Commons Sitting of 12 July 1965

Preamble
The House met at half-past Two o'clock
PRAYERS
[Mr. SPEAKER in the Chair]
ORAL ANSWERS TO QUESTIONS
  PENSIONS AND NATIONAL INSURANCE

    Retirement Pension
    Mr. Evelyn Kingasked the Minister of Pensions and National Insurance what was the value of the increase in the retirement pension at the time it was made; and what is its current value, having regard to the fall in the value of the £ since then.
    The Minister of Pensions and National Insurance (Miss Margaret Herbison): On the basis of the Retail Prices Index, the 12s. 6d. increase for a single pensioner provided by the Act passed in December, 1964, was worth about 12s. 5d. in March, 1965, when it first became payable, and 12s. 2d. in May, 1965, the latest date for which the Index is available.
    The corresponding figures for the 21s. increase for a married couple are 20s. 10d. and 20s. 5d. respectively.
    Mr. King: Does not that suggest, having regard to the retirement pension, and pro rata, a fall of something over 3s. in the £ on the whole pension in a single year?
    Miss Herbison: What it does represent, if we take the figures for May, 1965, is that it would require an extra 2s. 4d. for the whole pension to be brought up.
    Mr. Ridsdale: Does the Minister realise that those figures do not give a true appreciation of the hardship which pensioners are having to suffer now because of the severe rise in prices?
    Miss Herbison: In fact, pensioners—I was speaking to a great many of them yesterday—realise that they have got the biggest increase ever, except under a Labour Government in 1946.
    Sir F. Bennettasked the Minister of Pensions and National Insurance whether she will give renewed consideration to the adequacy of the scale of retirement pensions.
    Mr. Arthur Lewisasked the Minister of Pensions and National Insurance whether she will increase all retirement pensions by 25 per cent.; and when she will introduce legislation to give effect to this proposal.
    Miss Herbison: As the hon. Gentleman and my hon. Friend will be aware, the very substantial increase in pensions made only three months ago raised their purchasing power to a higher level than ever

    3
    before. I have no further proposals to announce at the present time.
    Sir F. Bennett: If we are to talk about "substantial", does the right hon. Lady realise that, according to figures supplied to me by one of her colleagues at the Treasury over a period of Written Questions, if the present rise in the cost of living and the reduction in the value of money go on at the present rate, the pension next spring will actually be worth less than it was last October?
    Miss Herbison: I do not know whether the hon. Gentleman was present when I answered Question No. 1, when it was clearly shown that the loss in the pension so far had been 4d. on the 12s. 6d. and 7d. on the 21s. increase. The Government are doing everything possible to steady the cost of living and perhaps hon. Members opposite, who may have some influence with their friends the industrialists and manufacturers, will try to use that influence to keep prices down.
    Mr. Lewis: I thank the Minister for all that she and the Ministry have already done for the old-age pensioners. Appreciating that the pensioners have never had it so good, may I ask whether she is aware that it is a bit invidious that past Lord Chancellors should get a 25 per cent increase to £5,000—
    Mr. Speaker: Order. There is a Bill on that subject for Second Reading this week and we cannot discuss its merits now.
    Mr. Lewis: Without referring to the Lord Chancellor and his 25 per cent., may I ask my right hon. Friend whether she will bear in mind that many of us on this side of the House would prefer the ordinary old-age pensioner who has worked hard all his life and helped to build up the wealth of the country to get 25 per cent. rather than some others whom I will not name, but—
    Mr. Speaker: No. We cannot anticipate the merits of that Bill.
    Mr. Frederic Harris: Will the right hon. Lady confirm that, nine months after the Government came to power, pensioners have to pay 21s. for goods and services for which they would have paid 20s. last October?
    Miss Herbison: But in spite of that the figures show that because the value of the increase was almost 19 per cent. and was a far bigger rise proportionately even than the rise in earnings, pensioners are better off than ever previously.
    Mr. Woodburn: Is my right hon. Friend aware that the reduction in bus fares brought about by a Measure passed by the Government has given pensioners a far bigger increase in their real incomes than has occurred in the prices of goods which old-age pensioners may not buy, and that part of the increase in the cost of living is due to the cost of transport which an old-age pensioner is not now being asked to pay?
    Miss Herbison: Certainly. In some areas that has considerably helped old-age pensioners to live a fuller life. Doing away with prescription charges has also been of the greatest help to the old people.
    Sir F. Bennett: In view of the totally unsatisfactory nature of that reply, I give notice that I shall raise the matter on the Adjournment.

    Industrial Diseases (Elbow Conditions)
    Mr. Newensasked the Minister of Pensions and National Insurance when the last review was made of the incidence of painful elbow conditions in occupations involving manual labour; and if she will set up an inquiry into this matter in order to determine whether any of these conditions should be reclassified as prescribed industrial diseases.
    Miss Herbison: The condition known as "beat elbow", due to severe or prolonged external friction or pressure, is already prescribed. My Department keeps under continual review evidence about further possible additions to the schedule of prescribed diseases, but on present evidence no other elbow conditions satisfy the conditions for prescription. In the circumstances, I do not think that an inquiry would be appropriate.
    Mr. Newens: Does my right hon. Friend recall that on 7th February, 1958, the Industrial Injuries Advisory Council recommended in its report that an inquiry

    5
    should be made into the incidence of the condition known as tennis elbow among manual workers? As this disease often occurs and medical opinion is divided on whether it is connected with occupations or not, will my right hon. Friend now see that there is at least in this particular instance a new review or inquiry forthwith?
    Miss Herbison: My hon. Friend may be aware that, as a result of the examination by the Industrial Injuries Advisory Council at that time, every effort was made to find evidence that would help it to come to a decision; but my information is that no evidence whatever of a prima facie risk has yet been produced from any quarter. If such evidence should be forthcoming, for this disease or for any other, the Industrial Injuries Advisory Council would be very happy to have the whole question examined.

    Nuclear Tests, Christmas Island (Leukaemia)
    Mr. Dribergasked the Minister of Pensions and National Insurance whether the deaths from leukaemia or the similar disabilities of Service men or ex-Service men who served on Christmas Island at the time of the nuclear tests in 1957 have been accepted by her Department as attributable to military service; and how many pensions have been awarded in such cases.
    Miss Herbison: One death has been so accepted, but for reasons unconnected with the tests. A war widow's pension has been awarded.
    Mr. Driberg: Is my right hon. Friend always aware of these cases? If a man has left the Service for some years, having come out of the Service apparently healthy and, therefore, not having applied for a war disability pension, and if he dies later from leukaemia, is any check kept on cases of that kind?
    Miss Herbison: So far, three claims have been made to the Ministry by those who were in the vicinity of Christmas Island. Two of those claims have had to be rejected because there was no evidence to support the claims or to show any connection between service and the disease. Every effort is made to try to obtain the necessary information.

    Retirement Pensioners
    Sir J. Edenasked the Minister of Pensions and National Insurance what was the number of National Insurance retirement pensioners on 15th October, 1964; and how many there are today.
    The Joint Parliamentary Secretary to the Ministry of Pensions and National Insurance (Mr. Norman Pentland): About 6,118,000 and 6,235,000 respectively.
    Sir J. Eden: Do not the figures show that the number of people retiring is steadily rising the whole time, and is it not time, therefore, that the Government showed some urgency in this matter and brought forward their review or their proposals as to how they will deal with the situation in the future? Do not they agree at this stage that, in the light of these rises, selectivity should be the basic principle for any further increases which might come along?
    Mr. Pentland: No, I do not agree with the latter part of the hon. Gentleman's supplementary question. On the first part, we are pressing forward as speedily as possible with the major review, and it will be brought before the House as quickly as possible.
    Mr. David Griffiths: Is my hon. Friend aware that we appreciate the difficulties in view of the increased numbers of pensioners, but may I ask whether he is also aware that the hon. Member for Bournemouth, West (Sir J. Eden) voted for an increase of pension for the old-age pensioners in the last Government?
    Mr. Speaker: I do not suppose that the hon. Member knows that.
    Mr. Dean: Further to the supplementary question put by my hon. Friend the Member for Bournemouth, West (Sir J. Eden), can the hon. Gentleman say what he means by "as soon as possible"? Does he recollect that we were assured eight months ago that the minimum income guarantee would be introduced as a matter of urgency?
    Mr. Pentland: "As soon as possible" means exactly what I said. As quickly as possible we shall bring forward our plans following the major review. But, as every hon. Member is fully aware, this

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    is a complicated issue. However, I can assure the hon. Member that we are pressing speedily forward with it.
    Mr. David Griffiths: On a point of order, Mr. Speaker. I understand that I made the remark that the hon. Member for Bournemouth, West voted for an increase for the old-age pensioners. I want it to be made perfectly clear that he objected and voted against it.
    Mr. Speaker: No doubt the hon. Gentleman's correction of his own supplementary question will be recorded by the very words that he has uttered.

    National Assistance
    Mr. Julius Silvermanasked the Minister of Pensions and National Insurance whether she will take steps to provide special assistance through the National Assistance Board for the extra cost of fuel and electricity in smokeless zones.
    Mr. Pentland: Where a person receiving assistance is necessarily involved in extra expense because he has to use smokeless fuel or electricity the National Assistance Board is prepared to consider helping with the extra cost.
    Mr. Silverman: While I am grateful to my hon. Friend for that reply, may I ask him whether he will bear in mind that considerable expense in increased cost of electricity is very common where coal and other forms of fuel cannot be used? Would it not be useful to issue a general directive in this respect? Also, can my hon. Friend give publicity to the fact that old-age pensioners and people on National Assistance can apply for this form of assistance?
    Mr. Pentland: Yes, Sir. We do our utmost to publicise the discretionary powers that are allowed to the National Assistance Board, and these powers take into consideration allowances for extra heat and fuel in old-age pensioners' households. Where a person has to rely on electricity alone for heating, the cost is appreciably more than that for heating by solid fuel, but the Board is normally prepared to make special provision to meet the extra cost.
    Mr. Alfred Morris: I am sure that my hon. Friend would agree that the cost
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    of smokeless fuels in smokeless zones is causing very serious hardship among elderly people. [HON. MEMBERS: "Ask a question."] I speak with some feeling about this, representing a constituency—[Interruption.]
    Mr. Speaker: Can the hon. Gentleman frame that in the form of a question? This is Question Time. If he can put it into the form of a question, it will be in order.
    Mr. Morris: I would say this—[Interruption.] On a point of order, Mr. Speaker. I think that the right hon. and learned Member for St. Marylebone (Mr. Hogg) should cease grunting when he addresses the Chair.
    Mr. Speaker: Order. I did not note any grunts. I was only inviting the hon. Member to ask a question now, because the rules require it.
    Mr. Morris: The question is: Will my hon. Friend seek to ask the National Assistance Board to treat the claims for additional assistance for smokeless fuel far more generously?
    Mr. Pentland: As I have already indicated, the Board is very conscious of the difficulties which may arise when retirement pensioners change over to the use of smokeless fuels. As I have said, everything possible is done to publicise the help which they can get. If my hon. Friend has any particular difficulties in his constituency, I shall be glad to look into them.
    Mr. Higginsasked the Minister of Pensions and National Insurance what steps she is taking to ensure that old-age non-pensioners are included in the inquiry into the circumstances of those entitled to National Assistance who have not applied for it.
    Miss Herbison: I am afraid it was not practicable to include non-pensioners in the inquiry into the circumstances of retirement pensioners which has just been carried out. There is no effective way of taking a sample of this relatively small group of elderly people, most of whom do not appear on official records of any kind. This does not mean that they are being, or will be, overlooked in our review of the social security provisions for old people.
    Mr. Higgins: Is the right hon. Lady aware that this is a totally unsatisfactory Answer? Old-age non-pensioners above all others should be included in the survey, because they receive no State pension. Will the right hon. Lady take steps to ensure that they are included in the sample survey, because there is no statistical reason why they should not?
    Miss Herbison: It was possible to obtain a very good random sample of pensioners from our records covering over 6 million pensioners, but it was impossible to have an effective sample of this much smaller group of non-pensioners, for whom no official records are kept. I understand the hon. Gentleman's worry about non-pensioners but the important point to remember is that the sample of retirement pensioners, which includes many pensioners with no more to live on than non-pensioners, should give us valuable information also about non-pensioners.
    The information we are getting from the survey will help us both with the non-pensioners and the pensioners alike. It seems to me that the important thing to find out is why they are not applying to the National Assistance Board and what we can do to help them to apply.
    Mr. Higgins: In view of the unsatisfactory nature of the reply, I beg to give notice that I shall seek to raise this matter on the Adjournment.
    Mr. Benceasked the Minister of Pensions and National Insurance how many people are in receipt of National Assistance in the Burgh of Kirkintilloch; and what is the average amount paid.
    Mr. Pentland: Separate figures are not available for the Burgh of Kirkintilloch; this forms only a small part of the total area covered by the Glasgow (Springburn) National. Assistance Board's office, in which 5,549 weekly National Assistance allowances were current at the end of May, 1965. Some of the allowances included the needs of more than one person. Information about the average amount paid in particular localities is not available; the figure for Great Britain as a whole was 44s., and for Scotland it was 47s. 5d.
    Mr. Bence: Is my hon. Friend aware that, in this burgh and many others where there are overspill agreements with the City of Glasgow, the burden of rates on retired people is becoming intolerable? For 12 years the situation has been getting worse and worse. Will my hon. Friend, pending reform of the techniques of financing local government expenditure, consult his right hon. Friend to see if measures can be taken to relieve retired people from this very heavy burden?
    Mr. Pentland: Yes, Sir.
    Mr. Benceasked the Minister of Pensions and National Insurance how many people are on National Assistance in the Burgh of Clydebank; and what is the average amount in National Assistance being paid to each retirement pensioner.
    Mr. Pentland: Separate figures are not available for the Burgh of Clydebank; this forms part of the total area covered by the National Assistance Board's Clydebank official, in which there were 4,462 weekly National Assistance allowances current at the end of May, 1965. Some of the allowances included the requirements of more than one person.
    Information about the average amount of National Assistance paid to retirement pensioners in particular localities is not available, but for Scotland as a whole it is 20s. 3d.
    Mr. Bence: Is my hon. Friend aware that Clydebank, an almost entirely industrial burgh, has 4,000 retirement pensioners receiving National Assistance? Is not this evidence that the retirement pension is still inadequate for modern conditions? Is he further aware that we hope that, as early as possible, a new social security scheme will be brought in so that retired people, particularly in an industrial burgh like Clydebank, where the men and women have worked hard all their lives, receive pensions adequate to their needs without their having recourse to the National Assistance Board?
    Mr. Pentland: I agree with my hon. Friend. That is our objective.
    Mr. William Hamiltonasked the Minister of Pensions and National Insurance what recent representations she

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    has received from the National Assistance Board on the desirability of increasing the amounts of the disregards taken into account when assessing needs of applicants.
    Miss Herbison: None. I would refer my hon. Friend to the Answer which I gave to the hon. Member for Worthing (Mr. Higgins) on 22nd March.
    Mr. Hamilton: Has my right hon. Friend recognised that the changes in the disregards have not kept pace with the declining purchasing power of money since 1946, including the 13 years of the Tory Government? Can she tell me why there is still a distinction between capital assets such as War Savings and others which are not so regarded? Should not this antiquated concept be brought up to date?
    Miss Herbison: It is generally accepted that this is a concept which should not continued for any longer than is possible. We are examining the whole subject of disregards in connection with the income guarantee and the general review, but at present we have no statement to make about what will be the ultimate results of that review.
    Mrs. Thatcher: Do I understand from what the right hon. Lady has said that the Government intend to keep the concept of disregards in the income guarantee system?
    Miss Herbison: Certainly we do.
    Mr. Jacksonasked the Minister of Pensions and National Insurance how many persons are today in receipt of National Assistance; of this total how many are old-age pensioners; how many are in receipt of sickness benefit; and how many are able-bodied unemployed.
    Mr. Pentland: At the end of March, 1965, there were 1,958,670 weekly National Assistance allowances in payment. Of this total, 1,260,707 were old-age pensioners—including 58,292 noncontributory old-age pensioners and 41,977 widows over the age of 60 but still in receipt of a widows' pension—144,061 were in receipt of sickness benefit; and 121,393 were registered as unemployed. Some of the allowances included the needs of more than one person.
    Mr. Jackson: Could my hon. Friend, in his various circulars through the Ministry of Pensions, make it clear that the percentage of those receiving National Assistance who are able-bodied unemployed is relatively small, because there seems to be a general feeling that some persons who are unemployed are in receipt of National Assistance which they should not have?
    Mr. Pentland: My hon. Friend is quite correct. We try to make those distinctions whenever we possibly can.
    Mr. Julius Silvermanasked the Minister of Pensions and National Insurance, in view of the increasing burden of rent and rates on elderly people with small incomes, what steps the National Assistance Board are taking to overcome the reluctance some of them feel about applying for assistance.
    Mr. McBrideasked the Minister of Pensions and National Insurance what action she is taking to encourage old people to apply for the National Assistance allowances to which they are entitled.
    Mr. Ennalsasked the Minister of Pensions and National Insurance what methods she intends to use to make more widely known the help which the National Assistance Board can give to old people in need.
    Miss Herbison: As hon. Members are aware, the Board has done a great deal in recent years to explain to elderly people their rights under the National Assistance Acts and to dispel doubts and misconceptions from their minds. I have been in consultation with the Board about possible further steps which might be taken and we shall, in a number of ways, be making renewed efforts to overcome reluctance where it still exists. I have today written to all newspaper editors asking them to publish an open letter urging elderly people who may be entitled to assistance to approach the National Assistance Board, and asking other people who have elderly relatives or friends in this position to persuade them to apply. The broadcasting authorities are being asked to co-operate by providing television and radio facilities. The Chairman of the National Assistance Board is writing to seek the support of local authorities, churches and voluntary

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    bodies generally in distributing my open letter in leaflet form, and in encouraging old people to apply for assistance. A new leaflet is being prepared, to be entitled "Twenty Questions", which will deal with the main causes of misunderstanding about National Assistance: this leaflet will be given to all retirement pensioners in September. New posters are also being produced for use in post offices and old people's clubs.
    Mr. Silverman: I am very grateful to the Minister for the steps which she has announced. Will she emphasise in any approaches to these people that National Assistance is a social right and not a charity, and that any old person can apply for National Assistance without any form of humiliation whatsoever?
    Miss Herbison: In the letter which I have sent I stressed that this is a right for old people, and I hope that that will help to overcome some of the hesitation.
    Mr. McBride: Is my right hon. Friend aware that this will give great satisfaction throughout the country? Is she further aware that it will help to persuade innumerable old people to apply for National Assistance to which they are entitled. Will she agree that her information today is in direct contrast to that published by the previous Government, which is why they were rejected in 1964?
    Miss Herbison: I am hoping that these further efforts at publicity will result in more and more old people, who are entitled to National Assistance, applying for it. In all fairness to the Board—because this is a question of co-operation between the Board and the Government—the Board has from time to time made real efforts to get old people to apply.
    Mr. Ennals: Will my right hon. Friend accept our congratulations on her imaginative approach and particularly on her willingness to make full use of the voluntary organisations and old people's welfare committees which are doing so much good work? She will have our support in anything that she does to remove the stigma of charity from National Assistance. Finally, in her review, would she consider changing the name of the National Assistance Board?
    Miss Herbison: We have made it clear that we will set up a Ministry of Social
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    Security. It is at that time that I hope that the name "National Assistance", which, unfortunately, seems to have a stigma attached to it for some old people, will disappear. I am asking for the help of every hon. Member, on whatever side of the House he may sit, to get those old people to apply for assistance.
    Mr. David Steel: Is it the case that these provisions are in the nature of interim provisions? Is it part of the Government's policy to maintain National Assistance, whether under this name or not, as part of the social security system? Surely it is the Government's policy to try to minimise recourse to National Assistance.
    Miss Herbison: Of course that is our policy. We hope that with the introduction of earnings-related pensions, short-term benefits and the introduction of a proper graduated pension scheme there will be fewer people who need help outside a contributory system. But there will always be some people who are outside the contributory system, no matter how good it is. We want to ensure that these people have no hesitation, even in future, in getting the social security which will be theirs by right.

    Payment of Benefits (Automated Equipment)
    Mr. Bostonasked the Minister of Pensions and National Insurance what progress is being made in introducing automated equipment to assist in the payment of benefits.
    Miss Herbison: As stated in the Report of the Ministry for 1964, which was presented to Parliament last week, it is proposed to install next year a computer and associated equipment for calculating and paying the sickness, injury and unemployment benefits of claiments in the London area. A study of the use of computers for keeping records and maintaining payment of National Insurance pension has reached an advanced stage. A similar study of family allowance work is proceeding.
    Mr. Boston: Will my right hon. Friend accept that the progress which is being made is very welcome? Does she agree that if we had had this equipment some years ago the payment of increases in

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    pensions could have been implemented very much more quickly? Can she say to what extent the new equipment, when it comes into service, will help with any future increases which are made?
    Miss Herbison: I think it is perfectly clear that if we had this equipment for the payment of pensions, pensions could be paid much more quickly after the date of announcement. We are pushing on as quickly as possible with it. When it is introduced we expect it will cut a considerable number of weeks off the delay that has been experienced for so long.
    Mrs. Thatcher: Has the right hon. Lady ordered an additional computer or not? If not, will she confirm that the only computers that the Department has are the one installed in 1959 and the other installed in 1961?
    Miss Herbison: I have made it very clear in this House and outside that there was one installed in 1959 for the graded pensions scheme, which is so disliked throughout the country. On the question of a computer for the pensioners, the hon. Lady will have some idea of the kind of work that has to be done before one orders one. We are very near that position at the present time.
    Mr. William Hamilton: Can my right hon. Friend say why the graduated scandal and swindle is computerised and the other section is not? Is it not the case that the main difficulty is the stamped card? Will she see what progress is being made to get rid of that?
    Miss Herbison: I do not think that I should be the one to be asked why the computer was installed for the graduated pensions scheme. I think the whole country realises why that was installed. With regard to the stamped card, it is true that in our general review all these matters are being thoroughly examined.
    Mr. Lubbock: What advice has the right hon. Lady had from the Minister of Technology concerning the increased application of computers in her Department?
    Miss Herbison: The Ministry of Technology, with all those Ministries which are concerned with computers, keeps very closely in contact and is a great help.

    Widows (Earnings Rule)
    Dame Edith Pittasked the Minister of Pensions and National Insurance (1) what representations she has received from widows now in receipt of 30s. pension, formerly 10s., on learning they are subject to the earnings rule on retirement; and what replies she has sent;
    (2) why the removal of the earnings rule for widows was not extended to the former 10s. widows.
    Miss Herbison: The earnings rule has never applied to the 10s. widow's basic pension, and the position has not been altered now that that pension is payable at the rate of 30s. A retirement pension payable to a widow basic pensioner on her own insurance is subject to the earnings rule like any other retirement pension, but in no case would the pension be reduced below the amount of the widow's basic pension.
    I have had a few letters suggesting that the earnings rule should not apply at all to retirement pensions in such circumstances, and in reply to these letters I have explained the distinction between an earnings rule where retirement is a condition of benefit, and an earnings rule where the benefit replaces the late husband's earnings.
    Dame Edith Pitt: Does not the right hon. Lady realise that this distinction is not understood by widows, or, indeed, by members of her own party who repeatedly claimed that all widows have been exempted from the operation of the earnings rule? Will she make a full statement in order to make quite clear that some widows are more equal than others?
    Miss Herbison: I think that the answer which I have given today makes perfectly clear what is happening. It is very difficult for me to understand the attitude of the hon. Lady on this question today when during the proceedings on the National Insurance Bill she was making complaints in the very opposite direction from the one she is making today. I think that the important thing for all of us to remember is that the widows about whom she is questioning today are £1 better off under this Administration than they were under the previous Administration.

