Ian (Norfolk, Central)	Macleod, Rt. Hn. Iain	Thompson, Sir Richard (Croydon, S.)
Gilmour, Sir John (East Fife)	McMaster, Stanley	Tiley, Arthur (Bradford, W.)
Glover, Sir Douglas	McNair-Wilson, Patrick	Tilney, John (Wavertree)
Glyn, Sir Richard	Maginnis, John E.	Turton, Rt. Hn. R. H.
Godber, Rt. Hn. J. B.	Marples, Rt. Hn. Ernest	Tweedsmuir, Lady
Goodhart, Philip	Marten, Neil	van Straubenzee, W. R.
Goodhew, Victor	Mathew, Robert	Vaughan-Morgan, Rt. Hn. Sir John
Gower, Raymond	Maude, Angus	Vickers, Dame Joan
Grant, Anthony	Maudling, Rt. Hn. Reginald	Walder, David (High Peak)
Grant-Ferris, R.	Mawby, Ray	Walker, Peter (Worcester)
Gresham Cooke, R.	Maxwell-Hyslop, R. J.	Walker-Smith, Rt. Hn. Sir Derek
Griffiths, Eldon (Bury St. Edmunds)	Maydon, Lt.-Cmdr. S. L. C.	Wall, Patrick
Griffiths, Peter (Smethwick)	Meyer, Sir Anthony	Walters, Dennis
Grimond, Rt. Hn. J.	Mills, Peter (Torrington)	Ward, Dame Irene
Gurden, Harold	Mills, Stratton (Belfast, N.)	Weatherill, Bernard
Hall, John (Wycombe)	Miscampbell, Norman	Webster, David
Hall-Davis, A. G. F.	Mitchell, David	Wells, John (Maidstone)
Hamilton, Marquess of (Fermanagh)	Monro, Hector	Whitelaw, William
Hamilton, M. (Salisbury)	More, Jasper	Williams, Sir Rolf Dudley (Exeter)
Harris, Frederic (Croydon, N. W.)	Morrison, Charles (Devizes)	Wills, Sir Gerald (Bridgwater)
Harris, Reader (Heston)	Mott-Radclyffe, Sir Charles	Wilson, Geoffrey (Truro)
Harrison, Brian (Maldon)	Munro-Lucas-Tooth, Sir Hugh	Wise, A. R.
Harvey, Sir Arthur Vere (Macclesf'd)	Murton, Oscar	Wolrige-Gordon, Patrick
Harvey, John (Walthamstow, E.)	Neave, Airey	Wood, Rt. Hn Richard
Harvie Anderson, Miss	Nicholson, Sir Godfrey	Woodhouse, Hn. Christopher
Hastings, Stephen	Noble, Rt. Hn. Michael	Woodnutt, Mark
Hawkins, Paul	Nugent, Rt. Hn. Sir Richard	Wylie, N. R.
Hay, John	Onslow, Cranley	Yates, William (The Wrekin)
Heald, Rt. Hn. Sir Lionel	Orr, Capt. L. P. S.	Younger, Hn. George
Heath, Rt. Hn. Edward	Orr-Ewing, Sir Ian
Hendry, Forbes	Osborn, John (Hallam)	TELLERS FOR THE AYES:
Higgins, Terence L.	Osborne, Sir Cyril (Louth)	Mr. McLaren and Mr. Ian Fraser.
Hill, J. E. B. (S. Norfolk)	Page, John (Harrow, W.)
NOES
Abse, Leo	Atkinson, Norman	Baxter, William
Albu, Austen	Bacon, Miss Alice	Bence, Cyril
Allaun, Frank (Salford, E.)	Bagier, Gordon A. T.	Bennett, J. (Glasgow, Bridgeton)
Alldritt, Walter	Barnett, Joel	Binns, John

Bishop, E. S.	Henderson, Rt. Hn. Arthur	Oram, Albert E. (E. Ham, S.)
Blackburn, F.	Herbison, Rt. Hn. Margaret	Orbach, Maurice
Blenkinsop, Arthur	Hobden, Dennis (Brighton, K'town)	Orme, Stanley
Boardman, H.	Holman, Percy	Oswald, Thomas
Boston, T. G.	Horner, John	Owen, Will
Bottomley, Rt. Hn. Arthur	Houghton, Rt. Hn. Douglas	Padley, Walter
Bowden, Rt. Hn. H. W. (Leics S. W.)	Howarth, Harry (Wellingborough)	Page, Derek (King's Lynn)
Braddock, Mrs. E. M.	Howarth, Robert L. (Bolton, E.)	Paget, R. T.
Bradley, Tom	Howell, Denis (Small Heath)	Palmer, Arthur
Bray, Dr. Jeremy	Howie, W.	Pannell, Rt. Hn. Charles
Brown, Rt. Hn. George (Belper)	Hoy, James	Pargiter, G. A.
Brown, Hugh D. (Glasgow, Provan)	Hughes, Cledwyn (Anglesey)	Park, Trevor (Derbyshire, S. E.)
Buchan, Norman (Renfrewshire, W.)	Hughes, Emrys (S. Ayrshire)	Parker, John
Buchanan, Richard	Hughes, Hector (Aberdeen, N.)	Parkin, B. T.
Butler, Herbert (Hackney, C.)	Hunter, Adam (Dunfermline)	Pavitt, Laurence
Butler, Mrs, Joyce (Wood Green)	Hunter, A. E. (Feltham)	Pearson, Arthur (Pontypridd)
Callaghan, Rt. Hn. James	Hynd, H. (Accrington)	Pentland, Norman
Carmichael, Neil	Irving, Sydney (Dartford)	Perry, Ernest G.
Castle, Rt. Hn. Barbara	Jackson, Colin	Popplewell, Ernest
Chapman, Donald	Janner, Sir Barnett	Prentice, R. E.
Coleman, Donald	Jay, Rt. Hn. Douglas	Price, J. T. (Westhoughton)
Conlan, Bernard	Jeger, George (Goole)	Probert, Arthur
Corbet, Mrs. Freda	Jeger, Mrs. Lena (H'b'n & St. P'cras, S.)	Pursey, Cmdr. Harry
Cousins, Rt. Hn. Frank	Jenkins, Hugh (Putney)	Randall, Harry
Craddock, George (Bradford, S.)	Jenkins, Rt. Hn. Roy (Stechford)	Rankin, John
Crawshaw, Richard	Johnson, Carol (Lewisham, S.)	Redhead, Edward
Cronin, John	Johnson, James (K'ston-on-Hull, W.)	Rees, Merlyn
Crosland, Rt. Hn. Anthony	Jones, Dan (Burnley)	Rhodes, Geoffrey
Crossman, Rt. Hn. R. H. S.	Jones, Rt. Hn. Sir Elwyn (W. Ham, S.)	Richard, Ivor
Cullen, Mrs. Alice	Jones, J. Idwal (Wrexham)	Roberts, Albert (Normanton)
Dalyell, Tam	Jones, T. W. (Merioneth)	Roberts, Goronwy (Caernarvon)
Darling, George	Kelley, Richard	Robertson, John (Paisley)
Davies, Ifor (Gower)	Kenyon, Clifford	Robinson, Rt. Hn. K. (St. Pancras, N.)
Davies, S. O. (Merthyr)	Kerr, Mrs. Anne (R'ter & Chatham)	Rodgers, William (Stockton)
de Freitas, Sir Geoffrey	Kerr, Dr. David (W'worth, Central)	Rogers, George (Kensington, N.)
Delargy, Hugh	Lawson, George	Rose, Paul B.
Dell, Edmund	Leadbitter, Ted	Ross, Rt. Hn. William
Dempsey, James	Ledger, Ron	Rowland, Christopher
Diamond, Rt. Hn. John	Lee, Miss Jennie (Cannock)	Sheldon, Robert
Dodds, Norman	Lever, Harold (Cheetham)	Shinwell, Rt. Hn. E.
Doig, Peter	Lever, L. M. (Ardwick)	Shore, Peter (Stepney)
Driberg, Tom	Lewis, Arthur (West Ham, N.)	Short, Rt. Hn. E. (N'c'tle-on-Tyne, C.)
Duffy, Dr. A. E. P.	Lewis, Ron (Carlisle)	Short, Mrs. Renée (W'hampton, N. E.)