    Abortion
    Mrs. Renée Shortasked the Minister of Pensions and National Insurance how many working days were lost because of abortion in each of the last five years for which figures are available.
    Mr. Pentland: The total numbers of days of incapacity certified on claims for benefit as due to abortion—which is a term used to cover all types of miscarriage—or equivalent cause in the last five years for which figures are available have varied between about 240,000 and 350,000, but I will, with permission, circulate details in the OFFICIAL REPORT.
    Mrs. Short: I thank my hon. Friend for that reply. Is he aware that these figures, tragic though they are, do not represent the whole position even as far as employed women are concerned? Is he aware that many doctors do not give abortion as a reason for a woman's disability because of the legal implications and the complications likely to occur? Will he and my right hon. Friend do everything in their power to see that this tragic situation is liberalised and modernised as soon as possible?
    Mr. Pentland: My hon. Friend will be aware that the statistics I have quoted, and which will be in the OFFICIAL REPORT, have been obtained from an analysis of the descriptions of the causes of incapacity entered on medical certificates by medical practitioners. These are not given by doctor to doctor but only in support of certificates of incapacity for work intended for use by Ministry lay officials. I take note of the further point made by my hon. Friend.
    Following is the information:

    Thousands

    Period

    Total days of incapacity in period*

    2nd June, 1958 to 30th May, 1959

    249

    1st June 1959 to 4th June, 1960

    286

    6th June, 1960 to 3rd June, 1961

    354

    5th June, 1961 to 2nd June, 1962

    Not available

    4th June, 1962 to 1st June, 1963

    330

    3rd June, 1963 to 30th May, 1964

    240†

    * Estimated from a five per cent. sample of claimants.

    † Provisional figure.

    Agricultural Gang Workers
    Mr. Derek Pageasked the Minister of Pensions and National Insurance
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    what steps she is taking to ensure that agricultural gang workers are adequately covered by industrial insurance.
    Mr. Pentland: Agricultural gang workers are already normally insured under the Industrial Injuries Scheme, in the same way as other people working for an employer under a contract of service. If my hon. Friend has knowledge of any difficulty that has arisen in any particular case, I should be glad to look into it for him.
    Mr. Page: Is my hon. Friend aware that the changing and transient nature of gang employment makes the enforcement of the legal requirements particularly difficult? Will he look at the difficulties of adequate coverage of workers in agricultural gangs?
    Mr. Pentland: As I have said, if my hon. Friend can send any evidence to me about this matter we shall be glad to look into it. But as he is no doubt aware, under the main insurance scheme there are special provisions designed to assist farmers; these exclude from Class I—employed persons—those who are not normally employed for agriculture, horticulture or forestry or who are engaged casually for the picking of fruit, peas, hops, beans, etc.—the work to which my hon. Friend has referred. This, however, does not exempt the farmer from paying industrial injury contributions. He must pay them.
    Mr. Rankin: Is my hon. Friend aware that this disability applies also to gang workers in industry? Does he realise that a time limit operates whereby if a disease such as emerged recently on the Clyde as a result of the building of the tunnel does not show itself within a period of three or four years, then the sufferer is ruled out completely? Will my hon. Friend look at that aspect?
    Mr. Pentland: I will look at that but it is a different question. If my hon. Friend will put down a Question, I will deal with it.

    Retired Persons (Pensions)
    Mr. Derek Pageasked the Minister of Pensions and National Insurance what proportion of retired persons do not receive the State retirement pension in King's Lynn, Norfolk and the United Kingdom, respectively.
    Mr. Norman Pentland: I regret that the information requested is not available, but it is estimated that of all people now over minimum pension age rather more than 5½ per cent. have no present or prospective right to retirement pension.
    Mr. Page: Will my hon. Friend bear in mind the eagerness with which my constituents look forward to the implementation of the guaranteed minimum income?
    Mr. Pentland: Yes, Sir.

    Unemployment Benefit (Seasonal Workers)
    Mr. Wolrige-Gordonasked the Minister of Pensions and National Insurance how many different types of worker are classified in the same way as the herring share fisherman and are therefore unable to receive unemployment benefit.
    Miss Herbison: The unemployment benefit rules relating to seasonal workers which are, I think, the rules the hon. Gentleman has particularly in mind, apply to claimants in any occupation if their record of work over a period of years has shown that a break in employment at the same time each year is a part of their normal way of life.
    Mr. Wolrige-Gordon: Is the right hon. Lady aware that many individuals currently receiving unemployment benefit often receive less benefit for longer periods than they would if they were herring share fishermen or seasonal workers, and that there is therefore a need to look at the rule of risk as it applies to the principle of paying unemployment benefit to herring share fishermen and seasonal workers?
    Miss Herbison: The payment of unemployment benefit depends on contributions. A person who is unemployed for a long time can have benefit only for the time allowed by the contributions. At the most that is 19 months and sometimes it is much less. The concept of not paying benefit when there is a regular pattern of no work during the year has existed for a long time, but if the hon. Gentleman has any case, other than those which he has brought to my notice, which he would like me to examine, I would be happy to consider it.
    Mr. Hector Hughes: Does my right hon. Friend realise that the exclusion of fishermen of the type mentioned in the Question operates harshly upon them? After all, they are workers like others and is it not inconsistent with the spirit of the Statute granting pensions that they should be excluded? Will my right hon. Friend look into this aspect of the matter to see that justice is done?
    Miss Herbison: These rules apply not only to share fishermen but to any occupation when it is shown that over a period of years a break in employment forms the usual pattern of a man's work. It would be wrong for any hon. Member with constituents with fishing interests to believe that this rule applies only to that class of worker.

    Occupational Pension Schemes
    Mr. Deanasked the Minister of Pensions and National Insurance what rôle she contemplates for occupational pension schemes in a reformed National Insurance scheme.
    Miss Herbison: I must ask the hon. Gentleman to await the outcome of the Government's review of the National Insurance scheme.
    Mr. Dean: Would the right hon. Lady agree that occupational pension schemes have an essential part to play in a future system of social security? Will she at least give the assurance that in working out these new plans no obstacles will be put in the way of the continued development of these schemes?
    Miss Herbison: Certainly. It has been made perfectly clear that the Labour Government believe that there will be a place in future for occupational schemes which ensure a number of things for the workers in them. We have every intention of encouraging them.
    Mr. Ridsdale: Will the right hon. Lady say when the review is to be completed? We have had many answers saying "as soon as possible". Does "as soon as possible" mean before the General Election, or before Christmas?
    Miss Herbison: I advise the hon. Gentleman to wait. I have here a copy of the Labour Party manifesto. We have already honoured many of the pledges in the past on social security and I have

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    no doubt that the others will be honoured at the earliest possible moment.
    Mrs. Thatcher: Will the right hon. Lady refer to the part of that manifesto which deals with the income guarantee and which says:
    "We stress again that with the exception of the early introduction of the income guarantee"—
    Mr. Speaker: Order. Verbatim quotation, even from so august a document, is out of order at Question Time.

    Sick and Disabled People (Constant Attendance Allowance)
    Mr. Astorasked the Minister of Pensions and National Insurance if she will now introduce a constant attendance allowance to those who are chronically sick or disabled.
    Miss Herbison: Provision for the chronic sick and severely disabled people is one of the many important matters which are being considered in connection with the comprehensive review of the social services on which the Government is engaged.
    Mr. Astor: Would not the right hon. Lady agree that this is one of the plans which should have been ready to swing into instant operation? Could she give urgent attention to this group of people who are not only disabled but totally dependent on others for their very existence? Could she treat this as a matter of urgency ahead of the general review?
    Miss Herbison: Certainly. It was because we realised that grave hardship was being suffered by many of the chronic sick that we included this in our policy for a Labour Government. If something had been done for the chronic sick between 1951 and 1964, we would not have had all these Questions on this subject this afternoon.
    Mr. Will Griffiths: Is my right hon. Friend aware that most of us appreciate that the comprehensive review which is being undertaken by the Government will take a considerable—[Interruption.]—some time—anyway, it will not take as long as you took to do nothing.
    Mr. Speaker: I have nothing to do with these things. We must keep to the rules or we get confused.
    Mr. Griffiths: I beg your pardon, Mr. Speaker. Could my right hon. Friend consult her colleagues in the Government and see whether it would be possible to give an interim report to Parliament whilst the review is proceeding?
    Miss Herbison: That may be possible. There are a number of matters where our examinations are nearly complete, and it might be possible to bring forward some proposals.
    Mr. Biggs-Davison: Is not this Government becoming a non-stop review, with the difference that this one will close?
    Miss Herbison: I would again remind the hon. Member that if such a review had been carried out at any time during those 13 years, we might now have been able to go forward with the work that is being done. Again I stress the fact that the majority of people realise that what we have done already on the social security front is an earnest of our desire to complete the full programme.

    Old People
    Mr. William Hamiltonasked the Minister of Pensions and National Insurance if she will make a statement on the progress being made in the study now under way concerning the problems of old people; and what response has been made to the questionnaire put to retirement pensioners.
    Miss Herbison: Out of over 10,000 pensioners in the sample whom we wished to interview, 9 per cent. refused to co-operate or gave only partial information, and less than 4 per cent. could not be contacted. The replies are still being analysed and I hope to announce the main findings shortly.
    Mr. Hamilton: Can my right hon. Friend give an undertaking that, in view of the fact that this will be a very important social document, it will be available publicly to anyone who wants to read it?
    Miss Herbison: Certainly. Once the report comes to me from the National Assistance Board I hope that there will be some publication so that people can realise what is happening to the old people.
    Mr. Manuel: In connection with this study, is my right hon. Friend aware that

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    she could get invaluable help from those dedicated people who are members of old folks' welfare committees? They are in touch with every problem affecting old people. Would she consider contacting these national agencies, in order to seek their help in connection with this study?
    Miss Herbison: From the figures I have given, about 85 per cent. of old people have co-operated. I think that all of us must be delighted with that figure. The National Assistance Board at all times used these welfare organisations for old people, and in a later Answer I will be telling of what we hope to do.

    Graduated Pensions Scheme
    Mr. Jacksonasked the Minister of Pensions and National Insurance what progress she has made in her plans to abolish the graduated pensions scheme.
    Mr. Bostonasked the Minister of Pensions and National Insurance what progress she is making in her plans to replace the existing graduated pensions scheme.
    Miss Herbison: Future arrangements for graduated pensions form an important part of the Government's review of the whole National Insurance scheme, which is proceeding as rapidly as possible.
    Mr. Jackson: Can my right hon. Friend give an assurance that the pension scheme which we shall introduce, a wage-related pension scheme, will bear no similarity to the graduated pension scheme of the Tory Party, which many people consider was wrongly organised?
    Miss Herbison: I think that all hon. Members will know what our attitude has been to the present scheme. The scheme to be introduced by a Labour Government will be very different indeed.
    Mr. Boston: Does my right hon. Friend agree that the former Conservative Government's graduated scheme is really nothing more than a form of revenue-raising, a form of taxation? Does she not also think that, far from being a proper graduated scheme, it is what one might call a permanently undergraduated scheme, and that, like the perpetual student, it never reaches maturity?
    Miss Herbison: It would reach maturity only in the next century. I hope that our scheme will reach maturity very much sooner.
    Mr. William Clark: In view of the fact that the Labour Government have already had three goes at a graduated pension scheme, may we be assured by the Minister that next time they are going to do something their arithmetic will be right?
    Miss Herbison: Such "smart Alec" questions do not get anywhere. At least the Labour Party in opposition was doing the kind of fundamental thinking on these questions that the former Tory Government refused to do.

    Departmental Employees (Pay)
    Mr. Arthur Lewisasked the Minister of Pensions and National Insurance what category of employee in her Department is in receipt of the lowest wage or salary scale; what this income is; how much it would cost to increase the salaries of those in this category by 25 per cent.; and whether she will give similar details with regard to their pension entitlements.
    Miss Herbison: Women cleaners outside London who receive £8 11 s. 6d. a week. A 25 per cent. increase would cost about £113,000 a year. It is not possible to answer the last part of the Question since the pension depends on variable factors which cannot be accurately forecast.
    Mr. Lewis: Is my right hon. Friend aware that there are many people in her Department doing excellent work who are not getting as much in salary as many of us would like to see? Is she further aware that we should like them to have a 25 per cent. increase rather than those who, for the sake of the rules of order, I am not allowed to mention by name?
    Miss Herbison: My hon. Friend will be aware that, whatever wages or salaries are paid in our Ministry, or in any other Ministry, they are negotiated in the usual way. I do not think that we in this House would want to interfere with these negotiations which we consider important in a democratic country.

    Men (National Insurance Contributions)
    Mrs. Shirley Williamsasked the Minister of Pensions and National Insurance how many adult men in full-time employment do not pay full National Insurance contributions; and what proportion of this total are men employed through labour-only sub-contractors.
    Mr. Pentland: My right hon. Friend has no reason to think that any appreciable number of men in full-time employment are not paying National Insurance contributions, but she has no information as to the numbers of men working under labour-only sub-contracts or the proportions in which such men may be insured as employed or self-employed persons respectively.
    Mrs. Williams: Is my hon. Friend aware that there is a great increase in the number of labour-only subcontracted men in areas of high employment and that many of them are listed as self-employed and therefore do not get the full benefit of the National Insurance provisions?
    Mr. Pentland: As we are aware, labour-only sub-contracting gives rise to contribution trouble, but the Department does its utmost to follow up any abuses in this direction. We are confident that the amount of abuse in this sphere and other spheres is very small compared with the total working population.
    Mr. Heffer: Is my hon. Friend aware that a large number of demolition contractors indulge in this type of employment? Is he further aware that in those circumstances any worker who is injured as a result of this type of employment is in an exceedingly difficult situation? Will he give an assurance that these firms will be pursued and, if necessary, prosecuted because of this type of activity?
    Mr. Pentland: I give that assurance. Our inspectors are diligently following up the cases referred to by my hon. Friend, but in many cases the birds have flown before we reach them. We are looking at this matter very carefully and everything will be done to stamp it out.
    Mr. Kenneth Lewis: May we take it that the hon. Gentleman is pleased that
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    his colleague the Joint Parliamentary Secretary is sub-contracted to the Foreign Office? How long is this sub-contracting to last?
    Mr. Pentland: I hope that this contract, to which the hon. Gentleman refers so scathingly, goes on until my hon. Friend reaches a successful conclusion in his endeavours.

    Flax and Hemp Workers
    Mr. Buchanasked the Minister of Pensions and National Insurance if the Industrial Injuries Advisory Council has concluded its consideration of whether there exists among flax and hemp workers a respiratory condition analogous to byssinosis which should be prescribed for the purposes of benefit under the Industrial Injuries Act; and if she will make a statement.
    Miss Herbison: Yes, Sir. I have recently received the report of the Industrial Injuries Advisory Council on this question and shall be laying it before the House as soon as it can be printed. I should like to thank the Council for the comprehensive and valuable study which it has made. The report does not suggest any change in respect of hemp workers, but recommends that the terms in which byssinosis is now prescribed for workers in the cotton industry should be extended to cover the analogous processes in the flax-spinning industry. I have decided to accept this recommendation, and regulations to give effect to it will be made as soon as possible.
    Mr. Buchan: Is my right hon. Friend aware of the great satisfaction that that Answer will give to those of us who have been concerned with this problem for some time, and, above all, the many thou-stands of workers in this industry, a large number of whom have suffered in the past from this disease in Lancashire and elsewhere?
    Miss Herbison: I am sure that the workers in my hon. Friend's constituency and others engaged in such work will be very happy that this decision has been made.

    Retirement Pension (Mrs. M. A. Walters)
    Mr. Neaveasked the Minister of Pensions and National Insurance why

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    Mrs. Mary A. Walters, aged 71 years, who was unable to complete her National Insurance contributions owing to being a prisoner for nine years in a Soviet labour camp, has been refused a retirement pension; and whether she will make a statement.
    Miss Herbison: My information is that no claim for retirement pension has been made in this case, but I am afraid one could not succeed because Mrs. Walters, who had never previously been insured here, was already over pension age when she returned in 1956. The question whether she might be assisted in some other way does not arise at present as I understand she is still in employment.
    Mr. Neave: Is the Minister aware that this lady was arrested in 1945 and released only in 1956, that if she had not been arrested in 1945 she could have paid contributions and so qualified and that she has been paying contributions since 1956? Should not the right hon. Lady look at this matter again? Is it not bureaucratic nonsense that this lady is not allowed a retirement pension?
    Miss Herbison: No, it is not a case of bureaucratic nonsense. This lady has not been paying the full contributions since 1956 since, when she returned to this country, she was over the age when she could. Like every other worker, she has been paying that small contribution which covers industrial injuries. Even if the Bill which the hon. Member introduced had been successful, it would not have covered the case of Mrs. Walters. She would have been among those elderly people who would not have been covered by it. I hope that by the time Mrs. Walters retires there will be provision for her.
    Dame Irene Ward: In view of the unsatisfactory reply, may I ask the right hon. Lady whether—[HON MEMBERS: "Speak up."] Do be quiet for once. In view of this very unfortunate case, which does not seem to interest hon. Members opposite, will the Minister remember that most hon. Members consider it a debt that we should pay to ensure that people of this kind are not under any disadvantage in the National Insurance scheme?
    Miss Herbison: I am extremely concerned about cases such as that of Mrs. Walters. As I say, I hope that when she
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    retires there will be provision for her. However, it is strange that this matter has been brought to the Floor of the House only at this stage when this lady could have been having her retirement pension if the hon. Lady's hon. Friends believed in her case before this time.
    Mr. Neave: In view of the unsatisfactory nature of the Minister's reply, I beg to give notice that I shall raise this matter on the Adjournment at the earliest opportunity.

PRISONERS, WANDSWORTH (ESCAPE)
Mr. Sharples Mr. Sharples (by Private Notice) asked the Secretary of State for the Home Department whether he has any statement to make as a result of his investigation into the escape of four prisoners from Her Majesty's Prison, Wandsworth, on 8th July.
The Secretary of State for the Home Department (Sir Frank Soskice): I have received the report resulting from the investigation which I ordered, and have in the light of the report and the circumstances of the escape reviewed both from the short-term and long-term point of view the existing security precautions against escape.
I have not yet completed my review and it is continuing. Appropriate instructions to prison governors were issued over the weekend. In addition, for the long term, I have set in train inquiries to ascertain the feasibility of other improvements which I have in mind.
The report which I have received discloses no reason to think that any member of the prison service was guilty of misconduct or negligence, but does suggest one improvement in the existing security arrangements at Wandsworth Prison, which has been covered in the instructions issued.
I am considering, but have not yet decided, whether it would be desirable to appoint a special security adviser, in addition to those charged with this responsibility in the Prison Department of the Home Office, to inspect and keep constantly under review the working of security arrangements in Her Majesty's prisons.

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Whilst I am not prepared to make public the report which I have received, I would think it right, in accordance with the precedent set by my predecessor in the case of the report of the escape from Winson Green, to show the report to the right hon. Gentleman the Member for Monmouth (Mr. Thorneycroft).
Mr. Sharples: While thanking the Home Secretary for that reply, may I ask him to answer the specific question which I put to him on Friday: that is, whether the special security arrangements relating to certain prisoners connected with the mail train robbery which were ordered by his predecessor were in force at the time of this escape. Secondly, will the right hon. and learned Gentleman undertake to make a further statement to the House when he has completed his inquiries, and certainly before the Summer Recess, bearing in mind the very real security considerations which are involved?
Sir F. Soskice: I have no reason to think that any of the precautions had been neglected.
My long-term review may take some time, as I have instituted certain inquiries to which I wish to have the answer. I will try to make a further statement to the House as soon as I can, but I cannot guarantee that my conclusions will have been reached before the House rises for the Recess.
Mr. Paget: Is my right hon. and learned Friend aware that one of the difficulties in this kind of case is that the overwhelming majority of the people find themselves sympathising with the men who have escaped—[HON. MEMBERS: "No."]—and that the reason for this is that a property-owning judiciary has imposed sentences eight times as long as it would impose for the most brutal crime against a child and that while this kind of sentencing goes on we cannot expect to have public sympathy behind it?
Sir H. Legge-Bourke: On a point of order. I think, Mr. Speaker, that I heard the hon. and learned Member for Northampton (Mr. Paget) refer to the judiciary concerned as a property-owning judiciary. If, as I took it to be, that was intended as a slur against the judiciary, should it not be withdrawn?
Mr. Speaker: The whole thing is wrong, because the hon. and learned Member would require a substantive Motion on which to criticise the sentences. I must ask him to withdraw the criticism now because the occasion is the wrong one on which to make the criticism.
Mr. Paget: Of course, I abide by your direction, Mr. Speaker. As the occasion is the wrong one, I withdraw what I have said on this occasion, without in any way prejudicing my position on any other occasion.
Mr. Turton: While the Home Secretary is making his inquiries, will he take steps to see that all vehicles are prevented from being parked outside all prisons?
Sir F. Soskice: I cannot add to the statement which I have made that appropriate instructions have been issued.
Dr. David Kerr: Will my right hon. and learned Friend accept that his testimony to the effect that the prison officers were in no way improperly involved in this escapade will be warmly received in the constituency and throughout the prison service? Will he note that there is growing and understandable concern among people living around Wandsworth Prison at a repetition of this sort of escape, with the evident growth of hazard to the life and safety of the people living in the area?
Sir F. Soskice: Of course, I will take note of that. I am very glad to be able to say what I have been able to say with regard to the prison service.
Mr. Lubbock: Is the Home Secretary aware that both in this escape and in the previous escape by a train robber, a high degree of sophistication in the organisation of the escape from outside is shown, and that whatever precautions are taken inside the prison this does not remove the need for much more thorough intelligence work concerning prisoners' outside contacts?
Sir F. Soskice: That is very largely the problem. I most certainly have in mind what the hon. Member has put to me.
Mr. Lipton: Will my right hon. and learned Friend bear in mind that so long as the missing £2 million, the proceeds

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of the robbery, are not located, there will be ample money and plenty of men available to organise further escapes? Will he, therefore, concentrate upon making additional efforts to trace this money at the earliest possible moment?
Sir F. Soskice: The police are making the utmost endeavours to locate this money.
Mr. Braine: Bearing in mind that timing was of the essence in this escape operation, as it is in every escape operation, can the Home Secretary say whether the exercise time of long-term and dangerous prisoners is varied, whether it was varied on this occasion and, if not, why not?
Sir F. Soskice: Obviously, those are matters to which I have been having regard. The hon. Member will, I know, agree with me when I say that it would not be in the public interest to answer his question in any detail.

AIRCRAFT ACCIDENT, LYMPNE AIRPORT
Mr. Costain Mr. Costain (by Private Notice) asked the Minister of Aviation whether he will make a statement about the accident at Lympne Airport yesterday.
The Minister of Aviation (Mr. Roy Jenkins): Yes, Sir. At 5.33 p.m. yesterday afternoon an Avro748 operated by Skyways Coach Air Ltd. crashed on landing at Lympne Airport. The aircraft overturned, but, fortunately, none of the 48 passengers and three crew was seriously injured. Officers of my accident inspectorate are now carrying out an investigation, and I am sure the House would not expect me to say anything which might prejudge the result of it.
I am equally sure the House will join with me in expressing sympathy to those concerned in what must have been a most alarming incident.
Hon. Members: Hear, hear.
Mr. Costain: While thanking the Minister for that reply, and expressing the sympathy of the House to all those concerned, may I ask whether he realises that this is the first accident which has happened in this service, which has been operating for 10 years?
Mr. Jenkins: Yes, Sir. I am aware that the operator has operated this service for that period without mishap.
Mr. Rankin: Will my right hon. Friend say how long the Avro748 has been in service?
Mr. Jenkins: I think that it has been in service on this route since 1961.
Sir A. V. Harvey: When considering the matter, will the Minister look at the suitability of Lympne airfield, 500 to 600 feet above sea level, in bad weather conditions?
Mr. Jenkins: Yes, Sir. I will certainly consider that point in conjunction with other matters which will be brought forward by the accident investigation team.
Mr. Rankin: I asked my right hon. Friend how long this aircraft had been in service, not how long it had been in service on this route.
Mr. Jenkins: I think that this aircraft was, in fact, the first of this type to be in service, so that the answer to both those questions would be the same.

VIETNAM (PARLIAMENTARY SECRETARY'S VISIT TO HANOI)
The Prime Minister (Mr. Harold Wilson): With permission, Mr. Speaker, I wish to make a statement.
Last Friday, the right hon. Member for Barnet (Mr. Maudling) sought your leave to table a Private Notice Question about the refusal of the North Vietnamese authorities to grant a visa to a Foreign Office official. Had the Question been allowed, I should, of course, have been in my place to answer it. Following a series of points of order in the House there were discussions, as a result of which an undertaking was given that I would volunteer to make a Statement today.
The facts are as follows. When we were informed that my hon. Friend the Member for Leek (Mr. Harold Davies), Joint Parliamentary Secretary to the Ministry of Pensions and National Insurance, would be welcomed in Hanoi we decided that it would be helpful if he were accompanied by a Foreign Office First Secretary, Mr. Donald Murray. Soundings in London confirmed that a visa would be available for him.

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In the event, when my hon. Friend and the official concerned were half-way to Vientiane the North Vietnamese Chargé d'Affaires in Vientiane informed Her Majesty's Ambassador there that a visa had been authorised for my hon. Friend only. Representations on this matter were made in Vientiane, but it became clear that no instructions had been given to the Chargé d'Affaires concerned to issue the second visa.
In these circumstances we had to decide whether my hon. Friend should go on to Hanoi alone. My right hon. Friend the Foreign Secretary and I, though disappointed at the fact that the second visa was not forthcoming, and relying on the fact that Her Majesty's Consul-General in Hanoi was available for consultation and advice, decided that the issues at stake were too great to warrant cancelling my hon. Friend's visit.
I remain convinced, and I hope that the House will agree, that the decision was right.
Mr. Maudling: May I thank the Prime Minister for making that statement and put this point to him? He seems to assume that this mission cannot possibly, in any circumstances, do any harm. Is it not a fact that great harm could be done if it gave rise to misunderstanding by the authorities in Hanoi of the position of Her Majesty's Government? Is there not already considerable evidence, from what Hanoi Radio has said, both about the status of the mission and about the prior views of the Parliamentary Secretary, that precisely this sort of misunderstanding can arise? Is it not likely to be even more possible in circumstances which I believe must be unprecedented—in which a Minister has gone on an official mission where his official adviser has been vetoed?
The Prime Minister: Of course this is unprecedented, because the situation which we face is unprecedented. I hope that the right hon. Gentleman will agree that we should take every opportunity to get a dialogue started with Hanoi. I hope that he will agree that as we have no diplomatic, as opposed to consular, representation in Hanoi, this has not been possible, and that this is the first time anyone from the West has been able to go to Hanoi for discussions in this vitally important situation?
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I say to the right hon. Gentleman as I said in my statement: we should very much have liked Mr. Murray to accompany him, not least for the reasons which the right hon. Gentleman has in mind. But I tell the right hon. Gentleman that my hon. Friend is perfectly capable of looking after himself in any company. Secondly, to judge from the first reports which I have had of the seven hours of discussion which he had, I think it was on Friday, the Hanoi authorities are in no doubt whatever about the position of Her Majesty's Government. They were, I gather, somewhat repetitive in telling my hon. Friend what it was.
Mr. Frank Allaun: Is the Prime Minister aware that millions of ordinary people in this country who want peace firmly welcome this visit to Hanoi? Is he further aware that many of us feel that to help towards its success we should now dissociate ourselves from the bombing of North Vietnam, and that this becomes even more vital in view of this weekend's news of the alleged flights over China and of the admitted Fascist nature of the South Vietnam leadership?
The Prime Minister: My hon. Friend, in Hanoi, has gone straight along the line that Her Majesty's Government have taken in all matters affecting the fighting in Vietnam—that every piece of news which comes out, whether substantiated or not, is further evidence of the danger of this war escalating into something still more dangerous if something is not done.
Of course, we should like to have been able to make direct diplomatic contact. But one effort after another has been rebuffed, when various people who one would have hoped could have gone to Hanoi have been refused entry. When we are given advice, as we were by the Leader of the Opposition in a somewhat arid speech this weekend, about diplomatic contacts, I should like to know how he thinks we could have had diplomatic preparation of any settlement with Hanoi when, as he knows quite well, we have no diplomatic connection with Hanoi.
Sir Alec Douglas-Home: Will the right hon. Gentleman believe that I am serious in this matter? We have supported the right hon. Gentleman consistently in his policy on Vietnam. Will he take it from me that my anxiety is this: the Hanoi Government have stated to his hon.

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Friend that he is one who has protested against United States' aggressive policy in Vietnam. That is being put out from Hanoi. This is the danger—that the British Government's real policy, pursued by the Prime Minister and the Foreign Secretary, will be distorted in the eyes of people outside.
I will tell the right hon. Gentleman now that we shall support him in any peace move which he makes, and that we do not wash out unorthodoxy in this matter, but that there are real dangers in the approach which he has made and in allowing the Foreign Secretary and Foreign Ministers to be rejected, and their officials, and sending his hon. Friend.
The Prime Minister: I hope that the right hon. Gentleman's support will be forthcoming not only inside the House, but in the speeches which he makes outside the House. My hon. Friend has had ample opportunity, while he has been in Hanoi, to make perfectly clear his association with the policy of Her Majesty's Government, to make clear what the policy of Her Majesty's Government is and to make clear, also, the purposes of the Commonwealth Peace Mission which has been proposed and which, for a time at least, had the support of right hon. Gentlemen opposite.
I would simply say this: all of us on this side of the House, and I hope many on the opposite side of the House, have the fullest confidence in my hon. Friend and in his ability to keep his end up. The right hon. Gentleman has been in some pretty strange places himself in the past.
Mr. Philip Noel-Baker: Is the Prime Minister aware that, as my hon. Friend the Member for Salford, East (Mr. Frank Allaun) said, the vast majority of the country welcome this mission very warmly and have greatly regretted the attitude of the Opposition? Is he aware that the risks of doing nothing are incomparably greater than the risks of taking such an initiative?
Mr. Wilson: Yes, Sir, and I made that clear the other day. Of course, by any action of this kind one invites a rebuff. However, I thought the risks so great that I would rather take a rebuff, and a succession of them if necessary, if we can get peace in the end, than that I
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should not make the effort. Other attempts to send the sort of people who should be there—whether it be U Thant, Foreign Ministers, or the Commonwealth Peace Mission—have fallen on stony ground. When this opportunity presented itself I think that we were right to take it, but when we are told by Members opposite that this should have been done through the diplomatic channels, when they know that we have no diplomatic representation in Hanoi, I wonder whether they are trying to tell us that we should recognise North Vietnam.
Mr. Blaker: Would the Prime Minister not agree that the real question is this? When the authorities of North Vietnam stopped the Foreign Office official from proceeding beyond Vientiane, how is it that they allowed his fellow traveller to go on to Hanoi?
The Prime Minister: I do not know whether the hon. Gentleman was really trying to impart any suggestion in his choice of words. If so, I hope that he will have the guts to make plain what he was saying. [HON. MEMBERS: "Answer."] The position is as I said in my original statement; that we would have liked Mr. Murray to have gone on. We were faced with the question, when he was not able to get a visa, whether we should cancel the visit of my hon. Friend. I took the view, with the Foreign Secretary, that it was right for my hon. Friend to go on, in view of the dangers. If hon. Gentlemen opposite say that we should have recalled him when Mr. Murray did not get a visa, why do they not get up and say so?
Mr. Maxwell: Would my right hon. Friend not agree that the only harm from the point of view of distortion which is likely to come from my hon. Friend's visit to Hanoi is likely to come from the words and attitudes of hon. Gentlemen opposite? Would he not Further agree that probably the only thing upsetting hon. Gentlemen opposite—which shows how niggly, mean and small they are—is that this is a person who has been on the Left wing of the Labour Party movement all this time?
The Prime Minister: I think that it would be unfair to right hon. Gentlemen opposite to suggest that they are against any measures which might, whatever the

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difficulties, lead to peace. I think that the right hon. Gentleman made that clear this afternoon. However, I do feel that, from time to time, there is evidence that they are rather worried about who it is who is taking the initiative.
Mr. Grimond: As the Prime Minister earlier referred to a seven-hour discussion by the hon. Member for Leek (Mr. Harold Davies) in North Vietnam, can he say with whom that was held? Can he say whether the hon. Gentleman has met members of the North Vietnamese Administration?
The Prime Minister: There has been some difficulty in communication with Hanoi—[Laughter.]—for reasons which at least the right hon. Gentleman opposite understands. This has not been an easy mission for my hon. Friend. Indeed, it has been very, very difficult and not without danger. Only this morning the International Control Commission plane which it was intended my hon. Friend should join tomorrow was turned back because of military activity and danger to that plane, so I hope that no one will titter about this question of communication.
The only information I have had so far on whom my hon. Friend has talked to is that he has talked—had a seven-hour meeting the other day—with political leaders there, with what I believe is called the Fatherland Front, which is headed by Ho Chi-Minh; that is, the party and not the Government. The discussions throughout that period were led on their side by the head of the appropriate department of the North Vietnamese Foreign Ministry.
Mr. Grimond: Was that with a member of the Government?
The Prime Minister: The discussions were led by a chief official of the North Vietnamese. In so far as the distinction between Ministers and civil servants has much meaning in a country like that, he was what we would call a senior civil servant, equivalent, presumably to Sir Paul Gore-Booth in our own Foreign Office—a head of a department and not a first secretary. As I say, there have been difficulties in communication.
My hon. Friend has asked to see the Prime Minister, but I have not yet learned whether he will meet him. One of the
38
difficulties my hon. Friend has had has been that it has been his job to make it absolutely plain, as he has done, what is the position of all of us in this matter. I am not certain that his activities have been helped by all the blaze of publicity we got in this country immediately before his arrival.
Mr. Shinwell: Does my hon. Friend not regard it as somewhat extraordinary that when every effort is being made by Her Majesty's Government to bring this tragic affair in Vietnam to a speedy termination Her Majesty's Opposition should be contenting themselves exclusively and solely with making party capital out of it?
The Prime Minister: I would not say that I find it all that extraordinary. In fact, what we are discussing this afternoon—the statement I was asked to make—related, I think, not to the general issue of my hon. Friend's mission, but of the particular question about a Foreign Office official.
As I say, we felt very strongly that it was highly desirable that he should have gone. He is an experienced, even if a junior official, and it would have been useful for a number of purposes that he should be there because, after all, this is the first dialogue of any kind that there has been for many years, certainly since the fighting became dangerous. It would have been valuable to have had a Foreign Office official there. However, this was not possible.
As the House realises, Her Majesty's Consul General, who does a tremendous job in Hanoi in the most difficult circumstances, is not allowed by the Hanoi authorities to handle political issues or messages relating to international questions. His duties are purely consular. So far as the Opposition's views of the Foreign Office official is concerned, I share them. I wish that he could have gone. But if hon. Gentlemen opposite are saying that we should have stopped my hon. Friend, I totally disagree with them.
Mr. Maudling: So far from making party capital about this, as it has been suggested—[HON. MEMBERS: "Oh."] I remember very well the terms of the Prime Minister's original Answer to me on this matter last Thursday. So far

39
from making party capital, we have made it quite clear that while we support anything which is likely to produce a settlement in this part of the world, it is not wise to assume that every measure, however well-intentioned it may be, is a sensible and effective one. It is our duty, as Her Majesty's Opposition, to criticise and put to the test anything which the Government do. Is the Prime Minister aware that any party considerations which have been introduced in this matter this afternoon were introduced by the hon. Member for Buckingham (Mr. Maxwell)?
The Prime Minister: I agree that in an unprecedented situation of this kind every move taken must be considered on its merits. I readily agree, and I said so on Thursday, that this is an unprecedented move on our part, but one which, I think, was justified. However, certainly every case must be taken on its merits. I welcome the change in attitude of the right hon. Member for Barnet (Mr. Maudling) just now. It is very different from the extremely strong criticisms which were made by his right hon. Leader in the country at the weekend and still more different from the attacks which were made by the hon. Gentleman who makes a lot of speeches outside but never in here, the Chairman of the Conservative Party, on this question.
Several Hon. Members rose—
The Speaker: Order. We cannot debate this matter in terms of questions on a statement. We cannot go on without there being a Question before the House.

ORDERS OF THE DAY
  FINANCE (No. 2) BILL
  As amended, further considered.
  FINANCE (No. 2) BILL

    Clause 42.—(INTRODUCTION FOR COMPANIES ETC. OF CORPORATION TAX, IN PLACE OF INCOME TAX AND PROFITS TAX.)
    4.0 p.m.
    Mr. Anthony Barber: I beg to move Amendment No. 232, Clause 42, in page 101, line 4, to leave out "1964 and 1965"and to insert "1965 and 1966".
    This Amendment is at once the simplest and, I think, the most important Amendment on the Notice Paper today. Its purpose is to defer the operation of Corporation Tax for one year. Although the Corporation Tax does not technically come into operation until after the end of the current financial year, the importance of this Amendment can be gauged from the fact that nearly all company profits earned this year will be liable to Corporation Tax.
    I shall, in a moment, give the House four specific reasons for my belief that it would be in the general interest to defer the operation of this tax for a year hut, broadly speaking, all those reasons are directed to giving the Government an opportunity for second thoughts on the particular type of Corporation Tax embodied in the Bill.
    I mention this because the Amendment does not provide an occasion for debating whether or not we should have a Corporation Tax at all. When we voted against the Second Reading of the Bill, we did so because we had reached the conclusion that the particular scheme of Corporation Tax devised by the Chancellor of the Exchequer for a Socialist Britain, unlike the schemes of corporation tax in many other countries, would do irreparable damage to industry and commerce, would retard modernisation and technological advance, and would penalise success.
    That Second Reading debate took place two months ago. Since then, day after day in Committee we have listened to the laboured explanations of Treasury Ministers, and I must say that those explanations have served only to confirm

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    our view that, whatever the Chancellor's theoretical objective, unless much more thought is given to his proposals the practical consequence of the Corporation Tax in its present form will be to make this country less efficient, and so less competitive. What is wanted is far more consideration to be given, not only to the details of the tax, which we have considered at length in Committee, but also to the basic objectives of the change proposed by the Chancellor of the Exchequer.
    I say that because the whole philosophy underlying this particular scheme of taxation is based on the Chancellor's mistrust of the business community. It is of no use the right hon. Gentleman complaining, as he has done on a number of occasions, because one commentator after another has dubbed him "anti-business". The fact is that again and again his decisions on the Corporation Tax have shown him to be just that.
    In his Budget speech, the right hon. Gentleman claimed all the glories of a great tax reformer. He told us that with the Corporation Tax he was establishing, as he put it,
    "… a new landmark in our fiscal history, such as we have rarely been able to create in this country save under the stringent needs of war."—[OFFICIAL REPORT. 6th April, 1965; Vol. 710, c. 254.]
    But there are many who believe that the Corporation Tax will go down in history as a classic example of fiscal bungling and retrospective incompetence. The Times was not far from the mark when it said of the Bill:
    "It is the sheer administrative incompetence of the Government that worries most."
    The simple reason for the Chancellor getting himself into this mess has been his dogged determination to rush through the preparation of the Corporation Tax section of the Bill without allowing sufficient time to get it right. Nobody would deny the magnitude of the proposed change to Corporation Tax, but it is the very size of the operation that should have made the right hon. Gentleman, with the advice which I am certain he had, at least to 1iesitate to bring it in this year—a year when the Inland Revenue and the parliamentary draftsmen have had the added burden of establishing the Capital Gains Tax.
    As I have said, the sole purpose of this Amendment is to defer for one year
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    the operation of the tax and so to give time for further consideration—and, as I think equally important, further consultation with, if I may be permitted the phrase, "the interests" most concerned. I believe that if the Chancellor of the Exchequer were to accept this Amendment he would be applauded not only by his parliamentary colleagues on both sides of the House, but by an overwhelming majority of his countrymen. It would, I believe, be a victory, not for the Opposition, but for common sense.
    Lest the right hon. Gentleman thinks that our criticisms on this score are cooked up for political reasons, let me quote two short comments in leading articles made after the conclusion of the Committee stage—in other words, since we last had an opportunity of considering the Corporation Tax proposals. The Financial Times wrote on 26th June:
    "So the fundamental doubts about the Bill remain; and with them the objection that such complex changes should never have been made before the Chancellor had had time to study their likely effects. The corporation tax may encourage companies to retain more profits; it has yet to be shown that this is a good way to promote effective investment. It will separate individual from company taxation; but is this administrative advantage enough to justify the tangle of tax law that will surround it?"
    Next, I want to quote from the leading article in The Times last Monday:
    "The proper preparation of a major Finance Bill, even if attention can be devoted to it without other monetary distraction, is a lengthy business. It was not a happy choice, therefore, for the Labour Government to decide to produce for their very first Budget a Finance Bill involving major changes in the fiscal system. All the attention of their economic Ministers and civil servants should have been devoted to dealing with the sterling crisis. Even without this, there simply was not time to do the job properly."
    There are four basic reasons why I would urge on the House the acceptance of the Amendment. The first is that if the Chancellor of the Exchequer were to accept it it would at least go some way to restoring the confidence of the business community which he has lost. After all, we are concerned here not merely with the technicalities of company taxation. The fact is, whether or not it is justified, that a considerable proportion of those engaged in industry and commerce—not to mention those abroad to whom we are indebted—no longer have confidence in the Chancellor of the Exchequer. Even

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    Sir Jock Campbell, one of the Labour Party's most prominent supporters in the City, has told the world that he is
    "… dismayed by the probable effects of Corporation Tax on British productive investment in developing countries."
    I am sure that the right hon. Gentleman would not deny that when the Labour Government came to office last autumn, after we had held responsibility for 13 years, there was great good will in industry towards himself and his colleagues. I noted the wise words of the First Progress Report of the Department for Economic Affairs. After describing the tasks ahead, it went on:
    "The establishment of good communications and mutual understanding between the Government and industry is necessary if all these policies are to be successful."
    But all the good intentions of the Government will count for nothing if the Chancellor of the Exchequer determines to push ahead with the Corporation Tax in its present form.
    The fact is that since that First Progress Report of the Department of Economic Affairs there has arisen a growing hostility between the Chancellor of the Exchequer on the one hand and industrial and financial people on the other. Indeed, not long ago the right hon. Gentleman's hon. Friend the Member for Manchester, Cheetham (Mr. Harold Lever) said:
    "I believe that if we wish to avoid a very serious financial and economic crisis in the coming months the growing hostility between the Government and the financial community must be reversed."
    Those are not my words, but the words of the Chancellor's own hon. Friend, the Member for Cheetham. If only the Chancellor would admit, what he knows to be the case, that Corporation Tax in its present form is not right and that it should be considered further during the coming year, his stock would rise immediately.
    The second reason for deferment is that it would give more time for a really thorough appreciation to be made of the operation of various forms of Corporation Tax in other countries. I say this because—quite apart from the merits, which we cannot argue all over again today—it is a fact that the type of Corporation Tax set out in the Bill is the very type which is now being abandoned by
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    some of our major competitors. I genuinely believe that the Chancellor still does not appreciate the significance of the differences between the various systems.
    Only last week the Chancellor reported to the House on his visit to the United States of America and, as he was at liberty to do, in his statement he worked in a passage to the effect that the Americans thought his system of Corporation Tax was a good one. I am sure he knows that in the United States the corporate rate is considerably higher than he is contemplating whereas personal rates are very much lower in the United States than they are in the United Kingdom. The Chancellor's adherence to the single rate of Corporation Tax is at the root of many of the evils which flow from his system, particularly the loss of effective double taxation relief and devaluation of investment allowances.
    On an Amendment of this kind we cannot obviously go into the merits of these matters all over again, but they are all aspects of crucial importance, and of importance not just in terms of profit or incomes but in relation to the whole course of industrial development and overseas investment. With an additional 12 months to go into all these matters with the thoroughness which they certainly merit, I am sure the right hon. Gentleman and his colleagues would feel bound to modify their proposals.
    The third reason for deferment is that the Chancellor of the Exchequer has now agreed to take part during the year in a full survey of and investigation into the question of overseas investment. What utter folly to go ahead with all the transitional reliefs being meticulously worked out by one company after another before the inquiry is complete! It may well turn out that within a year the whole taxation approach to overseas investment is shown to be a nonsense. The Leader of the Liberal Party, in Committee when we were considering Clause 79, said:
    "I believe that the Bill is too big and that the right hon. Gentleman should have postponed this part of it for a year, had his inquiry before introducing these proposals and then, if necessary, brought the matter to the Committee."—[OFFICIAL REPORT, 22nd June, 1965; Vol. 714, c. 1487–8.]
    I should have thought that that was the sensible approach to this whole question of overseas investment.