Dunn, James A.	Lipton, Marcus	Silkin, John (Deptford)
Dunnett, Jack	Loughlin, Charles	Silkin, S. C. (Camberwell, Dulwich)
Edelman, Maurice	Mabon, Dr. J. Dickson	Silverman, Julius (Aston)
Edwards, Robert (Bilston)	McBride, Neil	Silverman, Sydney (Nelson)
English, Michael	McCann, J.	Skeffington, Arthur
Ennals, David	MacColl, James	Slater, Mrs. Harriet (Stoke, N.)
Ensor, David	MacDermot, Niall	Slater, Joseph (Sedgefield)
Evans, Albert (Islington, S. W.)	McGuire, Michael	Small, William
Evans, Ioan (Birmingham, Yardley)	McInnes, James	Snow, Julian
Fernyhough, E.	McKay, Mrs. Margaret	Soskice, Rt. Hn. Sir Frank
Finch, Harold (Bedwellty)	Mackenzie, Gregor (Rutherglen)	Steele, Thomas (Dunbartonshire, W.)
Fletcher, Sir Eric (Islington, E.)	McLeavy, Frank	Stewart, Rt. Hn. Michael
Fletcher, Ted (Darlington)	Mahon, Peter (Preston, S.)	Stonehouse, John
Fletcher, Raymond (Ilkeston)	Mahon, Simon (Bootle)	Stones, William
Floud, Bernard	Mallalieu, J. P. W. (Huddersfield, E.)	Strauss, Rt. Hn. G. R. (Vauxhall)
Foley, Maurice
Foot, Sir Dingle (Ipswich)	Manuel, Archie	Summerskill, Hn. Dr. Shirley
Foot, Michael (Ebbw Vale)	Mapp, Charles	Swain, Thomas
Ford, Ben	Marsh, Richard	Swingler, Stephen
Fraser, Rt. Hn. Tom (Hamilton)	Mason, Roy	Symonds, J. B.
Freeson, Reginald	Maxwell, Robert	Taverne, Dick
Galpern, Sir Myer	Mayhew, Christopher	Taylor, Bernard (Mansfield)
Garrett, W. E.	Mellish, Robert	Thomas, George (Cardiff, W.)
George, Lady Megan Lloyd	Mendelson, J. J.	Thomas, Iorwerth (Rhondda, W.)
Ginsburg, David	Mikardo, Ian	Thomson, George (Dundee, E.)
Greenwood, Rt. Hn. Anthony	Millan, Bruce	Thornton, Ernest
Gregory, Arnold	Miller, Dr. M. S.	Tinn, James
Grey, Charles	Milne, Edward (Blyth)	Tomney, Frank
Griffiths, David (Rother Valley)	Molloy, William	Tuck, Raphael
Griffiths, Rt. Hn. James (Llanelly)	Monslow, Walter	Urwin, T. W.
Griffiths, Will (M'chester, Exchange)	Morris, Charles (Openshaw)	Varley, Eric G.
Gunter, Rt. Hn. R. J.	Morris, John (Aberavon)	Walden, Brian (All Saints)
Hale, Leslie	Mulley, Rt. Hn. Frederick (Sheffield Pk)	Walker, Harold (Doncaster)
Hamilton, James (Bothwell)	Murray, Albert	Wallace, George
Hamilton, William (West Fife)	Neal, Harold	Watkins, Tudor
Hamling, William (Woolwich, W.)	Newens, Stan	Weitzman, David
Hannan, William	Noel-Baker, Francis (Swindon)	Wells, William (Walsall, N.)
Harper, Joseph	Noel-Baker, Rt. Hn. Philip (Derby, S.)	White, Mrs. Eirene
Harrison, Walter (Wakefield)	Norwood, Christopher	Whitlock, William
Hart, Mrs. Judith	Oakes, Gordon	Wigg, Rt. Hn. George
Hazell, Bert	Ogden, Eric	Wilkins, W. A.
Heffer, Eric S.	O'Malley, Brian	Willey, Rt. Hn. Frederick

Williams, Alan (Swansea, W.)	Wilson, William (Coventry, S.)	Yates, Victor (Ladywood)
Williams, Clifford (Abertillery)	Winterbottom, R. E.	Zilliacus, K.
Williams, Mrs. Shirley (Hitchin)	Woodburn, Rt. Hn. A.
Williams, W. T. (Warrington)	Woof, Robert	TELLERS FOR THE NOES:
Willis, George (Edinburgh, E.)	Wyatt, Woodrow	Mr. Fitch and Mr. Gourlay.