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    That is only one aspect. It seems monstrous that within a few days the House of Commons should be asked to pass legislation which may well be based on an assumption by the Chancellor which is utterly without foundation. What possible harm could a year's delay have done to find out these facts which are now being sought by the Federation of British Industries and the Chancellor? These are matters of the greatest concern to the developing countries and to thousands of investors at home, many of them men and women of very moderate means.
    4.15 p.m.
    The fourth reason for deferring the operation of Corporation Tax is that the inevitable complexity of the Chancellor's proposals have made it quite impossible in the time available to work out all the ramifications and side effects of the provisions in the Bill. Throughout the business world endless time and energy is being occupied in trying to cope with the effects of the Bill, energy which should be directed to planning greater efficiency and a higher level of exports. It is no exaggeration to say that tax-wise the business world has never been in a state of greater confusion and uncertainty.
    For all the good intentions of the Chancellor and his colleagues, that confusion was made worse confounded by no fewer than 140 Government Amendments on Corporation Tax alone which we considered in Committee and the prospect of a further 100 Government Amendments on Report. Even if one accepts the basic structure of the Corporation Tax no one in his right senses now seriously pretends that the details are anywhere near right and that gross inequities will not appear in the months ahead.
    Without going into the merits, I give two examples to show what I mean. Twice we have debated an Opposition proposal to limit the ambit of the close company provisions and to exclude from those provisions companies in which the public were substantially interested. Twice we have been rebuffed by the Chief Secretary. The second time was only a few days ago. Yet, just before the weekend, there appeared on the Notice Paper a starred Amendment in the name of the Chancellor which goes a considerable way to meet us. Only two days before, the Chief Secretary had not made up his mind. Does anyone
    46
    doubt that if our proposal had not been selected for debate again on Report the Chancellor would have done anything about it? Of course he would not. So we have the ridiculous situation that a concession which is of the utmost importance which we were able to wring from the Chancellor came about only by chance.
    I give another example. Last week a newspaper gossip column pointed out that royalties to authors are penalised by the Finance Bill. The very next day the Government put down an Amendment to deal with that. This hit or miss technique, which is still going on more than two months after the publication of the Bill, makes a mockery of the legislative process, but it is inevitable unless we are to have more time to consider the details of the Chancellor's proposals. My goodness, the Chancellor of the Exchequer set out to make his mark—he certainly has done so! The sheer complexity of the scheme which, together with Capital Gains Tax is to be integrated into the existing Income Tax system, is bound to give rise to all kinds of difficulties of interpretation and administration.
    Here is an Amendment the terms of which do not in any way challenge the principle of Corporation Tax. It is directed solely to ensuring that the Chancellor, the Inland Revenue and every taxpayer concerned shall have one more year in which together they can get this tax right. I beg the right hon. Gentleman not to confuse stubbornness with determination or obduracy with resolution. The aim of the Chancellor and his colleagues on the Government Front Bench should be to evolve a tax which is both equitable and efficient. In its present form it is neither. If the Chancellor does not accept this Amendment, the country will know that, like all political fanatics, the right hon. Gentleman is redoubling his efforts when he has lost his aim.
    Sir Kenneth Pickthorn: I, also, have no intention of going into the ultimate merits of this tax. I have still less intention of going into the ultimate merits of the decision of the Chair on an earlier occasion. I think it necessary, however, to remind the House of what happened on that occasion. I must begin by apologising to the House, because I

    47
    have a quite unavoidable engagement in the service of the House at five o'clock.
    The Executive asks the Commons for authority to tax when, in its judgment, it needs money. On 2nd June, was it, upon such a demand, the Executive failed to find a majority in the House of Commons. Never before in such circumstances has the tax in question been imposed. There is a good deal I could say both about the merits of the tax and far more about the procedural and constitutional implications. Surely, in all decency, Her Majesty's Government should think twice before insisting on this occasion on that imposition, which failed to get a majority on a Division, being acted upon and made continuous by the act of the House today. It seems to me that must be improper. We have been engaged in various ballets and other celebrations because of Sir Simon de Montfort, 750 years ago, because of Magna Carta—[Interruption.] Simon de Montfort, rather longer [Interruption.] [HON. MEMBERS: "700."] Never mind.
    The point of the argument is readily perceptible. That being so, I am sure all those who have been engaged either in the management of the House, or in the management of the country's finances through all that period, would be very much surprised, not to say shocked and horrified, if they knew that at this date the Executive were to impose taxation which had failed to receive a majority on a Division.
    Mr. Geoffrey Lloyd: Unless the Government accept the Amendment, it will be clear that they are not engaged upon a large measure of tax reform, but are, in fact, engaged upon a Socialist attack on the private enterprise system.
    It is necessary, perhaps, to consider quite shortly the first crude effect of the Corporation Tax, which is that taxpayers of all classes have their net incomes reduced, on a Corporation Tax of 35 per cent., by almost 12·7 per cent., assuming that an unchanged slice of gross profits passes through to dividend. But the value after tax of retained profits is enhanced by 37 per cent., which puts the point that the Chief Secretary has been advancing many times during our debates,
    48
    that it is the Government's purpose to encourage retention.
    My right hon. and hon. Friends and myself, in earlier debates, have shown the Chancellor that many companies in the country require not only retention but free access to the capital market, which, we have argued, is injured by the particular form of Corporation Tax the Government are introducing.
    I would like briefly to point out that there has been some research on the effect of retentions, and that this is not at all encouraging to the Government's case. It was published by the Bulletin of the Oxford University Institute of Statistics and was the work of I. M. D. Little, entitled, "Higgledy Piggledy Growth", in which he analysed the relationship between retained earnings and growth in profits and arrived at the alarming, though tentative, verdict that the rate of return on invested retentions is usually low and occasionally negative.
    The investigation was regarded in the world of economics and investment analysis as very important indeed, and the author of it summed up by saying:
    "One seems left with the conclusion that those companies which retain a relatively high proportion of profits select relatively unprofitable investments."
    The bulletin is the only research done by any important statistical body of economists of which I am aware. The Government, as usual, seem to have taken no cognisance of anything that has been brought out since the minority Report of the Royal Commission was published, which, I think, was in 1955. This is a point that should be borne in mind, and it is yet another reason for our suggesting that if they were engaged in genuine tax reform they should have had a much greater measure of inquiry before they introduced their proposals.
    While it is true, as the Chief Secretary says from time to time, that other countries have a Corporation Tax, it is also true that very few countries have a Corporation Tax of the kind that is being introduced by the Government. Canada allows shareholders a tax credit of 20 per cent. of dividends received. South Africa exempts part of dividends on a sliding scale according to the size of income, and the most remarkable example is the German system, where

    49
    there is a very much higher rate of Corporation Tax on retentions and a much lower rate on amounts paid out.
    It is remarkable that the Germans have adopted a system which, in effect, is very similar to the one which we had in this country before the Chancellor brought in his present Budget. This similarity was noted and approved in the Neumark Report, which analysed the economic disadvantages of artificially encouraging retentions, suggested that E.E.C. countries should eventually harmonise their tax systems by moving closer to the German model, and pointed out that the United Kingdom system at that time was, in effect, very similar to that which Germany had already.
    France was not then on the German system. However, France has now modernised her system, leaving the United Kingdom and Luxemburg isolated in Europe.
    Mr. J. Grimond: Would the right hon. Gentleman expand further on the way the German system is similar to our system? I thought that the German system was to have a very high rate of Corporation Tax, but a low rate of withholding tax.
    Mr. Lloyd: The German system has a rate of 50 per cent. Corporation Tax on retentions, and only 15 per cent. on profits distributed through dividends. That is why the net receipt by the shareholder comes out at about the same as the net receipt by the shareholder under the British system before the present Corporation Tax was introduced.
    That leaves the only shred of respectability which the Chief Secretary can gather in the fact that the United States is the only country where there is still almost complete double taxation of dividends paid to individuals. But, as my right hon. Friend has pointed out, the validity of this example is really taken away by the completely different level of tax in the two countries. For example, a married couple in Britain, with a dividend income of £2,100 per annum, pay 51¼ per cent. Income Tax and Surtax on any additional dividends, and the rate rises steeply to a swingeing 91¼ per cent. over £15,000. In the United States a married couple could have dividends of 44,000 dollars—that is £15,700—before
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    reaching the 50 per cent. rate. At this figure, they would be left with 29,940 dollars, or nearly £11,000 of net income. This makes a very great difference.
    I am not the only person who says that this is, in fact, a Socialist attack on the private enterprise system, because in the intellectual organ of the party opposite—I refer to the New Statesman—there was an important article on 25th June called "Socialism by Taxation", of which I shall read only the last sentence, because it shows the point quite clearly:
    "… undistributed profits—now additionally encouraged—should pass from the nominal ownership of the shareholders into the hands of the consumers, the workers, and the State. For if the shareholders no longer have the right to all profits, this right should be transferred to other hands, not left in the control of 'managers'."
    So we can see that this is part of a twofold design. First, as the Chief Secretary endlessly says, the shareholder and the company are to be completely separated. When they are separated, the control of industry by the directors appointed by the shareholders will be challenged. Finally, this Socialist economy says we are to proceed to the stage of actually dispossessing the shareholders of what, at any rate under the law at present, is their property.
    4.30 p.m.
    Mr. Patrick Jenkin: I support the Amendment. The introduction of this tax is premature, principally because quite inadequate consideration has been given to its economic effects. My right hon. Friend the Member for Sutton Coldfield (Mr. Geoffrey Lloyd) has just mentioned the study by Mr. Little, of Oxford, entitled "Higgledy Piggledy Growth". The Chief Secretary will remember that when I raised this matter in Committee and described the study, I fear at rather greater length, he said this:
    "The hon. Gentleman is quite right in saying nobody should pontificate and it is possible to draw a variety of conclusions from a variety of studies—and I had read the study a long time before the hon. Gentleman retailed it to the Committee. He arrived at a tentative and negative conclusion, that nobody is able to say, 'The way to get companies growing, and the best way to ensure dividend policy, is as follows.'"—[OFFICIAL REPORT, 2nd June, 1965: Vol. 713, c. 1898–9.]
    Surely to goodness the Government's claim that the only piece of evidence—

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    nobody else has attempted to put any other evidence before the House—is a tentative and negative conclusion in the opposite direction is a poor foundation on which to base a major tax reform of this sort.
    The article "Higgledy Piggledy Growth", which, as I said in Committee, is worked out at considerable length and which employs advanced statistical techniques, arrives at the disturbing conclusion that retained profits are not necessarily a good thing and that there is no evidence that companies which retain profits grow any faster than companies which have a higher rate of distribution. This is not a matter of opinion. It is a matter of fact. The facts have not been determined by the Government. To rely on what some people—the Chancellor, or some of his advisers—believe to be the facts is a shaky foundation for a major tax reform of this sort.
    A second point which I raised in Committee and to which we have had no answer was this. If a tax system is changed so as either to encourage or discourage retained profits, does it have any effect on the amount of new capital which is raised from the market?
    Mr. Deputy-Speaker (Dr. Horace King): Order. It seems to me that the hon. Gentleman is addressing himself to the merits of Corporation Tax. I hope that he will come to the Amendment.
    Mr. Jenkin: I am using these as illustrations of major points of economic importance which were put before the House on Second Reading, which were made on Committee, and which will no doubt be made again on Report, as reasons why the tax should be introduced. I am pointing out that these are questions of fact which have simply not been determined and that therefore—
    Mr. Deputy-Speaker: Order. We are not debating whether the tax should or should not be introduced. We are debating on this Amendment the date of introduction.
    Mr. Jenkin: I am grateful to you, Mr. Deputy-Speaker.
    More time is necessary before the tax is introduced in its present form to determine the validity or otherwise of the
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    arguments on which the Chancellor and his right hon. and hon. Friends rely in supporting the tax. I am pointing out that there has as yet been no answer to the convincing figures produced by Mr. Harold Wincott, in the Financial Times. showing that after the change in the pattern of the Profits Tax in 1958 a very substantially higher proportion of new capital had been raised from the market compared with the period before that change.
    In Committee, the Chief Secretary said that people are entitled to draw different conclusions. He has never yet given the House or anybody else the source of the figures he quoted. He merely quoted the figures. If I am wrong about that, perhaps I shall be corrected. I have not seen any statement of the source of the figures.
    The final point is the effect on capital allowances There was a very interesting, if somewhat abstruse, debate on this subject in Committee, in which a number of hon. Members made some valid points and, with respect, also some invalid points. I have spoken to the hon. Member for Middlesbrough, West (Dr. Bray), who seemed at one point to have gone somewhat astray. He has been kind enough to agree that he did not choose his words wisely. He has readily conceded his point that the Amendment moved by the Opposition asked for five times too much was a misinterpretation and that all that it did was to increase the investment allowances in one case to 40 per cent. or 42 per cent. However, I will not pursue that point.
    It is far from the case, as the Government have contended, that the rate of tax compensates for the reduction in the investment allowances. This is only so up to a certain return on capital. Above that figure—there are many businesses with a high rate of obsolescence which must obtain a higher return than that—the balance swings the other way. There are many cases where the change, if introduced, will give rise to substantial penalties on companies compared with the present situation.
    These facts are not known. They are not widely appreciated. They do not appear to be appreciated in the Treasury and in the Inland Revenue. This is why I say that it is premature to introduce so

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    major a tax reform at this time, which appears to have almost as a sidewind these important economic consequences of which the effect is at present quite unknown. I therefore contend that the Government are being far too hasty in introducing this enormously important and radical change in our system of taxing companies without giving it very much more thought, particularly thought related to its very important economic consequences.
    Mr. Barber: Before my hon. Friend sits down, I ought to say, Mr. Deputy-Speaker, that the Chief Secretary has sent me details of the sources of the various figures which were used in an earlier debate and to which my hon. Friend has just referred. I am sure that the Chief Secretary would wish me to hand them over to my hon. Friend so that he may study them.
    Mr. Grimond: I want to be brief, partly because I, like the hon. Member for Carlton (Sir K. Pickthorn), have to apologise to the House because we have a meeting of the Committee of Privileges later and, secondly, because most of the arguments on this point have already been rehearsed and, indeed, enacted before the House.
    I would only mention that I still believe that there is an important constitutional point at issue. We are coming to see that we cannot deal with the country's finances by an annual Budget. We are now projecting ourselves two or three years ahead, but this is contrary to supposed constitutional procedure at the moment. In the course of time, in our look at other things, we should look at the whole handling of our taxation by the House for a period of years.
    In Committee, the Chief Secretary argued from the German case that the fact that the Germans now taxed distributed profits more lightly had not led to any striking increase in the amount of new capital raised in their capital market. Now we are told that a high level of retention does not mean that the investment resulting from that level of retention is necessarily worth while. This is a large field in which there is disagreement, and it is clearly an area for further research. I should have thought that this was an argument for putting off the initiation of this tax until we have more information about what its effects may be.
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    This and many other points have already been deployed, and I do not wish to go into them at length. What has emerged during the discussion of the Bill is that not only are there disagreements about the methods of taxation and about the effect of the Bill, but there is also the question of the absolute height of taxation. I interrupted the right hon. Member for Sutton Coldfield (Mr. Geoffrey Lloyd) and asked him about the German system. It appears to me that so far as the method is concerned, the German system is the opposite to our present system. Our present system may be described as one by which we have a very low rate of Corporation Tax and a high rate of withholding tax or Income Tax.
    Under the German system there is a high rate of Corporation Tax and a low rate of withholding tax on dividends. Surely, therefore, when we consider what is the ultimate level of taxation which a shareholder can be expected to bear, this raises the larger subject, which it would be out of order to discuss at length on this Amendment, of the rate of taxation in the country as a whole.
    We know that the Government are going to make certain further investigations. Further, the House should remember that the rate of Corporation Tax is not fixed, and we are all arguing about the effects of a rate of tax which is not fixed and which we do not know. The Chief Secretary said that if it was fixed at 35 per cent. or under, in many companies the result would not be very different from what it is under the present system, bearing in mind that most companies tend to distribute around 50 per cent. of their dividends. We should remember that. While we are considering the appropriate rate and, before we fix the rate, we should examine not only this new method of taxation but the absolute level of taxation, we should look again at its possible effect.
    It has been argued that the idea that a high rate of taxation is a disincentive to work had been disproved. In my experience, that is probably true. Very few people work less hard when taxation goes up, always granted that they remain in the same job. But the rate of tax may have some effect on the brain drain, on whether people stay in this country or

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    go to other countries, and on the jobs they choose and on savings and investment. When all these matters are being considered I believe that the point about the absolute rate of taxation, quite apart from how we raise it and divide it, might be looked at again. We have had very little information about this, and there has been no inquiry into it for some years.
    Sir Alexander Spearman: I also support this Amendment, and I shall be as brief as, or even briefer than, previous speakers.
    I do not want to argue the merits or demerits of this tax. I can very well see that a case can be made for a tax of this sort very differently presented, but it seems clear that we have to look no further than the formidable attacks upon it by the hon. Member for Manchester, Cheetham (Mr. Harold Lever) to see that time has not been taken to prepare this very important tax. There is no doubt that the tax will cause a major upheaval. That does not necessarily condemn it. There are things which cause major upheavals but which are worth while.
    Take the question of the adoption of a decimal system. That may well cause a major upheaval, but there will also be considerable advantages. However, there do not seem any possible advantages to the country's economy as a result of the upheaval caused by this tax. The only result would appear to be to make a sensational change for political purposes without any regard to the economic consequences.
    4.45 p.m.
    Sir Douglas Glover: I believe that this is one of the most important Amendments that we have discussed during the whole of the Report stage of the Bill. I ask the Government once again to consider accepting the Amendment. In Committee, we dealt with about 140 Government Amendments on Corporation Tax. On this, probably the last day of the Report stage, we are still dealing with over 50 Government Amendments. This shows that even the Government themselves do not know their own mind about the repercussions and the effect of the Corporation Tax on the economy. I do not criticise the party opposite for bringing in what might be described as a Socialist Measure. But
    56
    even if they are doing that, one would have thought that they would want it to work. Yet all the indications are that they are by no means certain that what is to become an Act of Parliament is in a condition in which it will work effectively for the benefit of the nation.
    My right hon. Friend the Member for Bexley (Mr. Heath) and his Front Bench colleagues have carried out a magnificent job all through the consideration of the Bill. Even the Chancellor of the Exchequer must accept that it is a much better Bill as a result of their efforts. On the subject of the Corporation Tax, although many of the Chancellor's Amendments have resulted from arguments from this side of the House, this is not the only place where the right hon. Gentleman has had a change of view. As was said a few moments ago, the Government have put down an Amendment on Report as a result of a comment in a gossip column. Surely, the party opposite does not want to go down in history as the party which governed by gossip column.
    The Government's reputation has rapidly waned as a result of their inefficiency since they have been in power. Here is an opportunity for them to show that they have had second thoughts. I am not asking them to abandon Corporation Tax if they believe that it is the right thing for the country, but it is quite obvious from the way in which the Bill has been so torn about and altered from its original form that the Chancellor's original intentions cannot have been very well thought out.
    Even now, on the 21st day of consideration of this Bill, the Chancellor is bringing forward Amendments at the last moment, and this shows that we are being asked to put into force a Measure on the effects and benefits of which the Government have a very cloudy idea. Indeed, there is doubt about whether they will turn out to be benefits or disadvantages. Would it not, therefore, be common sense and the attitude of wise men to accept this Amendment? I do not say that on this question of Corporation Tax I have understood all the arguments which have been adduced from this side or the other side of the House. There is nothing derogatory in saying that, because I am certain that the same applies to the Chancellor and to his colleagues. We are dealing with something that is new. We are

    57
    trying to balance the systems of one country with the systems of another. We are trying to work this into our own economy, and these are very few in the House who could claim that they have completely understood every Clause relating to Corporation Tax. This would include the Chancellor, the Chief Secretary and their hon. Friends.
    This is a complicated matter and that is why we have had all these Amendments. Is not it, therefore, sensible and logical to say that because it is such a complicated measure it would be wise to put off this provision for a further year? I would point out to the Chief Secretary that although he and his right hon. Friend thought that ample time was being given to people to consider these matters it is now the middle of July, 1965, and, therefore, the time gets shorter and shorter during which further consideration can be given to it by companies and accountants.
    The hon. Member for Heywood and Royton (Mr. Barnett) appears to be smiling. He knows that he has some headaches in front of him before 1966 and I think that he would say that a great deal of commonsense has been said in the debate and that the Amendment should be accepted.
    Mr. Joel Barnett indicated dissent
    Sir D. Glover: The hon. Member could not say that in public, of course, and he knows that at this stage of the Bill it would not be worth while getting into that amount of trouble.
    We are trying to stop the Government making a mistake. This is the very last opportunity to stop them going down hill and into the sea like the Gadarene swine. This is an important part of the Bill and we have done our best to try to bring reason and sense into the discussion. Will not the Government think again and give the economy of the country, and particularly the financial aspect of it, a further twelve months to sort out these problems? If they do, their popularity will go up considerably in the Gallup poll and far more important, it will go up rapidly among those who have the best interests of the nation at heart.
    Mr. Ian Gilmour: I do not think that even acceptance of this
    58
    Amendment would stop hon. Members opposite running down to the sea. Nevertheless, I hope that the Government will accept it because, for the first time, it would gear the economy to the situation as it is today and not to what the Chancellor thought it to be when he and his right hon. Friends decided to bring in this tax. A year's delay would give the Government a chance to study foreign experience.
    There have been arguments about Germany, but it is undeniable that the trend in Germany, holland, Belgium and France has been towards lightening the tax on distributed profits. The Chancellor thinks that he is an enlightened reformer, but he is doing the opposite. There is nobody more out-of-date than yesterday's radical, and the Corporation Tax as it now stands is very much the produce of the radicalism of yesterday or of 10 years ago. It is a mere rehash of the old-fashioned two-tier profits tax in order to raise tax on distributed profits.
    As for the investment allowances, it is undeniable that the Corporation Tax will hit those companies which have a high rate of investment eligible for relief. This means that the Chancellor is increasing the burden on manufacturing industry and shifting it away from service trades. Is that really what the Treasury wants to do? Is that the way to increase exports and diminish imports? On the face of it, it seems likely to do the precise opposite.
    There has been argument as to whether retention encourages growth—the evidence seems to be that it does not. But it is plain that if we encourage retention as such there will be less dependence upon the rate of return on investments: there may be more investment but it may be the wrong investment. The Chancellor claims that he is making overseas investments more selective but this tax makes investment at home less selective, which seems hardly the way to strengthen and modernise the economy. Since the tax was thought out for entirely different conditions I hope that the Government will think again and put it off for another year.
    The Chief Secretary to the Treasury (Mr. John Diamond): If the Amendment were accepted, Clause 42 would read:
    "For the financial years 1965 and 1966 there shall be charged on profits of companies a tax, to be called corporation tax…"

    59
    I would not have thought from listening to any single one of the speeches in this debate that that was in the mind of anyone. Every speech has been directed to destroying the theory of Corporation Tax. [HON. MEMBERS: "No."] Not one speech in merit has produced a single argument in favour of postponement, with the possible exception of one or two points made by the right hon. Member for Altrincham and Sale (Mr. Barber), whose speech I shall be glad to answer now.
    The right hon. Member for Sutton Coldfield (Mr. Geoffrey Lloyd), for instance, says that this is a Socialist attack upon the private enterprise system. He wants us to mount our Socialist attack upon the private enterprise system 12 months from now instead of now. Is that what he really wants, or is his argument totally irrelevant to the Amendment?
    The same remarks go for every comment made in the debate. Every speaker has produced an argument against Corporation Tax and no one has produced a valid argument, with the sole exception of the right hon. Member for Altrincham and Sale, who said that the Amendment would give time for further thought to be given to certain of the points and that the present situation is unsatisfactory—
    Mr. Grimond: Will the right hon. Gentleman allow me to intervene?
    Mr. Diamond: I was coming to the right hon. Member's speech.
    Mr. Grimond: I listened to all the speeches and I thought that the whole tenor of most of them was that the tax should be postponed so that more research should be done. That seems to me to be relevant to the Amendment.
    Mr. Diamond: No, the right hon. Gentleman is quite wrong. These words were used, but if the right hon. Gentleman would be good enough to read the speeches carefully in HANSARD he will find that the one meaning behind every argument was that this is a bad tax and should not be introduced. The words used were all sorts of colourful arguments towards postponement, because the Amendment talks about postponement, and even on one occasion you, Mr. Deputy-Speaker, had to call one hon.
    60
    Member to order by reminding him of the situation. If the right hon. Member for Sutton Coldfield thinks that the argument that this is a Socialist attack upon the private enterprise system is a solid argument, which does him credit, for postponing the tax for one year, I can only assume that he will think anything.
    Mr. Geoffrey Lloyd: I took this from a respectable intellectual organ of the Government, the New Statesman, put forward by one of their leading economists. In so far as I argued about the Corporation Tax I argued that there were several types of this tax in Europe and that it would be very much better, before introducing this type here, to study the European types and their effect and that a great deal of research had been done before those taxes had been introduced.
    Mr. Diamond: We do not want to argue whether the New Statesman is a Government organ. That was as wrong as the right hon. Gentleman's other argument.
    Mr. Geoffrey Lloyd: It is a Socialist Party organ.
    5.0 p.m.
    Mr. Diamond: It is not a Socialist Party organ—the right hon. Gentleman is wrong twice—and neither did the "Socialist organ" say it. It was the right hon. Gentleman who said it, and I am quoting what he said.
    Of course, it is not acceptable to right hon. and hon. Members opposite, who have, in their view, made a case against the Corporation Tax, to have their attention drawn to the fact that we are discussing an entirely different issue. But it so happens that we are. We had seven hours' discussion on this same Amendment at an earlier stage. The arguments for the Corporation Tax are not in order for discussion now, but they have been given fully in the Budget debate, on Second Reading, and, to a certain extent, in reply to a similar debate at an earlier stage. I hope, therefore, that the House will not, after we have had a further hour's discussion, wish me to rehearse the matter again at length. As the right hon. Gentleman the Leader of the Liberal Party pointed out, we have had all the arguments before.

    61
    The hon. Member for Scarborough and Whitby (Sir A. Spearman) spoke of this as being a major upheaval. This is what the argument is about, of course. It is about change and about unwillingness to accept change. That is all it is. [HON. MEMBERS "No."] I am maintaining that it is, and every argument put forward on this Amendment shows that what the party opposite opposes is change. Right hon. and hon. Members opposite are opposed to changing the system, and they are opposed to it because of particular interests which might be involved.
    Although the figures are well known, although it is well known that for every company which may in present circumstances pay more one will pay less, because we are talking about method and not about rate of tax, not one right hon. or hon. Member opposite throughout our proceedings has referred to the advantages which certain companies will get.
    Mr. Deputy-Speaker: The right hon. Gentleman is now guilty of the offence he attributed to others. He is drifting into the merits of the tax.
    Mr. Diamond: I apologise, Mr. Deputy-Speaker. It is very difficult to reply to the debate without doing so, but you are, of course, quite right to remind me that it is a debate about postponement.
    The only argument I can put forward in reply is this, following what the right hon. Member for Altrincham and Sale said in opening the debate, that never was the country or the city—I am not sure which it was—in a position of worse uncertainty, but all the Amendment would do would be to prolong the uncertainty for a further year.
    It is ridiculous to suggest that that should be done. There has been ample time for full consideration. [HON. MEMBERS: "No."] My right hon. Friend, as long ago as last December, gave an indication of the general principles of the tax. Ever since the Bill was published—one could not have confidential discussions until it had been published—we have had the fullest possible discussion with every kind of interest involved, and we have listened very carefully to the representations made in Committee and in the House.
    If I may say so, many hon. and right hon. Members opposite were very well
    62
    informed about the various interests which were advanced. All those interests have been fully consulted, and we have made whatever adjustments we thought right, irrespective of whether we should be dubbed weak, obdurate, or whatever the adjective might be, in order to get the tax, as far as possible, working smoothly and well from the beginning.
    This is not an easy task. Everyone knows that it is not an easy task. We have a tax system which has been going for many years, yet every year, and sometimes twice a year, we have to alter that tax system. In spite of all the precedents and the great knowledge there is, it is necessary to keep it up to date, and I have no doubt that it will be found necessary to keep the Corporation Tax up to date from time to time. This is not an argument for postponement. Every argument is in favour of removing the uncertainty to which the right hon. Gentleman referred, to give business men an opportunity to get down to it, to get used to it, to know what will be involved, and to read all the books which are on the point of publication, about which many of us are already being told and which will explain how the Corporation Tax will work, how it will effect the individual, and so on.
    For those reasons, and particularly as every single argument produced this afternoon was produced in our earlier debates and has been fully answered, I cannot recommend acceptance of the Amendment.
    Mr. Barber: With the leave of the House, I shall comment on what the Chief Secretary has just said. His reply could be divided into three parts. The first was sheer provocation not only to my right hon. and hon. Friends, but also to the Leader of the Liberal Party, who has now left the Chamber. The second was a passage in which he told the House that he did not think that there was any point in replying to a single argument which had been put forward from this side. The third was to tell the House that—to quote his words—the fullest possible discussion had taken place with every interest involved.
    What utter nonsense. The very last day we met on the Bill we were considering the case of the statutory water companies and we were told that neither the Chancellor nor the Chief Secretary, or any

    63
    Treasury Minister, had had time to discuss the matter with them although all they wanted to do was to point out that the Chancellor was barking up the wrong tree.
    The right hon. Gentleman said that no argument in support of the Amendment had been put forward in this debate. What about the argument advanced by some of my hon. Friends about the complexity of the tax, the fact that it is not yet understood, the fact that there are new Amendments down on the Notice Paper which we are to consider even today?
    Mr. Diamond: What has the complexity of the tax got to do with postponement of the tax?
    Mr. Barber: The answer is quite simple. Because it is a complex tax, because many people, including many chartered accountants, do not fully understand how it is to work, it is most desirable that time should be given for further consideration to get the tax right. It is incredible that, at this stage, with a new tax proposal, we still have to consider a variety of Amendments in the course of today and, perhaps, the early part of the night, even after the discussion which we had in Committee.
    What about the point made by the Leader of the Liberal Party and several of my hon. Friends concerning research into overseas investment? Why should the Chancellor take a firm decision on this tax when it is now known that he is not satisfied with the factual background which led him to introduce the tax in the first place and when he is to undertake further investigations in the course of the year?
    Mr. Diamond: I did not interrupt the right hon. Gentleman earlier, but that is an inaccurate statement. I am grateful to him for giving way. It is not, as he
    said, a joint exercise by the Federation of British Industries and the Chancellor. It is an exercise by the Federation of British Industries with which the Chancellor is glad to co-operate and afford any assistance which may be required.
    Mr. Barber: I never used the word "joint". The right hon. Gentleman is too touchy. I said that the Chancellor of the Exchequer would, in the course of the coming year, as I understand, take part in this inquiry. Presumably, he is ready to do that only because he thinks that it is worth while. This is obvious to all of us.
    What about necessary further research into other systems of Corporation Tax? The right hon. Gentleman gave no answer to the point I made about the Chancellor's obvious misunderstanding last week of the Corporation Tax system in the United States? What about the constitutional point, which was in order, raised by my right hon. Friend the Member for Carlton (Sir K. Pickthorn)? Many hon. Members who divorce themselves from the politics and principles of the Corporation Tax will agree that there was a great deal in the cogent argument advanced by my right hon. Friend. But, of course, as with most of the sensible suggestions from this side of the House, it is rejected by the Chief Secretary.
    This has been a wholly unsatisfactory debate. Serious points were put forward. Only once, Mr. Deputy-Speaker, apart for the time when you called the Chief Secretary to order, did either you or Mr. Speaker have to intervene to call an hon. Member to order. We devoted our arguments directly to the Amendment before us, and we were entitled to a reasonable reply. This we have not had.
    Question put, That "1965 and 1966" stand part of the Bill:—
    The House divided: Ayes 279, Noes 255.

    Division No. 248.]

    AYES

    [5.10 p.m.

    Abse, Leo

    Benn, Rt. Hn. Anthony Wedgwood

    Brown, Hugh D. (Glasgow, Provan)

    Albu, Austen

    Bennett, J. (Glasgow, Bridgeton)

    Brown, R. W. (Shoreditch & Fbury)

    Allaun, Frank (Salford, E.)

    Binns, John

    Buchan, Norman (Renfrewshire, W.)

    Alldritt, Walter

    Bishop, E. S.

    Buchanan, Richard

    Allen, Scholefield (Crewe)

    Blackburn, F.

    Butler, Herbert (Hackney, C.)

    Atkinson, Norman

    Blenkinsop, Arthur

    Butler, Mrs. Joyce (Wood Green)

    Bacon, Miss Alice

    Boston, Terence

    Callaghan, Rt. Hn. James

    Bagier, Gordon A. T.

    Bottomley, Rt. Hn. Arthur

    Carmichael, Neil

    Barnett, Joel

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

    Castle, Rt. Hn. Barbara

    Baxter, William

    Boyden, James

    Chapman, Donald

    Beaney, Alan

    Braddock, Mrs. E. M.

    Coleman, Donald

    Bellenger, Rt. Hn. F. J.

    Bradley, Tom

    Conlan, Bernard

    Bence, Cyril

    Bray, Dr. Jeremy

    Corbet, Mrs. Freda

    Cousins, Rt. Hn. Frank

    Irving, Sydney (Dartford)

    Perry, Ernest G.

    Craddock, George (Bradford, S.)

    Jackson, Colin

    Prentice, R. E.

    Crawshaw, Richard

    Janner, Sir Barnett

    Price, J. T. (Westhoughton)

    Crosland, Rt. Hn. Anthony

    Jay, Rt. Hn. Douglas

    Probert, Arthur

    Crossman, Rt. Hn. R. H. S.

    Jeger, George (Goole)

    Pursey, Cmdr. Harry

    Cullen, Mrs. Alice

    Jenkins, Hugh (Putney)

    Rankin, John

    Dalyell, Tam

    Jenkins, Rt. Hn. Roy (Stetchford)

    Redhead, Edward

    Darling, George

    Johnson, Carol (Lewisham, S.)

    Rees, Merlyn

    Davies, G. Elfed (Rhondda, E.)

    Johnson, James (K'ston-on-Hull, W.)

    Reynolds, G. W.

    Davies, Ifor (Gower)

    Jones, Dan (Burnley)

    Rhodes, Geoffrey

    Davies, S. O. (Merthyr)

    Jones, Rt. Hn. Sir Elwyn (W. Ham, S.)

    Roberts, Goronwy (Caernarvon)

    de Freitas, Sir Geoffrey

    Jones, J. Idwal (Wrexham)

    Robertson, John (Paisley)

    Delargy, Hugh

    Jones, T. W. (Merioneth)

    Robinson, Rt. Hn. K. (St. Pancras, N.)

    Dell, Edmund

    Kelley, Richard

    Rodgers, William (Stockton)

    Dempsey, James

    Kenyon, Clifford

    Rogers, George (Kensington, N.)

    Diamond, Rt. Hn. John

    Kerr, Mrs. Anne (R'ter & Chatham)

    Rose, Paul B.

    Dodds, Norman

    Kerr, Dr. David (W'worth, Central)

    Ross, Rt. Hn. William

    Doig, Peter

    Leadbitter, Ted

    Rowland, Christopher

    Donnelly, Desmond

    Ledger, Ron

    Sheldon, Robert

    Driberg, Tom

    Lee, Rt. Hn. Frederick (Newton)

    Shinwell, Rt. Hn. E.

    Duffy, Dr. A. E. P.

    Lever, Harold (Cheetham)

    Shore, Peter (Stepney)

    Dunn, James A.

    Lever, L. M. (Ardwick)

    Short, Rt. Hn. E. (N'c'tle-on-Tyne, C.)

    Dunnett, Jack

    Lewis, Arthur (West Ham, N.)

    Short, Mrs. Renée (W'hampton, N. E.)

    Edelman, Maurice

    Lipton, Marcus

    Silkin, John (Deptford)

    Edwards, Rt. Hn. Ness (Caerphilly)

    Loughlin, Charles

    Silverman, Julius (Aston)

    Edwards, Robert (Bilston)

    Mabon, Dr. J. Dickson

    Silverman, Sydney (Nelson)

    English, Michael

    McBride, Neil

    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

    Solomons, Henry

    Fernyhough, E.

    McKay, Mrs. Margaret

    Soskice, Rt. Hn. Sir Frank

    Fitch, Alan (Wigan)

    Mackenzie, Gregor (Rutherglen)

    Spriggs, Leslie

    Fletcher, Sir Eric (Islington, E.)

    Mackie, John (Enfield, E.)

    Steele, Thomas (Dunbartonshire, W.)

    Fletcher, Ted (Darlington)

    MacMillan, Malcolm

    Stewart, Rt. Hn. Michael

    Fletcher, Raymond (Ilkeston)

    Mahon, Peter (Preston, S.)

    Stonehouse, John

    Floud, Bernard

    Mahon, Simon (Bootle)

    Stones, William

    Foley, Maurice

    Mallalieu, E. L. (Brigg)

    Strauss, Rt. Hn G. R. (Vauxhall)

    Foot, Sir Dingle (Ipswich)

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

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

    Foot, Michael (Ebbw Vale)

    Manuel, Archie

    Swain, Thomas

    Ford, Ben

    Mapp, Charles

    Swingler, Stephen

    Fraser, Rt. Hn. Tom (Hamilton)

    Marsh, Richard

    Symonds, J. B.

    Galpern, Sir Myer

    Mason, Roy

    Taverne, Dick

    Carrett, W. E.

    Mathew, Robert

    Taylor, Bernard (Mansfield)

    Ginsburg, David

    Maxwell, Robert

    Thomas, George (Cardiff, W.)

    Gourlay, Harry

    Mayhew, Christopher

    Thomas, Iorwerth (Rhondda, W.)

    Greenwood, Rt. Hn. Anthony

    Mellish, Robert

    Thomson, George (Dundee, E.)

    Gregory, Arnold

    Mendelson, J. J.

    Thornton, Ernest

    Grey, Charles

    Mikardo, Ian

    Tinn, James

    Griffiths, David (Rother Valley)

    Millan, Bruce

    Tomney, Frank

    Griffiths, Rt. Hn. James (Llanelly)

    Miller, Dr. M. S.

    Tuck, Raphael

    Griffiths, Will (M'chester, Exchange)

    Milne, Edward (Blyth)

    Urwin, T. W.

    Gunter, Rt. Hn. R. J.

    Molloy, William

    Varley, Eric G.

    Hale, Leslie

    Monslow, Walter

    Wainwright, Edwin

    Hamilton, James (Bothwell)

    Morris, Alfred (Wythenshawe)

    Walden, Brian (All Saints)

    Hamilton, William (West File)

    Morris, John (Aberavon)

    Walker, Harold (Doncaster)

    Hamling, William (Woolwich, W.)

    Mulley, Rt. Hn. Frederick (Sheffield Pk)

    Wallace, George

    Hannan, William

    Murray, Albert

    Watkins, Tudor

    Harper, Joseph

    Neal, Harold

    Weitzman, David

    Harrison, Walter (Wakefield)

    Newens, Stan

    Wells, William (Walsall, N.)

    Hart, Mrs. Judith

    Norwood, Christopher

    White, Mrs. Eirene

    Hattersley, Roy

    Oakes, Gordon

    Whitlock, William

    Hayman, F. H.

    Ogden, Eric

    Wigg, Rt. Hn. George

    Hazell, Bert

    O'Malley, Brian

    Wilkins, W. A.

    Healey, Rt. Hn. Denis

    Oram, Albert E. (E. Ham, S.)

    Willey, Rt. Hn. Frederick

    Heffer, Eric S.

    Orbach, Maurice

    Williams, Alan (Swansea, W.)

    Henderson, Rt. Hn. Arthur

    Orme, Stanley

    Williams, Clifford (Abertillery)

    Hobden, Denis (Brighton, K'town)

    Oswald, Thomas

    Williams, Mrs. Shirley (Hitchin)

    Holman, Percy

    Owen, Will

    Williams, W. T. (Warrington)

    Houghton, Rt Hn. Douglas

    Padley, Walter

    Willis, George (Edinburgh, E.)

    Howarth, Harry (Wellingborough)

    Page, Derek (King's Lynn)

    Wilson, Rt. Hn. Harold (Huyton)

    Howarth, Robert L. (Bolton, E.)

    Paget, R. T.

    Wilson, William (Coventry, S.)

    Howell, Denis (Small Heath)

    Palmer, Arthur

    Winterbottom, R. E.

    Howie, W.

    Pannell, Rt. Hn. Charles

    Woodburn, Rt. Hn. A.

    Hoy, James

    Pargiter, G. A.

    Woof, Robert

    Hughes, Cledwyn (Anglesey)

    Park, Trevor (Derbyshire, S. E.)

    Wyatt, Woodrow

    Hughes, Emrys (S. Ayrshire)

    Parker, John

    Zilliacus, K.

    Hughes, Hector (Aberdeen, N.)

    Parkin, B. T.

    Hunter, Adam (Dunfermline)

    Pavitt, Laurence

    TELLERS FOR THE AYES:

    Hunter, A. E. (Feltham)

    Pearson, Arthur (Pontypridd)

    Mr. George Lawson and

    Hynd, H. (Accrington)

    Peart, Rt. Hn. Fred

    Mr. John McCann.

    Hynd, John (Attercliffe)

    Pentland, Norman

    66

    67

    NOES

    Agnew, Commander Sir Peter

    Giles, Rear-Admiral Morgan

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

    Alison, Michael (Barkston Ash)

    Gilmour, Ian (Norfolk, Central)

    Meyer, Sir Anthony

    Allan, Robert (Paddington, S.)

    Gilmour, Sir John (East Fife)

    Mills, Peter (Torrington)

    Allason, James (Hemel Hempstead)

    Glover, Sir Douglas

    Miscampbell, Norman

    Amery, Rt. Hn. Julian

    Glyn, Sir Richard

    Mitchell, David

    Anstruther-Gray, Rt. Hn. Sir W.

    Godber, Rt. Hn. J. B.

    Monro, Hector

    Astor, John

    Goodhart, Philip

    More, Jasper

    Atkins, Humphrey

    Goodhew, Victor

    Morrison, Charles (Devizes)

    Awdry, Daniel

    Gower, Raymond

    Mott-Radclyffe, Sir Charles

    Baker, W. H. K.

    Grant, Anthony

    Munro-Lucas-Tooth, Sir Hugh

    Barber, Rt. Hn. Anthony

    Grant-Ferris, R.

    Murton, Oscar

    Barlow, Sir John

    Gresham Cooke, R.

    Neave, Airey

    Batsford, Brian

    Griffiths, Eldon (Bury St. Edmunds)

    Nicholson, Sir Godfrey

    Bell, Ronald

    Griffiths, Peter (Smethwick)

    Noble, Rt. Hn. Michael

    Bennett, Sir Frederic (Torquay)

    Grimond, Rt. Hn. J.

    Nugent, Rt. Hn. Sir Richard

    Berry, Hn. Anthony

    Gurden, Harold

    Onslow, Cranley

    Bessell, Peter

    Hall, John (Wycombe)

    Orr-Ewing, Sir Ian

    Biffen, John

    Hall-Davis, A. G. F.

    Osborn, John (Hallam)

    Biggs-Davison, John

    Hamilton, M. (Salisbury)

    Osborne, Sir Cyril (Louth)

    Birch, Rt. Hn. Nigel

    Harris, Frederic (Croydon, N. W.)

    Page, John (Harrow, W.)

    Black, Sir Cyril

    Harris, Reader (Heston)

    Page, R. Graham (Crosby)

    Blaker, Peter

    Harvey, Sir Arthur Vere (Macclesf'd)

    Pearson, Sir Frank (Clitheroe)

    Bowen, Roderic (Cardigan)

    Harvey, John (Walthamstow, E.)

    Peel, John

    Box, Donald

    Harvie Anderson, Miss

    Percival, Ian

    Boyd-Carpenter, Rt. Hn. J.

    Hastings, Stephen

    Peyton, John

    Boyle, Rt. Hn. Sir Edward

    Hawkins, Paul

    Pickthorn, Rt. Hn. Sir Kenneth

    Braine, Bernard

    Hay, John

    Pike, Miss Mervyn

    Brewis, John

    Heald, Rt. Hn. Sir Lionel

    Pitt, Dame Edith

    Brinton, Sir Tatton

    Heath, Rt. Hn. Edward

    Price, David (Eastleigh)

    Bromley-Davenport, Lt.-Col. Sir Walter

    Hendry, Forbes

    Pym, Francis

    Brooke, Rt. Hn. Henry

    Higgins, Terence L.

    Quennell, Miss J. M.

    Brown, Sir Edward (Bath)

    Hiley, Joseph

    Ramsden, Rt. Hn. James

    Bruce-Gardyne, J.

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

    Rawlinson, Rt. Hn. Sir Peter

    Bryan, Paul

    Hirst, Geoffrey

    Redmayne, Rt. Hn. Sir Martin

    Buchanan-Smith, Alick

    Hobson, Rt. Hn. Sir John

    Rees-Davies, W. R.

    Bullus, Sir Eric

    Hopkins, Alan

    Renton, Rt. Hn. Sir David

    Burden, F. A.

    Hordern, Peter

    Ridley, Hn. Nicholas

    Butcher, Sir Herbert

    Hornby, Richard

    Ridsdale, Julian

    Campbell, Gordon

    Hornsby-Smith, Rt. Hn. Dame P.

    Roberts, Sir Peter (Heeley)

    Carlisle, Mark

    Howard, Hn. G. R. (St. Ives)

    Rodgers, Sir John (Sevenoaks)

    Carr, Rt. Hn. Robert

    Howe, Geoffrey (Bebington)

    Roots, William

    Cary, Sir Robert

    Hunt, John (Bromley)

    Royle, Anthony

    Channon, H. P. G.

    Hutchison, Michael Clark

    St. John-Stevas, Norman

    Chataway, Christopher

    Iremonger, T. L.

    Scott-Hopkins, James

    Clark, William (Nottingham, S.)

    Irvine, Bryant Godman (Rye)

    Sharples, Richard

    Clarke, Brig. Terence (Portsmth, W.)

    Jenkin, Patrick (Woodford)

    Shepherd, William

    Cole, Norman

    Johnson Smith, G. (East Grinstead)

    Sinclair, Sir George

    Cooke, Robert

    Johnston, Russell (Inverness)

    Smith, Dudley (Br'ntf'd & Chiswick)

    Cooper, A. E.

    Jones, Arthur (Northants, S.)

    Smyth, Rt. Hn. Brig. Sir John

    Cooper-Key, Sir Neill

    Jopling, Michael

    Soames, Rt. Hn. Christopher

    Corfield, F. V.

    Joseph, Rt. Hn. Sir Keith

    Spearman, Sir Alexander

    Costain, A. P.

    Kaberry, Sir Donald

    Stainton, Keith

    Courtney, Cdr. Anthony

    Kerr, Sir Hamilton (Cambridge)

    Stanley, Hn. Richard

    Craddock, Sir Beresford (Spelthorne)

    Kershaw, Anthony

    Steel, David (Roxburgh)

    Crawley, Aidan

    Kimball, Marcus

    Stodart, Anthony

    Crosthwaite-Eyre, Col. Sir Oliver

    King, Evelyn (Dorset, S.)

    Stoddart-Scott, Col. Sir Malcolm

    Curran, Charles

    Kitson, Timothy

    Studholme, Sir Henry

    Dalkeith, Earl of

    Lagden, Godfrey

    Taylor, Sir Charles (Eastbourne)

    Dance, James

    Lambton, Viscount

    Taylor, Edward M. (G'gow, Cathcart)

    Davies, Dr. Wyndham (Perry Barr)

    Legge-Bourke, Sir Harry

    Teeling, Sir William

    d'Avigdor-Goldsmid, Sir Henry

    Lewis, Kenneth (Rutland)

    Temple, John M.

    Dean, Paul

    Litchfield, Capt. John

    Thatcher, Mrs. Margaret

    Deedes, Rt. Hn. W. F

    Lloyd, Rt. Hn. Geoffrey (Sut'n C'dfield)

    Thomas, Sir Leslie (Canterbury)

    Digby, Simon Wingfield

    Lloyd, Ian (P'tsm'th, Langstone)

    Thomas, Rt. Hn. Peter (Conway)

    Dodds-Parker, Douglas

    Lloyd, Rt. Hn. Selwyn (Wirral)

    Thompson, Sir Richard (Croydon, S.)

    Doughty, Charles

    Longden, Gilbert

    Tiley, Arthur (Bradford, W.)

    Douglas-Home, Rt. Hn. Sir Alec

    Loveys, Walter H.

    Tilney, John (Wavertree)

    Drayson, G. B.

    Lubbock, Eric

    Turton, Rt. Hn. R. H.

    du Cann, Rt. Hn. Edward

    Lucas, Sir Jocelyn

    Tweedsmuir, Lady

    Eden, Sir John

    McAdden, Sir Stephen

    van Straubenzee, W. R.

    Elliot, Capt. Walter (Carshalton)

    MacArthur, Ian

    Vaughan-Morgan, Rt. Hn. Sir John

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

    Mackenzie, Alasdair (Ross & Crom'ty)

    Vickers, Dame Joan

    Emery, Peter

    Maclean, Sir Fitzroy

    Walder, David (High Peak)

    Farr, John

    Macleod, Rt. Hn. Iain

    Walker, Peter (Worcester)

    Fell, Anthony

    McNair-Wilson, Patrick

    Walker-Smith, Rt. Hn. Sir Derek

    Fisher, Nigel

    Maitland, Sir John

    Wall, Patrick

    Fletcher-Cooke, Charles (Darwen)

    Marples, Rt. Hn. Ernest

    Ward, Dame Irene

    Fletcher-Cooke, Sir John (S'pton)

    Marten, Neil

    Weatherill, Bernard

    Foster, Sir John

    Mathew, Robert

    Wells, John (Maidstone)

    Fraser, Rt. Hn. Hugh (St'fford & Stone)

    Maude, Angus

    Whitelaw, William

    Galbraith, Hn. T. G. D.

    Maudling, Rt. Hn. Reginald

    Williams, Sir Rolf Dudley (Exeter)

    Gammans, Lady

    Mawby, Ray

    Wills, Sir Gerald (Bridgwater)

    Gibson-Watt, David

    Maxwell-Hyslop, R. J.

    Wise, A. R.

    68

    69

    Wolrige-Gordon, Patrick

    Wylie, N. R.

    TELLERS FOR THE NOES:

    Woodhouse, Hn. Christopher

    Yates, William (The Wrekin)

    Mr. Marten McLaren and

    Woodnutt, Mark

    Younger, Hn. George

    Mr. Ian Fraser.

    Clause 44.—(TAX ON DISTRIBUTIONS ETC. RECEIVED BY U.K. COMPANY.)
    Mr. John Peyton: I beg to move Amendment No. 104, Clause 44, in page 103, line 32, to leave out from beginning to "three-quarters" in line 34.
    Mr. Deputy-Speaker: With this Amendment we are taking the two following Amendments, both in the name of the hon. Member for Belfast, North (Mr. Stratton Mills) and the names of some of his hon. Friends, Amendment No. 105, Clause 44, in line 34, after "trades", insert
    "or the ownership of premises occupied for the purpose of trade by the company receiving the dividend".
    and Amendment No. 106, Clause 44, in line 35, leave out "that company" and insert
    "the company paying the dividend".
    Mr. Peyton: I always move Amendments on a Finance Bill with a good deal of trepidation and with more than my normal modesty. When, in addition, I do so from this Box, I feel even greater need of protection. But when the Amendments are concerned with this particular Finance Bill, my sense of horror increases even more. That is not entirely my fault. The Government must accept responsibility for some fault.
    I always wish that I knew beforehand what was to be the fate of my Amendments because the argument I would then use would be considerably coloured by foreknowledge.
    Mr. Diamond Mr. Diamond indicated dissent.
    Mr. Peyton: The gesture I have just had from the Chief Secretary makes it clear that his reply will be negative.
    Mr. Diamond: I wanted to indicate to the hon. Gentleman that I would listen very carefully to everything that he has to say.
    Mr. Peyton: I am obliged to the right hon. Gentleman. It was a very strange way of indicating close attention. It is not a method that I would have selected myself, but I am grateful to the right hon. Gentleman for his interpretation which, under the circumstances, I think
    70
    was badly needed even by those of greater perspicacity than I. However, Mr. Deputy Speaker, I shall not trespass upon your good will any further.
    I understand that it is the intention of this provision of Clause 44 that Income Tax shall be levied only on dividends which go outside a group of companies resident in the United Kingdom. I can understand that purpose and I hope that the right hon. Gentleman will accept from me that it is no part of our purpose to challenge it. All I am saying is that the relief which the Government propose to give is unnecessarily restrictive. Clause 44(3,b) deals with the case of a company jointly owned by five or fewer other companies, all of whom own at least 10 per cent. but none of whom qualify for the position of parent-subsidiary relationship.
    That being the case, why insist on confining the relief to a company which is
    "… carrying on … a trade or trades …"?
    It is those words which I find offensive. If a company, or a series of companies, in their wisdom, find it convenient to set up a holding company with the purpose that it should co-ordinate the activities of a number of other trading companies, why should not they do so without incurring a tax penalty or tax inconvenience of quite a major order? It is wholly unnecessary.
    No one is suggesting that the purpose of this provision should be defeated by allowing dividends to go outside the group without tax being paid on them. That is quite clear. I am only on the somewhat narrow point on which the Government seem to be unreasonable in insisting that relief should not be given in the case of a holding company which is jointly owned but that before relief can be given the company must be one
    "… carrying on … a trade or trades …".
    For the life of me, I cannot see the sense in this.
    I am emboldened by the right hon. Gentleman's past treatment of Amendments moved in Committee to hope that sense will prevail. Unfortunately, his gloomy gesture has not inspired great confidence. However, hope springs eternal that he will not entirely turn his back on common sense.
    5.30 p.m.
    Mr. Nicholas Ridley: The Chief Secretary said that he wanted to listen to my hon. Friend the Member for Yeovil (Mr. Peyton) before making up his mind about his reply. Now that my hon. Friend has moved the Amendment with such eloquence and force, perhaps the right hon. Gentleman will nod or shake his head in order to give me some guidance on the second stage of the argument against this small but highly important inequality which has crept into the Bill.
    I feel that a group of five or less companies which owns a subsidiary jointly, and sets up a consortium is becoming more and more a common feature of our industrial life. It is an essential feature which we do not want to disturb, and it seems to me the logical thing for the companies to do, especially if they do not all own equal shares in the subsidiary.
    In view of the progress being made in the new technologies of oil and nuclear power, and in complete plant installations and other matters, it is more and more essential that we should not put a tax inconvenience upon these companies. Subsection 3 of the Clause restricts the benefit to a trading company, ruling out a holding company and the benefit in the Clause is that a subsidiary can pay its dividends to its parent without deducting and accounting for Income Tax.
    Presumably, if there is a holding company in this position the reverse applies and it has to pay Income Tax before it can pass on its dividend to its parents. The Chief Secretary may well say that that is no great disadvantage because it will all come out in the wash, but it is his principle, with regard to Corporation Tax, that dividends shall only pay Income Tax when they leave the group as a whole. Here is a clear instance of the principle being breached.
    Secondly, if one of the parent company's were to reduce its dividend, or miss a dividend one year, it would be in no position to claim back the tax which its subsidiary had pain on its behalf. Supposing the subsidiary had paid a considerable amount of tax on the distribution which it had paid to its parent, and at a later stage the parent lost a lot of money, it would not be in a position, as it had paid no Income Tax, or less Income Tax, to claim back that tax
    72
    which had been paid on its behalf. This would be a very serious and unfair penalty to put upon it.
    Thirdly, I think it partly true that I do not entirely understand the full effects of Clause 79, which we reach later, but this will affect the liability of an overseas trading company to get overspill relief, because it will affect the basis on which the figures are computed for overspill relief, and might well have a very unfortunate effect on the shareholders during the transitional period, if the subsidiary is an overseas trading company.
    There are some very strong reasons why this apparent anomaly should be put right. I know that the Chancellor has put down Amendment No. 169, which enables a parent to pay its dividends without tax from the dividends it receives from its subsidiaries, which have already paid tax. This, as I understand it, does not affect the Amendment which my hon. Friend the Member for Yeovil (Mr. Peyton) has moved. It may affect some companies in some ways but it may not have a uniform effect across the whole board. I submit that this Amendment should be accepted. The Government seem to take such a narrow attitude to this. It is not in any way a question of altering the yield of the tax, it is simply a question of making arrangement which could possibly cut out some hardships, and will certainly cut out a lot of inconvenience.
    It is not for the Government to lay down the sort of subsidiaries which consortia should set up, whether trading or holding subsidiaries. It would be much better for them to leave this decision to the parent, and for these reasons I strongly urge the Financial Secretary to accept the Amendment which my hon. Friend the Member for Yeovil has moved so persuasively.
    Mr. John Harvey: Since we last discussed these difficulties in Committee, the Chancellor has put down Amendment No. 169, which goes some way to meet a number of cases which we had in mind. The point that still worries a number of us, and certainly worries a number of companies outside the House, is that Amendment No. 169 does not meet the case of a company which has received the dividend

    73
    after deduction of tax, and does not itself pay a dividend. Nor does it deal with a case where a company has already paid all its dividends without deducting tax.
    These are two circumstances which we feel should have been provided for, and which we asked, in Committee, should he provided for. They are not provided for by Amendment No. 169 and would be covered by this Amendment. I hope that on this occasion the Chief Secretary will feel able to accept the slight widening of the scope of Amendment No. 169.
    Mr. Patrick Jenkin: I can anticipate the Chief Secretary's reply to this, assuming that the arguments which have been made by my hon. Friends do not carry weight. It will be, "The reason we do not feel able to accept the Amendment is that we have to draw the line somewhere." I am willing to bet that those words are in his brief.
    Mr. Diamond: How much?
    Mr. Jenkin: The point of this Amendment, and some of those to which we shall come later, is that, however desirable it may be when one is introducing a tax of this sort to introduce it on a basis which appears to give, theoretically the fairest or most convenient answer, the Treasury has to remember that it is applying it to an existing state of affairs and it has to take as much notice as it possibly can, within the limits of reasonable administrative practicality, of the circumstances affecting the tax as they are now. This is necessary to minimise the number of changes that the company, or consortia of companies, will have to make in its arrangements when adapting itself to the new tax.
    Any limitation on the right of a consortium to elect for the payment of dividends gross is, to that extent, an encouragement and an inducement to change their mode of operation in order to put themselves in a position where they can take advantage of it. The Amendment which my hon. Friend the Member for Yeovil (Mr. Peyton) has moved would make a change to the Clause, to prevent the sort of alterations in a company's structure which might, therefore, be necessary. The arguments that he adduced for saying that there was no intention to limit the deduction of tax from dividends paid outside the company,
    74
    but that there seemed to be no reason why there should be any restriction on the deduction of payment of dividend increases to dividends, within a group, appeared to me to be very strong ones.
    I hope that the Treasury will look at this with sympathy, because this is a matter which has considerable merit.
    Mr. Diamond: I accept that this is an Amendment which is of considerable merit. It has, therefore, been considered with the greatest possible sympathy. The hon. Gentleman the Member for Yeovil (Mr. Peyton), in moving the Amendment with clarity and helpfulness, asked me for an indication of which way my mind was going. I did my best to indicate to him that I would listen to him with care, but that, if his arguments were of the kind which, having given the matter careful thought, I anticipated they would be, I might not be in a position to recommend to the House that the Amendment should be accepted. I know I used a rather shorthanded indication for all this, but I feel sure that he got my meaning.
    We cannot accept this Amendment for reasons which have not wholly been touched on. Let me say, first, to the hon. Gentleman the Member for Cirencester and Tewkesbury (Mr. Ridley), that he used the words "holding company" on one or two occasions, and talked about a "parent". We are not considering the parent-subsidiary relationship, which is not subject to the trade limitation. We are talking about what is normally known as a consortium, which is subject to the trade limitation.
    To do justice to the arguments, I have to go back a little and explain that the essential structure of Corporation Tax is that when a company pays a dividend it accounts for the tax then and there. But, obviously, it is too narrow to look at just one company by itself; we should have regard not only to the "father" but to the "family". Therefore, we have regard to the parent company and its subsidiaries and treat them as one company, the family company. We have made this exception to that limited extent, because this is one company for all commonsense purposes.
    We have gone further, however—one should always hesitate to go further—and made a concession. This has been built up into a principle, and hon. Members

    75
    opposite are trying to draw further concessions from the principle—and it is not a principle at all; it is purely a concession. Notwithstanding the essential structure of the tax and the fact that, therefore, we cannot possibly depart from it except from the commonsense point of view that a parent-subsidiary is virtually the same as one company, we have taken the view that it is common practice for joint trading ventures to be run by a consortium, that we want to encourage this kind of organisation, that it would be outmoded to have regard only to parent-subsidiary relationships when trading is carried on frequently in the form of a consortium and therefore that we should make an exception to the rule exclusively in favour of joint ventures in trade carried on by a consortium. That is what we have done.
    The hon. Gentleman asks me whether we are prepared to go much further and why an investment company should not have the same advantages, for what they are worth. The answer must be that I see no reason for extending this unusual exception which we have granted to trading consortia.
    Mr. F. A. Burden: Is there any merit in this argument from the point of view of a consortium of companies which enters into big export contracts? How would it affect them in the recovery of the export rebate?
    Mr. Diamond: We are not discussing export rebate, which does not affect this situation at all. But in terms of paying dividends, gross or net, it might be convenient and might suit the overall finances of the consortium that the privileges accorded in the Bill should be available to it. That is what this discussion is about.
    I repeat that we cannot go beyond the limited exception. I am, therefore, afraid that I am not able to afford the immediate welcome to the Amendment which I afforded on a previous occasion, from which the hon. Member for Yeovil will immediately recognise that this is due to the merits of the matter and not to what his right hon. Friend the Member for Altrincham and Sale (Mr. Barber) called obduracy.
    Mr. Eric Lubbock: Could the right hon. Gentleman say what hap-
    76
    pens when the top company does not pay dividends at all?
    Mr. Diamond: What happens then happens in the case of any company of any kind other than in the case of the particular company which we are considering. In short, that does not affect this Amendment, which seeks to give the advantages which apply to a trading consortium to a non-trading consortium—for example, an investment consortium. We cannot go as far as to recommend that.
    5.45 p.m.
    Mr. Peyton: With the leave of the House, may I make a few comments on what the Chief Secretary has said, and particularly on what he has not said. I am obliged to him for his courtesy. He at least said what he had to say in a courteous manner. However, he has done nothing to explain the difference between a holding company and a trading company, or the distinction in the treatment of the two, which I cannot understand.
    Then there are these most objectionable references to concessions and privileges. Cannot the Government look at this matter from a different point of view? They are imposing on companies, which, by their profits, finance this country, vast changes in the tax structure. We on this side of the House think that many of these changes have not been properly considered and this is an example. Yet we hear talk about concessions and privileges.
    I have long suspected—and what the Chief Secretary said only confirmed the suspicion—that there is a deep belief in the Treasury and in the Inland Revenue that their convenience is synonymous with the national interest. I do not believe that to be true for a moment. I wish that we could have some concrete evidence that from time to time the Treasury and the Inland Revenue consult the convenience of other people and of the companies from whose earnings they extract considerable sums of money. I hope that the right hon. Gentleman will not go on talking in these terms about concessions and privileges. I find objectionable this bureaucratic belief that the convenience of the Treasury and the Inland Revenue is identical with the national interest.

    77
    I now return to the gloom and despondency into which the Chief Secretary's answer has thrust me. I do not believe that this is a point of sufficient stature to warrant advising my hon. Friends to divide. [HON. MEMBERS: "Why not?"] However, I believe that this is a wretched example of the pedestrian meanness which has characterised the Government and their advisers in their approach to these immense problems. I wish that we could have some evidence from time to time that the Government, the Treasury and the Inland Revenue were concerned to consult the convenience of people other than themselves.
    Mr. Lubbock: I am a little surprised to hear the hon. Member for Yeovil (Mr. Peyton) say that he does not propose to advise his hon. Friends to divide the House on this Amendment, because the Government have refused concessions on a number of other cases which I think were much less serious and on which a Division has been forced.
    I should like to rub in what the Chief Secretary said in answer to my intervention. He merely repeated that he could not extend the concession to companies which were not trading, irrespective of the effect that this would have on the total liability to tax of the two companies—that is, the one paying the dividend and the one receiving it. If these companies are not trading companies and they pay a dividend to the shareholder company, and if then it does not pay a dividend, it will have no means of recovering the Income Tax.
    Yet, in the whole group, no money has gone outside to the shareholders; it has remained in the group. This is the main purpose of the Chancellor of the Exchequer and the Government in introducing Corporation Tax. They want to persuade companies to plough more money back. The companies are doing as they ask, and yet Income Tax will be levied on the underlying companies. That is the effect of refusing to accept the Amendment.
    The Amendment would delete
    "the business of the company paying the dividend consists wholly or mainly of the carrying On of a trade or trades".
    As the right hon. Gentleman has explained, that means that if the underlying company paying the dividend is not
    78
    a trading company, it will be subject to Income Tax and it will not have the benefit of the option provided in the Clause, and yet the parent company will not be able to recover this Income Tax even if it does not pay a dividend. In those circumstances, this is an important enough matter to press to a Division.
    Amendment negatived.
    Mr. Henry Brooke: I beg to move Amendment No. 296, Clause 44, in page 103, line 38, to leave out "one tenth", and to insert "one-twentieth".
    Mr. Deputy-Speaker: With this Amendment, we can take also Amendment No. 235, Clause 44, page, 103, line 36, leave out from "resident" to end of line 38, and Amendment No. 236., Clause 44, line 37, leave out from "one" to end of line 38.
    Mr. Brooke: My Amendment is brief. My speech will be almost equally brief and I am sure no less compelling. I think that I can see why the Government have introduced line 38 into the Bill, but none of the reasons for it which I can imagine would justify setting the limitation in that line as high as one-tenth. It would be more fair and just to substitute a figure of one-twentieth, which would be quite sufficient to enable the Government to accomplish their purpose, if I understand that purpose aright.
    Perhaps the right hon. Gentleman the Chief Secretary would consider a company in which all the shares are owned by a consortium of five companies. In the exceptional case they might all hold the same number of shares, 20 per cent. each. But some members of the consortium might well be larger shareholders than others. Four of the companies in the consortium might together hold 91 or 92 or 93 per cent. of the shares, and the fifth company might hold 9 or 8 or 7 per cent. Yet they are all in the consortium. Why should the Bill provide that one of those companies should be treated differently from the others?
    We have just heard the Chief Secretary speaking about the desirability of treating all members of a family alike. Why should he seek to break up the family and to treat one of the brothers—the youngest brother, perhaps, but a sturdy one all the same—the one holding between 5 and 10 per cent. of the shares, differently from all the other members of the family?

    79
    I know that the right hon. Gentleman is a compassionate man and does not wish to break up families. I have been Home Secretary and I know the importance of keeping a family together. If the right hon. Gentleman accepted my Amendment, he would accomplish a desirable object and he would do no harm whatever to the structure of the Bill or to the purpose of paragraph (b).
    Sir John Hobson: The object of Amendments Nos. 235 and 236 is to go a little further than my right hon. Friend the Member for Hampstead (Mr. Brooke) had intended, either by leaving out the two last qualifications or the second of them, because the qualifications that we now have after the words "so resident" are
    "of which the company receiving the dividends is one"—
    that is one of those who holds part of the 75 per cent.—
    "and of which none owns less than one-tenth of that capital".
    The Minister without Portfolio admitted in Committee that these questions of the qualifications as to who should have the advantages of the Clause had nothing whatever to do with tax avoidance, that no question of inadvertent loss of tax arose, that no question of any ultimate loss or gain arose to either the Inland Revenue or to the taxpayer and that all this is merely a question of timing as to when and at what stage the tax should be deducted and whether, in the case of a consortium owning a subsidiary, the owning company should receive dividends gross or only less tax; and which of those companies and in what circumstances some or any of them could have the benefit of having the dividend paid to them gross or whether the Inland Revenue should be able to have substantial sums of money paid to it initially although the dividend was going from the subsidiary to one of the major owning companies.
    The last two lines of paragraph (b) produce some rather startling results. I heard the Chief Secretary say in the last debate that the Government wanted to encourage consortia and joint ventures in trade. We are here dealing only with such cases and only with cases where trade is concerned.
    80
    Let us consider the effect that the last two lines of paragraph (b) produces. If four companies each owned 17½ per cent. they would own 70 per cent. between them. Suppose that three other companies each own 10 per cent. The Bill does not make it clear which of those three other companies is the one company of the five which is entitled to enjoy the benefits of the Clause. I have never been able to understand how this concession would work where four companies hold just less than 75 per cent. of the shares and two or more companies own in equal proportions exactly the same numbers of the balance up to 100 per cent. Only one of those additional companies would come within the "five or fewer" which owned 75 per cent. or more of the shares. There is nothing in the Bill to indicate, therefore, how, under the provisions of the Bill, such a situation would be dealt with. One is left in the air as to whether the companies themselves could choose, whether the paying company could choose, the receiving company could choose or the Inland Revenue could choose. One does not know.
    There could be another situation in which, for instance, two companies own 36 per cent. of the shares each, or 72 per cent. between them, and three companies own 9⅓ per cent. of the shares each, or 28 per cent. between them. They are all United Kingdom companies. I do not think that in those circumstances any of them would be entitled to the benefit of the Clause, because, although one of them owns almost 10 per cent., the 10 per cent. provision would exclude. So there would be five companies owning 100 per cent.; they all would have substantial holdings, but not one of them, not even the one owning 36 per cent. of the shares, would be entitled to the benefit of paragraph (b).
    There is then the situation in which five companies own 15 per cent. each. They own 75 per cent. of the shares and they all get the benefit. Two other companies own only 12½ per cent. of the shares each; neither of them would be qualified. My right hon. Friend the Member for Hampstead wants to lower the 10 per cent. to 5 per cent., but it would not help those companies where there are five or fewer companies which

    81
    between them own 75 per cent. of the shares.
    There might then be a situation in which three companies own 31 per cent. each and one owns 7 per cent. The last does not qualify, but the first three do. It seems to be an extraordinary provision that these specific percentages should be laid down as additions to the main qualification. The main qualifications is that both the receiving and the paying companies must be United Kingdom companies, and one has to have a situation in which three-quarters or more of the ordinary shares of the capital are owned between them by five or fewer companies.
    6.0 p.m.
    In that situation, why is it necessary to go any further? That exactly describes the situation which is meant to be covered—that a few United Kingdom companies own the vast majority of the shares of the company. Why should we put a limitation of 10 per cent. or even 5 per cent. on the number of five who have to take part? If we have a situation in which five or fewer companies own three-quarters or more of the total shares, why should we bother not to extend the privilege to any other United Kingdom company if it owns some part of the 25 per cent.? If there are two United Kingdom companies, and the vast majority of the shares—more than three-quarters—are owned by five or fewer companies, why should not every company which is part of the censortium, whatever proportion of the share it holds, whether it has more than 10 per cent. or not, have an equal advantage with the other companies which form part of that consortium? For this reason I have put down Amendments Nos. 235 and 236.
    Mr. Burden: It seems that the Government are endeavouring to encourage the movement towards consortia in order to benefit our export trade. Those who are in the trade realise that considerable benefits can frequently accrue from this.
    If this is the case, then I am convinced that the Chief Secretary will listen carefully to the proposals which have been put forward by my right hon. Friend the Member for Hampstead (Mr. Brooke) and my right hon. and learned Friend the Member for Warwick and Leamington (Sir J. Hobson). It is important to realise that a consortium may comprise several
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    firms which have an extremely large share of the business which is accruing to the consortium. But there may be one or two smaller firms whose part is equally important in the whole but which have not a very large share of the consortium. Their share might be related to the capital or the capital goods or the amount of know-how which they have invested in the consortium. But, small though it may be, it may be essential to the performance of the consortium.
    I therefore suggest that the Chief Secretary should give very careful thought to the proposals which have been put forward by my right hon. Friends because of that fact and should not penalise any member of a consortium., no matter how small its total holding may be, in view of the fact that, small though it may he, its effect upon the earning capacity of the consortium may be vital
    Mr. Diamond: I have listened carefully to the argument in favour of the Amendments. I draw a distinction between the Amendment moved by the right hon. Member for Hampstead (Mr. Brooke) and the other Amendments which we have discussed at the same time. I draw this distinction because our anxiety is to help consortia, which are engaged as a joint venture in trade, to the extent of departing from the principle of Corporation Tax that tax should be accounted for when a dividend is paid.
    But one has in mind the founder-members of the consortium—people holding a substantial share in the consortium. The hon. Member for Gillingham (Mr. Burden) referred to one or two others holding a small proportion. If it were one or two others I should have no objection to what he proposes, but what is being proposed in Amendments Nos. 235 and 236 is to widen the scope very considerably indeed and to give shareholders of minimal shareholdings this same privilege—I am sorry to use the word "privilege"—or same advantage, or same arrangement, to use as neutral a term as possible. We could not go so far as to widen arrangements to that extent. It could mean a vast number of shareholders to whom a dividend could be paid gross.
    The principle is, "You pay your tax when you pay your dividend", when "you" is the family and not necessarily just the one company. As an exception

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    to that principle, and purely in the interests of encouraging this form of joint trading, we have made the exception for the consortium. But consortium can mean only a small number of firms getting together because each cannot do the job by itself. They get together in a form of partnership or a trading venture for this limited purpose. I therefore cannot advise the House to accept the Amendments down in the name of the right hon. and learned Member for Warwick and Leamington (Sir J. Hobson) because these would extend the scope enormously.
    The answer to the question which he asked me is that any one of the members that felt that it could claim, by adding other members of the consortia to the figure so that the necessary percentage was achieved, could claim this concession. His Amendments, therefore, would give every single member of the consortium, although each held only one share, the opportunity to make this claim. If two of them held 75 per cent. and a vast number held the other 25 per cent., each one of the vast number could make the claim. I therefore could not possibily recommend the House to accept either of those Amendments.
    Sir J. Hobson: That may be an answer to Amendment No. 235, but it is not the answer to Amendment No. 236. That would confine it to five who held 75 per cent. or more of the shares without limitation about their requiring 1 per cent. or 5 per cent. It would be confined to five companies which were founder-members, but they would not be limited themselves to any particular proportion of holdings.
    Mr. Diamond: I hope that I have not misunderstood the hon. and learned Gentleman. He is talking about Amendment No. 236, which has virtually the same effect as Amendment No. 235.
    Sir J. Hobson: No.
    Mr. Diamond: I am advised that that is so. I have to have regard to what is on the Order Paper and to the best advice on it which is available to me, even if that is not precisely the interpretation put on the Amendment by those who put it on the Order Paper. I am advised that that is exactly the effect of
    84
    it and that a large number of beneficiaries could come under the Amendment. That is why I cannot advise the House to accept it.
    The right hon. Member for Hampstead is on an entirely different point. He recognises that one should have a substantial interest and that a number of substantial interests does not exclude one member of the consortium from having an interest of less than 10 per cent. No one could maintain that 10 per cent. was a figure which satisfied all cases and that 9 per cent. could never be a substantial or appropriate interest. One knows of consortia in which the main trading partners hold substantial amounts but one partner, who is a financier, does not necessarily hold such a substantial amount. He might hold less than 10 per cent. One is bound to recognise that 10 per cent. in what I might call a small consortium dealing with small figures might be less absolutely than 5 per cent. in a very large consortium. A smaller amount of capital might be involved. I accept that we cannot say that 10 per cent. is the right figure for all time. I think that 5 per cent. is going a bit low. But in view of the argument put forward by the right hon. Gentleman, and as I am the youngest brother of my family of three brothers, I think that it is an Amendment which I could recommend the House to accept.
    Mr. Lubbock: I did not intend to speak on this series of Amendments but I must ask the Chief Secretary to think again about what he said about Amendments No. 235 and No. 236. He will correct me if I am wrong, but I understood him to say that the two were identical. The cursory study which I have made of the two proposals, even since coming into the Chamber this afternoon, shows me that they are entirely different in nature. If the right hon. Gentleman will lay his brief aside for a moment and consider the wording of those proposals as they would affect the Clause he will understand what I mean. The big difference between the two is that Amendment No. 235 is designed to delete, from the word "resident", the remainder of the words to the end of line 38. Amendment No. 236 is designed to leave in the phrase
    "… of which the company receiving the dividends is one …".

    85
    That is the vital difference between the two. If we consider the example given by the right hon. Gentleman—of two companies owning 75 per cent. of the capital and a large number of other companies owning the remaining 25 per cent.—it would seem that if one does not have the words
    "… of which the company receiving the dividends is one …"
    remaining in the provision, all the little companies will obtain the benefit of the concession. However, if one starts from the word "one" and leaves out the remainder of the provision, only the first five companies will come into the matter.
    We can also consider the right hon. Gentleman's example of the two companies which initially formed the consortium obtaining the benefit of the Clause. I hope that he will realise that there is an important difference that should be considered and that the less far-reaching Amendment should be accepted, particularly when it is remembered that we are considering the situation of five or fewer companies owning a large proportion of the capital or, as the provision puts it:
    "… three-quarters or more of the ordinary share capital of that company is owned between them by five or fewer companies …"
    While I am grateful for what the right hon. Gentleman said about the Amendment standing in the name of the right hon. Member for Hampstead (Mr. Brooke), I hope that he will give further consideration to this matter.
    Mr. Harold Lever: I hesitate to intervene on this point because I confess that I have not given the matter close consideration. However, I must with respect tell my right hon. Friend it does not need close consideration to see what appears abundantly plain, for I find it difficult to imagine how he could conceivably have been advised that acceptance of Amendment No. 236 would result in innumerable companies benefiting thereby. After all, the provision would read:
    "(b) the business of the company paying the dividend consists wholly or mainly of the carrying on of a trade or trades, and three-quarters or more of the ordinary share capital of that company is owned between them by five or fewer companies so resident, of which the company receiving the dividends is one …".
    86
    Unless I have lost all control of my understanding of English, surely only five companies at the most could benefit if that Amendment were accepted. I will willingly give my right hon. Friend sufficient time—
    Mr. Diamond: My hon. Friend has given me enough time.
    Mr. Lever: —to consider the matter further. I may be absolutely wrong—
    Mr. Diamond Mr. Diamond indicated assent.
    Mr. Lever: —because I have not studied the matter closely. Nevertheless, the provision would say that
    "… the company paying the dividend consists wholly or mainly of the carrying on of a trade or trades, and three-quarters or more of the ordinary share capital of that company is owned between them by five or fewer companies …".
    I do not see how innumerable companies could benefit from that.
    6.15 p.m.
    Mr. Diamond: I do not set myself up as a lawyer against my hon. Friend the Member for Manchester, Cheetham (Mr. Harold Lever) or the great engineering knowledge of the hon. Member for Orpington (Mr. Lubbock). I rely on the advice I am given and I repeat—and I will come to the construction of the Clause in a moment—that if Amendment No. 236 were accepted there could be the situation in which two companies held 75 per cent. of the shares and a very large number of companies the other 25 per cent., but each one of the others could claim the right to receive its dividends gross.
    Mr. Harold Lever: No
    Mr. Diamond: That is what I am advised.
    Mr. Lever: My right hon. Friend should consider the matter further.
    Mr. Diamond: If I am asked to interpret it, then I would draw the attention of my hon. Friend to the fact that it would not say that a company must be owned by five or fewer companies but that
    "… three-quarters or more of the ordinary share capital …"
    must be owned by
    "… five or fewer companies so resident …"

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    I am advised that that is the relevant part of it.
    Mr. Harold Lever: It says "five or fewer companies".
    Mr. Diamond: I am sorry to interrupt my hon. Friend—[Laughter.]—I am bound to be in that position from time to time. I can only repeat that this is the advice I am given on the construction of the Clause. I am bound to accept that advice on its construction, even if in doing so I am going against the views of my hon. Friend the Member for Cheetham. I cannot advise the House to accept that Amendment and I am pointing out that it means something different from what it has been said to mean. I am explaining what it means and what I have been advised it means. I must, therefore, advise the House not to accept it.
    Mr. Lever: Assuming that, on reflection, my right hon. Friend is advised that it means the opposite of what he has been advised it means—and I have ventured an extemporary opinion on what it means—may we take it that the Government will then do something about the matter; if, on mature reflection, they come to the conclusion that the advice given to my right hon. Friend is not right?
    Mr. Diamond: I do not know what we are discussing if it means something different from my interpretation of the Amendment.
    Mr. Brooke: Without wishing to enter into this controversy between the right hon. Gentleman and his hon. friend, I express my thanks to the Chief Secretary for accepting both my argument and my Amendment.
    Amendment agreed to.
    Mr. Diamond: I beg to move, Amendment No. 169, Clause 44, in page 104, line 5, at the end to insert:
    Provided that an election under this subsection shall not prevent the payment of any amount of dividends under deduction of income tax, and where notwithstanding the election any amount is so paid, this Part of this Act shall have effect in relation to it as if there had been no such election.
    Mr. Speaker: I suggest that the House should at the same time consider the
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    preceding two Amendments, Amendment No. 234, Clause 44, in page 103, line 41, after "received", insert:
    "(or such proportion of them as they may for any accounting period jointly elect)"
    Amendment No. 294, Clause 44, in line 42, after "former", insert:
    "or such part of them as shall be specified in the notice of election".
    Mr. Diamond: This Amendment results from consideration which was promised in Committee and I can best explain it by pointing out that sometimes a parent company will want to receive a dividend net and sometimes gross. There are cases, however, where a subsidiary company's income is mixed, when there should, therefore, be the right for the parent and the subsidiary to elect that part of a dividend should be paid gross and part of it under deduction of tax. This could be done without undue administrative difficulty and that is what the Amendment seeks to do. It was thought previously that it would be adequate if an election could be made for one year and a different election for the following year. However, the Amendment gives greater flexibility. I hope, therefore, that it will be acceptable to the House.
    Amendment agreed to.
    Mr. Diamond: I beg to move Amendment No. 170, Clause 44, in page 104, line 34, at the end to insert:
    (6A) Where in the year 1966–67 or any later year of assessment a company receives from another company (both being resident in the United Kingdom) any such payments as are referred to below in this subsection, and the conditions of subsection (3) (a) or (b) above would be satisfied in relation to the companies if the payments were dividends, then, subject to Schedule 11 to this Act, the company receiving the payments and the company paying them may jointly elect that this subsection shall apply to any such payments received from the latter by the former, and so long as the election is in force those payments may be made without deduction of income tax and section 170 of the Income Tax Act 1952 shall not apply thereto.
    The payments for which an election may be made under this subsection are any payments which are for corporation tax charges on income of the company making them.
    This Amendment results from an undertaking given in Committee to consider whether it would be possible to provide for the payment without deduction of tax of annual interest or annual payments by a subsidiary company, to its

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    parent. In the Bill as it now stands there is this facility but it is limited to dividends. We have carefully considered the suggestion made, and have decided that it would be appropriate to allow payment of interest without deduction of Income Tax in the same class of tax in which the payment of dividends without deduction of Income Tax is permitted in the Bill already.
    I think that this is a useful Amendment. It will mean that subsidiary companies may pay interest to their parent companies without at that stage creating a liability within the group to account to the Inland Revenue for Income Tax in respect of that payment. The parent company will in due course have to pay Corporation Tax in respect of that payment in the ordinary way. The Amendment, therefore, may represent quite a useful alleviation to some companies in the matter of their timing of payment, although it will not affect the final result in any way.
    Mr. Patrick Jenkin: I intervene only briefly to express my gratitude to the Treasury Bench for having tabled both this and the previous Amendment, both of which were, in substance, moved from this side in Committee, although the language of this Amendment is somewhat different. Both represent sensible provisions which will make for easier administration relating to interest of groups of companies.
    Amendment agreed to.
    Further Amendment made: Clause 44, page 104, line 43, after "distributions", insert "or payments".—[Mr. Diamond.]

    Clause 45.—(GENERAL SCHEME OF CORPORATION TAX.)
    Mr. Diamond: I beg to move Amendment No. 177, Clause 45, in page 106, line 23, after "tax" to insert:
    "(including enactments conferring or regulating a right of appeal)"
    Mr. Speaker: I propose that with this Amendment we also discuss Amendment No. 237, Clause 45, in page 106, line 22, after "to", insert "appeal procedure and to".
    Mr. Diamond: This Amendment confirms an undertaking that I myself gave in Committee when we were dis-
    90
    cussing Clause 45. The matter was raised by the hon. Member for Folkestone and Hythe (Mr. Costain), who pointed out that there did not appear to be any provision for appeal machinery. I indicated, I believe, that nevertheless the appeal machinery was there—that the words used imported that—but that I would make absolutely sure, and, if necessary, bring an Amendment before the House.
    I repeat that it is not necessary to include words to give effect to what I said. Nevertheless, I think that it should be made clearer for those outside the House so that, on a first reading, they should have no doubt but that appeal machinery is included. This Amendment has been tabled to make the position absolutely clear. It does so by providing that the enactments referred to in subsection (7) of this Clause shall include enactments conferring or regulating a right of appeal.
    Mr. A. P. Costain: I thank the Chief Secretary for carrying out his assurance. This is an important matter. My Amendment in Committee was not selected, but I was able to speak on this subject on the Question "That the Clause stand part of the Bill". There has been very considerable doubt in the accountancy profession whether the appeal procedure is allowable, and I thank the right hon. Gentleman for making it very clear that it is.
    Mr. Barber: This Amendment, tabled by the Government, is due to the dogged determination of my hon. Friend the Member for Folkestone and Hythe (Mr. Costain). He first raised the matter with me, and I refused to believe him. I could not believe that there were not in the Statute words sufficiently adequate to cover his point. But my hon. Friend has persevered, and he now has his reward.
    Amendment agreed to.

    Clause 48.—(ALLOWANCE OF CHARGES ON INCOME.)
    Mr. Diamond: I beg to move Amendment No. 179, Clause 48, in page 110, line 16, to leave out "(a)" and to insert "(c)".
    I do not know whether it would be convenient for you, Mr. Speaker, and for the House, if we discussed at the same time Government Amendments Nos. 180, Clause 48, in page 110, line 19,

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    and 181 in Clause 48, in line 21, at end insert:
    Provided that for purposes of paragraph (b) above the company shall be treated as carrying on any trade carried on by a subsidiary of it (both being bodies corporate), if the subsidiary also is resident in the United Kingdom; and for this purpose "subsidiary", subject to subsection (5A) below, has the meaning assigned to it for certain purposes of the profits tax by section 42 of the Finance Act 1938.
    (5A) In determining for the purpose of subsection (5)(b) above whether one company is a subsidiary of another that other company shall be treated as not being the owner—

    (a) of any share capital which it owns directly in a body corporate if a profit on a sale of the shares would be treated as a trading receipt of its trade; or

    (b) of any share capital which it owns indirectly, and which is owned directly by a body corporate for which a profit on the sale of the shares would be a trading receipt; or

    (c) of any share capital which it owns directly or indirectly in a body corporate not resident in the United Kingdom.

    Mr. Speaker: If the House so pleases, but I would say that if we include Amendment No. 181 in our discussion, I would propose that we discuss with it the Amendment standing in the name of the hon. Member for Yeovil (Mr. Peyton) and other hon. Members as an Amendment to the proposed Amendment, Clause 48, in line 5, at end insert:
    Provided also that for the purposes of paragraph (b) above the company shall be treated as carrying on a trade where its business consists mainly in the making of investments and the principal part of whose income is derived therefrom and the activities of such a company shall be deemed to be carried on outside the United Kingdom to the extent that its investments are in companies whose activities are carried on outside the United Kingdom.
    Mr. Diamond: Thank you, Mr. Speaker.
    These three Amendments, then, fulfil an undertaking given in Committee by myself to the right hon. and learned Member for Warwick and Leamington (Sir J. Hobson) on 3rd June. In reply, I said that I could not accept the Amendment we were then discussing because it did not go far enough, but I undertook to introduce on Report an Amendment which would, I hoped, fit the circumstances described by the right hon. and learned Gentleman and, perhaps, go a little wider.
    There is a special provision in the law, dating from 1949 and now found in Sec-
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    tion 138 of the Income Tax Act, 1952, which gives relief to a trading company resident in the United Kingdom, subject to fairly tightly-drawn conditions including, in particular, the provision that the payment of the interest is secured mainly upon assets outside the United Kingdom which are employed in the trade and belong to the person by whom the trade is carried on.
    There have been many occasions when it has been represented that that condition is unduly restrictive, and the right hon. and learned Gentleman was, if I may say so, quite right in observing that many large companies raise loan capital by means of a public issue abroad, sometimes on the Continent of Europe; and that. for the most part, such money is raised on an unsecured basis as opposed to the condition of security which at present exists. I think that he pointed out that the Government ought not to appear to insist on United Kingdom operators giving security abroad if the lenders themselves did not ask for it. We accept the validity of this argument, and have therefore tabled these three Amendments.
    As to going a little wider, as on the earlier occasion I indicated that I would wish to do, it is the case that we have examples where it is desired to raise money for the purpose of a trade carried on by a subsidiary company in a group of companies and it is convenient for the money to be raised by the parent company rather than by the subsidiary itself. The parent company may not itself be carrying on a trade, but lenders may nevertheless prefer to rely on the credit of the parent company rather than on that of the subsidiary company.
    Accordingly, we have decided that the relief given by Section 138 should also be made available to a parent company resident in the United Kingdom whether or not it is carrying on a trade in respect of the liability for interest on money which it raises abroad for the purposes of the overseas trade of its subsidiary company resident in the United Kingdom.
    Extension of this relief to parent companies is, however, limited deliberately to the case where the subsidiary company which is carrying on trade abroad is resident in the United Kingdom, and this is where I now deal with the other point that is being discussed.

    93
    Where a subsidiary company is resident abroad, relief would already be secured under other provisions. The parent company would no doubt receive income from its non-resident subsidiary, which would be foreign income and it would therefore be able to set against that foreign income amounts due by virtue of Clause 48(5,c) for interest the parent company paid on the foreign loan. We do not therefore have to deal with that situation, but only the situation where the subsidiary company is resident. I hope that we have met fully the desire of the right hon. and learned Member for Warwick and Leamington and have gone a little further, although perhaps not quite so far as we are now being asked to go.
    6.30 p.m.
    Sir J. Hobson: I express my gratitude to the Government, and to the Chief Secretary in particular, for having met this point. It is an important one. It affects many large companies which raise loan capital overseas and in respect of which it would have been grossly unfair if they had not been able to deduct that loan interest from their trading profits and the total amount of which Corporation Tax was to be charged. I express gratitude for the way in which this has been dealt with, subject to the Amendment to be moved by my hon. Friend the Member for Yeovil (Mr. Peyton), who feels that in some details the proposal made by the Government can be improved.
    Mr. Peyton: On the last point made by my right hon. and learned Friend the Member for Warwick and Leamington (Sir J. Hobson) I have no doubt. My doubts occur as to whether the Chief Secretary will allow sense to lead him along the proper path or whether once again he is to consult those dreadful factors, Treasury convenience or Inland Revenue convenience, which will not influence me.
    The right hon. Gentleman would be helpful to the extent of correcting me if I am wrong, but so far as I understand, a company has to face two objectionable limitations before it can get the benefit of the Clause as amended by the Chancellor's Amendment. Those restrictions are, first, the requirement that borrowings must be related to particular trades and, secondly, that either the borrower or a
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    subsidiary must be a United Kingdom resident. On the first objection, I ask the right hon. Gentleman to consider that where there is an immense complex group of companies and finance is raised in myriad forms all over the world for a multiplicity of purposes, it is very often, if not always, impossible to marry a particular borrowing with a particular project. This limitation would put a certain measure of serious hardship, although they are rare, on very important large groups of companies.
    The second limitation is that the borrower or subsidiary company must be a United Kingdom resident. Very often in these concerns a subsidiary company will be incorporated locally because there is no alternative open to it. In order to comply with local requirements in the territory concerned the company has to be registered there. On the third condition, that the operation must be carried on outside the United Kingdom, for my purposes there is no objection, but on these other two points the Government, probably unintentionally and unwillingly, are imposing a quite uncalled for limitation on certain companies.
    I give an example. I am sure that the right hon. Gentleman will not react to my doing this in a way which has become disagreeably common lately. One of the major oil companies of this country, British Petroleum, I am advised, will be unable to obtain any relief from the interest paid on its recent German loan. Without this or an Amendment achieving a similar purpose, no effective relief would be obtainable from finance similarly raised. Maybe rightly, I do not challenge that for a moment, the Government say to large companies trading overseas that when they have very considerable demands for new capital they must do their utmost to raise some of that money overseas. It is unreasonable and unjust, when that duty has been put upon them, to inflict on them a tax penalty as a consequence of their so doing. I am sure the right hon. Gentleman would be the first to agree that that would be wrong. This Amendment to the Chancellor's Amendment will, I feel sure, commend itself to the right hon. Gentleman because without it a quite unintended injustice and wrong would be done.
    Mr. John Harvey: I sought earlier in the debate to support my hon. Friend the Member for Yeovil (Mr. Peyton) on Amendment No. 104. The Chief Secretary then argued, as perhaps he will be inclined to argue again, that he had to differentiate between trading and investment. The point we are seeking to make is that in large consortia one cannot differentiate between the two; they are all part and parcel of the business of trading. Legislation as it stands, if the Chief Secretary persists in his attitude, will involve two differentials and produce all sorts of complications for some of our largest companies. I hope that the Chief Secretary will see that he would be benefiting our trading capacity if he met some of these difficulties.
    Mr. Diamond: I speak again by leave of the House. The hon. Member for Yeovil (Mr. Peyton) has drawn attention to two main arguments, one relating to residence and the other to trading purposes. May I make it clear once more than I do not think that there is any need to make special provision for nonresident subsidiaries, because they are already fully catered for.
    If I may explain it a little more fully, where a parent company resident here is the borrower, it will presumably, if it borrows the money, relend it to the subsidiary and the subsidiary will pay interest to the parent. On that assumption, the parent will in any case get relief against the interest received from the subsidiary for the interest it paid to the original lender under Clause 48, subsection (5,c) which reproduces Section 132 (1,c) of the Income Tax Act, 1952. So that point is covered, and we have made special provision for the resident subsidiary.
    Then the hon. Gentleman the Member for Yeovil gave us the example of B.P. and its German borrowing, and said that it would not be able to get any benefit, because it would not be able to set off interest on what it incurred in that borrowing. The hon. Gentleman will be glad to know that is not a correct interpretation, and that they will be able to obtain the relief which both the hon. Gentleman and the Government intend they should. If the hon. Gentleman is satisfied that the Bill already provides for that kind of case, perhaps he will not press his Amendment.
    Mr. Peyton: I am obliged for what the hon. Gentleman is saying. I would only advance one further point, which is that I am not the only one who has misunderstood the position, and I am very glad to have put right the misunderstanding for which I am responsible on the Notice Paper, and to have it put right on the record by the right hon. Gentleman in such unequivocal terms is most welcome. I am very grateful to him.
    Mr. Diamond: I am glad that I have been able to satisfy the hon. Gentleman. I recognise that he is by no means the only hon. Gentleman who thought what he thought was the case. It follows that if what I have said is not the position it would be for the Government to make it right at an early date. I have given what I understand to be a clear interpretation of it, and I hope, in those circumstances, that I have satisfied the House.
    Amendment agreed to.
    Further Amendments made: Clause 48, in page 110, line 19, after "tax)", insert:
    "and the liability to pay the interest was incurred wholly or mainly for the purposes of activities of that trade carried on outside the United Kingdom".
    Clause 48, in page 110, line 21, at end insert:
    Provided that for purposes of paragraph (b) above the company shall be treated as carrying on any trade carried on by a subsidiary of it (both being bodies corporate), if the subsidiary also is resident in the United Kingdom; and for this purpose "subsidiary", subject to subsection (5A) below, has the meaning assigned to it for certain purposes of the profits tax by section 42 of the Finance Act 1938.
    (5A) In determining for the purpose of subsection (5)(b) above whether one company is a subsidiary of another that other company shall be treated as not being the owner—

    (a) of any share capital which it owns directly in a body corporate if a profit on a sale of the shares would be treated as a trading receipt of its trade; or

    (b) of any share capital which it owns indirectly, and which is owned directly by a body corporate for which a profit on the sale of the shares would be a trading receipt; or

    (c) of any share capital which it owns directly or indirectly in a body corporate not resident in the United Kingdom.—[Mr. Diamond.]

    Mr. Speaker: May I take it that the hon. Gentleman the Member for Yeovil (Mr. Peyton) does not wish to move his Amendment to the Government Amendment?
    Mr. Peyton: That is so, Mr. Speaker.

    Clause 51.—(COMPUTATION OF CHARGEABLE GAINS.)
    6.45 p.m.
    Mr. Diamond: I beg to move Amendment No. 182, Clause 51, in page 114, line 3, at the end to insert:
    (5A) Part I of Schedule 12 to this Act, except in so far as it relates to recovery of tax shall also have effect in relation to bodies from time to time established by or under any enactment for the carrying on of any industry or part of an industry, or for any undertaking, under national ownership or control as if they were companies within the meaning of the said Part I, and as if any such bodies charged with related functions (and in particular the Boards and Holding Company established under the Transport Act 1962) and subsidiaries of any of them formed a group, and as if also any two or more such bodies charged at different times with the same or related functions were members of a group:
    Provided that this subsection shall have effect subject to any enactment by virtue of which property rights, liabilities or activities of one such body fall to be treated for corporation tax as those of another.
    Part I of Schedule 12 contains in paragraph 2(1) the rule that the disposal of a chargeable asset by one member of a group to another member of that group is to be deemed to take place for a consideration of such amount that neither a gain nor a loss accrues to the member of the group making the disposal. In effect, therefore, the group is treated for Capital Gains Tax purposes as if it were one single person, with the consequence that no liability to tax arises in respect of transactions between members of the group, and there can, therefore, be no question of a Capital Gains Tax liability inhibiting the transfer of assets within the group in whatever way best promotes their efficient use.
    Since the publication of the Bill, we have received representations to the effect that the benefits of Schedule 12 should extend beyond Companies' Act companies to certain industrial and provident societies and also to nationalised boards and undertakings. We have felt that these representations are well made and should be acceded to, and that is the purpose of the Amendment.
    Amendment agreed to.

    Clause 57.—(COMPANY RECONSTRUCTIONS WITHOUT CHANGE OF OWNERSHIP.)
    Mr. William Clark: I beg to move Amendment No.
    98
    239, Clause 57, in page 121, line 1, after "trade", to insert
    "and to relief under section 51(1) as for an allowable loss sustained by the successor".
    This matter was raised in Committee on the Question, "That the Clause stand part of the Bill". During the reply, the Minister without Portfolio was kind enough to say that he would look into it and, if anything was necessary, he would table an Amendment on Report. Nothing was done, and as a result, my hon. Friends and myself tabled this Amendment.
    I will not weary the House with a rehearsal of all the arguments as to why this Amendment is necessary, except to say that on the reconstruction of a company, under the Income Tax Acts there is opportunity to carry forward trading losses and unexpended capital allowances. Thus, on a reconstruction, one can carry forward Income Tax losses, and all we say in this Amendment is that one should also be able to carry forward capital losses.
    The Minister without Portfolio was kind enough to write to me on this point following the debate in Committee, and he pointed out quite fairly that Income Tax losses can be carried forward and that losses or profits on machinery are dealt with in capital allowances, balancing allowances or charges. The only capital losses one might not have dealt with would be losses on land or buildings. I think that the Minister without Portfolio will agree that he thinks that this is a very narrow field; the range is very limited, and, consequently, not very much hardship would occur to a reconstructed company if it could not carry forward its losses on land or industrial buildings.
    With the greatest respect, that is a wrong policy for the Government. If there is a hardship, narrow or wide, and the Government accept that there is a hardship, I would have thought it essential to cover that particular taxpayer, which is why we have tabled the Amendment. I do not think that anyone on either side would say that if a matter of principle affects only one person it is any less important than a matter of principle affecting 100 persons. That is the difference between us.
    Under the Corporation Tax there is the question of plough-back. I will not

    99
    go into the arguments on that, but, quite obviously, if the Government are right, many companies will have more and more money to invest. If they are to invest in plant and machinery or factories, or whatever it may be, they cannot just get their money immediately and put up their new factory. They will have to invest that money until their plans are ready to put up their new factory. It is possible that if there is a reconstruction in the interim and there is a realisation on the equity shares they may have, there may again be a capital loss. That is extending the sphere further than losses on land or buildings.
    Without wearying the House very much longer, I hope that the Minister without Portfolio has the point that I am trying to make. I do not think that the Amendment is at all a narrow one. It will not apply to very many people, but it will apply to some companies. Consequently, if the Government are endeavouring to be fair—and that is illustrated by the very fact that they have accepted some of our Amendments, and many of the Amendments they have tabled are in response to the initiative of this side in Committee—and if they are saying that they want the Corporation Tax to work smoothly and justly, here is one way in which the Government can prove their words. They can accept the Amendment.
    The Minister without Portfolio (Sir Eric Fletcher): The hon. Member for Nottingham, South (Mr. William Clark) is quite right. This question was raised in Committee on the Question, That the Clause stand part of the Bill". The hon. Gentleman then made the point which he made again quite succinctly this evening. In the interval he wrote to me and I replied. It is indeed a narrow point, although it is one of substance. When the hon. Gentleman said that it was a narrow point, I think that he meant that it has a narrow application. It can apply only in a very small number of cases, as I pointed out to him in my letter. That is not the reason why in my letter I said that we were unwilling to accept the argument. It must be dealt with on its merits.
    Here we are dealing with companies that are reconstructed. It is quite proper
    100
    that, where there is a reconstruction of a company, the trading losses of the old company should be carried forward so that the new reconstructed company should have the benefit of them. It is, equally, quite proper that capital allowances should be carried forward, because, after all, a reconstruction is quite different from a sale. A reconstruction is not, as a rule, anything more than a reorganisation for the internal purposes of the company. Therefore, broadly, it is right that the reconstructed company should substantially get the advantages, as it does, of being able to carry forward both trading losses and the benefit of capital allowances, balancing charges, and so forth.
    The Amendment seeks to extend that principle and to apply it so that on a reconstruction the new company can have the benefit of any capital losses incurred by the old company. If the hon. Gentleman will reflect for a moment, he will recognise that that would be an innovation. That would be a departure from our existing arrangement, because, under the existing law, on a reconstruction a company cannot carry forward a capital loss incurred for purposes of Case VII where the short-term capital gain operates as at present. That was the law introduced by the Conservative Government.
    The reasons which made it wise for the Government at that time to exclude cases falling within Case VII of the short-term capital gains scheme apply a fortiori to the introduction of the long-term Capital Gains Tax. We see no reason why, in the substitution of the one for the other, the Chancellor should be any more generous than the previous Government were on an analogous set of circumstances.
    Therefore, although I repudiate any suggestion that the Government want to be anything other than extremely fair in all these matters, as the hon. Gentleman has acknowledged by pointing to the way in which we have accepted various Amendments which we think are reasonable, I cannot invite the House to take the view that this Amendment falls within the category of Amendments which are reasonable.
    Mr. Patrick Jenkin: As I have put my name to the Amendment, I want to say a few words in reply to the case

    101
    advanced by the Minister without Portfolio. I cannot accept the a fortiori argument. It may well have been right for the purposes of Case VII that certain limitations be placed on the carry forward of losses because that, after all, was a limited extension into the capital gains taxation. The Bill makes a very much more substantial incursion into it. Therefore, something which might have been de minimis as it concerned Case VII could, in the limited number of cases to which my hon. Friend the Member for Nottingham, South (Mr. William Clark) referred, give rise to a very considerable injustice.
    If it is right in the case of a company reconstruction to carry forward revenue losses, to carry forward unexpended capital allowances, and to carry forward various other matters to which the Minister without Portfolio referred, why is it not right that the reconstructed company should carry forward unrelieved capital losses?
    May I remind the Minister without Portfolio of the words used by the Chancellor of the Exchequer in his Budget speech when justifying the extension of capital gains taxation to companies:
    "I propose that capital gains realised by companies—and this applies to both short-term and long-term gains—shall be subject to corporation tax at the corporation tax rate. A company is a continuing association which has as its main purpose making profits; whether those profits arise as trading income or as capital gains is immaterial, and I think that it is right that they should be taxed at the same rate."—[OFFICIAL REPORT, 6th April, 1965 Vol. 709, cc. 250–51.]
    If that was his view when he justified the taxation of capital gains, why does not the same argument apply to giving relief against capital losses? It is utterly inconsistent, and I do not think that the Minister without Portfolio should be allowed to get away with his very weak and unconvincing argument.
    Mr. William Clark: By leave of the House, may I say that the Minister without Portfolio did not attempt to answer the point concerning a reconstructed company which has invested its plough-back profits and which wants to construct a new factory. If in the realisation of that ploughback investment it makes a capital loss, why should it not be allowed to carry the loss forward? The Chancellor has clearly said that for companies revenue losses are exactly the same as capital losses, and vice versa. If it is right to carry forward revenue losses, it is equally right to carry forward capital losses.
    In view of the lamentable reply of the Minister without Portfolio, who, I am absolutely certain, has not moved one inch towards eliminating this injustice, I hope that my right hon. and hon. Friends will divide against the Amendment.
    Question put, That those words be there inserted in the Bill:—
    The House divided: Ayes 250, Noes 272.

    Division No. 249.]

    AYES

    [6.57 p.m.

    Agnew, Commander Sir Peter

    Brooke, Rt. Hn. Henry

    Crowder, F. P.

    Alison, Michael (Barkston Ash)

    Brown, Sir Edward (Bath)

    Curran, Charles

    Allason, James (Hemel Hempstead)

    Bruce-Gardyne, J.

    Dalkeith, Earl of

    Amery, Fit. Hn. Julian

    Bryan, Paul

    Dance, James

    Anstruther-Gray, Rt. Hn. Sir W.

    Buchanan-Smith, Alick

    Davies, Dr. Wyndham (Perry Barr)

    Astor, John

    Bullus, Sir Eric

    d'Avigdor-Goldsmid, Sir Henry

    Atkins, Humphrey

    Burden, F. A.

    Dean, Paul

    Awdry, Daniel

    Butcher, Sir Herbert

    Deedes, Rt. Hn. W. F.

    Baker, W. H. K

    Campbell, Gordon

    Digby, Simon Wingfield

    Barber, Rt. Hn. Anthony

    Carlisle, Mark

    Dodds-Parker, Douglas

    Barlow, Sir John

    Carr, Rt. Hn. Robert

    Doughty, Charles

    Batsford, Brian

    Cary, Sir Robert

    Douglas-Home, Rt. Hn. Sir Alec

    Bell, Ronald

    Channon, H. P. G.

    Drayson, G. B.

    Bennett, Sir Frederic (Torquay)

    Chataway, Christopher

    du Cann, Rt. Hn. Edward

    Berry, Hn. Anthony

    Clark, William (Nottingham, S.)

    Eden, Sir John

    Bessell, Peter

    Clarke, Brig, Terence (Portsmth, W.)

    Elliot, Capt. Walter (Carshalton)

    Biffen, Johr

    Cole, Norman

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

    Biggs-Davison, John

    Cooke, Robert

    Emery, Peter

    Birch, Rt. Hn. Nigel

    Cooper, A. E.

    Errington, Sir Eric

    Black, Sir Cyril

    Cooper-Key, Sir Neill

    Farr, John

    Blaker, Peter

    Cordle, John

    Fell, Anthony

    Box, Donald

    Corfield, F. V.

    Fisher, Nigel

    Boyd-Carpenter, Rt. Hn. J

    Costain, A. P.

    Fletcher-Cooke, Charles (Darwen)

    Boyle, Rt. Hn. Sir Edward

    Courtney, Cdr. Anthony

    Fletcher-Cooke, Sir John (S'pton)

    Braine, Bernard

    Craddock, Sir Beresford (Spelthorne)

    Foster, Sir John

    Brewis, John

    Crawley, Aidan

    Fraser, Rt. Hn. Hugh (St'fford & Stone)

    Brinton, Sir Tatton

    Crosthwaite-Eyre, Col. Sir Oliver

    Fraser, Ian (Plymouth, Sutton)

    Galbraith, Hn. T. G. D.

    Lambton, Viscount

    Redmayne, Rt. Hn. Sir Martin

    Gammans, Lady

    Langford-Holt, Sir John

    Rees-Davies, W. R.

    Gibson-Watt, David

    Legge-Bourke, Sir Harry

    Renton, Rt. Hn. Sir David

    Giles, Rear-Admiral Morgan

    Lewis, Kenneth (Rutland)

    Ridley, Hn. Nicholas

    Gilmour, Ian (Norfolk, Central)

    Litchfield, Capt. John

    Ridsdale, Julian

    Gilmour, Sir John (East Fife)

    Lloyd, Rt. Hn. Geoffrey (Sut'n C'dfield)

    Roberts, Sir Peter (Heeley)

    Glover, Sir Douglas

    Lloyd, Ian (P'tsm'th, Langstone)

    Rodgers, Sir John (Sevenoaks)

    Glyn, Sir Richard

    Lloyd, Rt. Hn. Selwyn (Wirral)

    St. John-Stevas, Norman

    Godber, Rt. Hn. J. B.

    Longden, Gilbert

    Scott-Hopkins, James

    Goodhart, Philip

    Loveys, Walter H.

    Sharples, Richard

    Goodhew, Victor

    Lubbock, Eric

    Shepherd, William

    Gower, Raymond

    Lucas, Sir Jocelyn

    Sinclair, Sir George

    Grant, Anthony

    McAdden, Sir Stephen

    Smith, Dudley (Br'ntf'd & Chiswick)

    Grant-Ferris, R.

    MacArthur, Ian

    Smyth, Rt. Hn. Brig. Sir John

    Griffiths, Peter (Smethwick)

    Mackenzie, Alasdair (Ross & Crom'ty)

    Soames, Rt. Hn. Christopher

    Grimond, Rt. Hn. J.

    McLaren, Martin

    Spearman, Sir Alexander

    Gurden, Harold

    Macleod, Rt. Hn. Iain

    Stainton, Keith

    Hall, John (Wycombe)

    McNair-Wilson, Patrick

    Stanley, Hn. Richard

    Hall-Davis, A. G. F.

    Maitland, Sir John

    Steel, David (Roxburgh)

    Hamilton, M. (Salisbury)

    Marples, Rt. Hn. Ernest

    Stodart, Anthony

    Harris, Frederic (Croydon, N. W.)

    Marten, Neil

    Stoddart-Scott, Col. Sir Malcolm

    Harris, Reader (Heston)

    Mathew, Robert

    Studholme, Sir Henry

    Harvey, Sir Arthur Vere (Macclesf'd)

    Maude, Angus

    Talbot, John E.

    Harvey, John (Walthamstow, E.)

    Maudling, Rt. Hn. Reginald

    Taylor, Edward M. (G'gow, Cathcart)

    Harvie Anderson, Miss

    Mawby, Ray

    Teeling, Sir William

    Hastings, Stephen

    Maxwell-Hyslop, R. J.

    Temple, John M.

    Hawkins, Paul

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

    Thatcher, Mrs. Margaret

    Hay, John

    Meyer, Sir Anthony

    Thomas, Sir Leslie (Canterbury)

    Heald, Rt. Hn. Sir Lionel

    Mills, Peter (Torrington)

    Thomas, Rt. Hn. Peter (Conway)

    Heath, Rt. Hn. Edward

    Mitchell David

    Thompson, Sir Richard (Croydon, S.)

    Hendry, Forbes

    Monro, Hector

    Tiley, Arthur (Bradford, W.)

    Higgins, Terence L.

    More, Jasper

    Tilney, John (Wavertree)

    Hiley, Joseph

    Morrison, Charles (Devizes)

    Turton, Rt. Hn. R. H.

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

    Mott-Radclyffe, Sir Charles

    Tweedsmuir, Lady

    Hirst, Geoffrey

    Munro-Lucas-Tooth, Sir Hugh

    Van Straubenzee, W. R.

    Hobson, Rt. Hn. Sir John

    Murton, Oscar

    Vaughan-Morgan, Rt. Hn. Sir John

    Hogg, Rt. Hn. Quintin

    Neave, Airey

    Vickers, Dame Joan

    Hopkins, Alan

    Nicholson, Sir Godfrey

    Walder, David (High Peak)

    Hordern, Peter

    Noble, Rt. Hn. Michael

    Walker, Peter (Worcester)

    Hornby, Richard

    Nugent, Rt. Hn. Sir Richard

    Walker-Smith, Rt. Hn, Sir Derek

    Hornsby-Smith, Rt. Hn. Dame P.

    Onslow, Cranley

    Wall, Patrick

    Howard, Hn. G. R. (St. Ives)

    Orr-Ewing, Sir Ian

    Ward, Dame Irene

    Hunt, John (Bromley)

    Osborn, John (Hallam)

    Weatherill, Bernard

    Hutchison, Michael Clark

    Osborne, Sir Cyril (Louth)

    Wells, John (Maidstone)

    Iremonger, T. L.

    Page, John (Harrow, W.)

    Whitelaw, William

    Irvine, Bryant Godman (Rye)

    Page, R. Graham (Crosby)

    Williams, Sir Rolf Dudley (Exeter)

    Jenkin, Patrick (Woodford)

    Pearson, Sir Frank (Clitheroe)

    Wills, Sir Gerald (Bridgwater)

    Johnston, Russell (Inverness)

    Peel, John

    Wise, A. R.

    Jones, Arthur (Northants, S.)

    Percival, Ian

    Wolrige-Gordon, Patrick

    Jopling, Michael

    Peyton, John

    Woodhouse, Hn. Christopher

    Joseph, Rt. Hn. Sir Keith

    Pickthorn, Rt. Hn. Sir Kenneth

    Woodnutt, Mark

    Kaberry, Sir Donald

    Pike, Miss Mervyn

    Wylie, N. R.

    Kerr, Sir Hamilton (Cambridge)

    Pitt, Dame Edith

    Younger, Hn. George

    Kershaw, Anthony

    Powell, Rt. Hn. J. Enoch

    Kimball, Marcus

    Price, David (Eastleigh)

    TELLERS FOR THE AYES:

    King, Evelyn (Dorset, S.)

    Quennell, Miss J. M.

    Mr. Geoffrey Johnson Smith and

    Kitson, Timothy

    Ramsden, Rt. Hn. James

    Mr. Francis Pym.

    Lagden, Godfrey

    Rawlinson, Rt. Hn. Sir Peter

    NOES

    Abse, Leo

    Braddock, Mrs. E. M.

    Darling, George

    Albu, Austen

    Bradley, Tom

    Davies, G. Elfed (Rhondda, E.)

    Allaun, Frank (Salford, E.)

    Bray, Dr. Jeremy

    Davies, Ifor (Gower)

    Alldritt, Walter

    Brown, Hugh D. (Glasgow, Provan)

    Davies, S. O. (Merthyr)

    Allen, Scholefield (Crewe)

    Brown, R. W. (Shoreditch & Fbury)

    de Freitas, Sir Geoffrey

    Atkinson, Norman

    Buchan, Norman (Renfrewshire, W.)

    Delargy, Hugh

    Bacon, Miss Alice

    Buchanan, Richard

    Dell, Edmund

    Bagier, Gordon A. T.

    Butler, Herbert (Hackney, C.)

    Dempsey, James

    Barnett, Joel

    Butler, Mrs. Joyce (Wood Green)

    Diamond, Rt. Hn. John

    Baxter, William

    Callaghan, Rt. Hn. James

    Dodds, Norman

    Beaney, Alan

    Carmichael, Neil

    Doig, Peter

    Bellenger, Rt. Hn. F. J.

    Castle, Rt. Hn. Barbara

    Donnelly, Desmond

    Bence, Cyril

    Chapman, Donald

    Driberg, Tom

    Benn, Rt. Hn. Anthony Wedgwood

    Coleman, Donald

    Duffy, Dr. A. E. P.

    Bennett, J. (Glasgow, Bridgeton)

    Conlan, Bernard

    Dunn, James A.

    Binns, John

    Corbet, Mrs. Freda

    Dunnett, Jack

    Bishop, E. S.

    Cousins, Rt. Hn. Frank

    Edwards, Rt. Hn. Ness (Caerphilly)

    Blackburn, F.

    Craddock, George (Bradford, S.)

    Edwards, Robert (Bilston)

    Blenkinsop, Arthur

    Crawshaw, Richard

    English, Michael

    Boston, Terence

    Crosland, Rt. Hn. Anthony

    Ennals, David

    Bottomley, Rt. Hn. Arthur

    Crossman, Rt. Hn. R. H. S.

    Ensor, David

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

    Cullen, Mrs. Alice

    Evans, Albert (Islington, S. W.)

    Boyden, James

    Dalyell, Tam

    Evans, Ioan (Birmingham, Yardley)

    104

    105

    Fernyhough, E.

    Lewis, Arthur (West Ham, N.)

    Roberts, Goronwy (Caernarvon)

    Fitch, Alan (Wigan)

    Lipton, Marcus

    Robertson, John (Paisley)

    Fletcher, Sir Eric (Islington, E.)

    Loughlin, Charles

    Rodgers, William (Stockton)

    Fletcher, Ted (Darlington)

    Mabon, Dr. J. Dickson

    Rogers, George (Kensington, N.)

    Fletcher, Raymond (Ilkeston)

    McBride, Neil

    Rose, Paul, B.

    Floud, Bernard

    McCann, J.

    Ross, Rt. Hn. William

    Foley, Maurice

    MacColl, James

    Rowland, Christopher

    Foot, Sir Dingle (Ipswich)

    MacDermot, Niall

    Sheldon, Robert

    Foot, Michael (Ebbw Vale)

    McGuire, Michael

    Shinwell, Rt. Hn. E.

    Ford, Ben

    McInnes, James

    Shore, Peter (Stepney)

    Fraser, Rt. Hn. Tom (Hamilton)

    McKay, Mrs. Margaret

    Short, Rt. Hn. E. (N'c'tle-on-Tyne, C.)

    Galpern, Sir Myer

    Mackenzie, Gregor (Rutherglen)

    Short, Mrs. Renée (W'hampton, N. E.)

    Garrett, W. E.

    Mackie, John (Enfield, E.)

    Silkin, John (Deptford)

    Ginsburg, David

    MacMillan, Malcolm

    Silkin, S. C. (Camberwell, Dulwich)

    Gourlay, Harry

    Mahon, Peter (Preston, S.)

    Silverman, Julius (Aston)

    Greenwood, Rt. Hn. Anthony

    Mahon, Simon (Bootle)

    Silverman, Sydney (Nelson)

    Gregory, Arnold

    Mallalieu, E. L. (Brigg)

    Skeffington, Arthur

    Grey, Charles

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

    Slater, Mrs. Harriet (Stoke, N.)

    Griffiths, David (Rother Valley)

    Manuel, Archie

    Slater, Joseph (Sedgefield)

    Griffiths, Rt. Hn. James (Llanelly)

    Mapp, Charles

    Small, William

    Griffiths, Will (M'chester, Exchange)

    Marsh, Richard

    Solomons, Henry

    Gunter, Rt. Hn. R. J.

    Mason, Roy

    Soskice, Rt. Hn. Sir Frank

    Hale, Leslie

    Maxwell, Robert

    Spriggs, Leslie

    Hamilton, James (Bothwell)

    Mellish, Robert

    Steele, Thomas (Dunbartonshire, W.)

    Hamilton, William (West Fife)

    Mendelson, J. J.

    Stewart, Rt. Hn. Michael

    Hamling, William (Woolwich, W.)

    Mikardo, Ian

    Stonehouse, John

    Hannan, William

    Millan, Bruce

    Stones, William

    Harper, Joseph

    Miller, Dr. M. S.

    Strauss, Rt. Hn. G. R. (Vauxhall)

    Harrison, Walter (Wakefield)

    Milne, Edward (Blyth)

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

    Hart, Mrs. Judith

    Molloy, William

    Swain, Thomas

    Hattersley, Roy

    Monslow, Walter

    Swingler, Stephen

    Hayman, F. H.

    Morris, Alfred (Wythenshawe)

    Symonds, J. B.

    Hazell, Bert

    Morris, John (Aberavon)

    Taverne, Dick

    Heffer, Eric S.

    Murray, Albert

    Taylor, Bernard (Mansfield)

    Henderson, Rt. Hn. Arthur

    Neal, Harold

    Thomas, George (Cardiff, W.)

    Herbison, Rt. Hon. Margaret

    Newens, Stan

    Thomas, Iorwerth (Rhondda, W.)

    Hobden, Dennis (Brighton, K'town)

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

    Thornton, Ernest

    Holman, Percy

    Norwood, Christopher

    Tinn, James

    Howarth, Harry (Wellingborough)

    Oakes, Gordon

    Tomney, Frank

    Howarth, Robert L. (Bolton, E.)

    Ogden, Eric

    Tuck, Raphael

    Howell, Denis (Small Heath)

    O'Malley, Brian

    Urwin, T. W.

    Oram, Albert E. (E. Ham, S.)

    Varley, Eric G.

    Hoy, James

    Orbach, Maurice

    Wainwright, Edwin

    Hughes, Cledwyn (Anglesey)

    Orme, Stanley

    Walden, Brian (All Saints)

    Hughes, Emrys (S. Ayrshire)

    Oswald, Thomas

    Walker, Harold (Doncaster)

    Hughes, Hector (Aberdeen, N.)

    Owen, Will

    Wallace, George

    Hunter, Adam (Dunfermline)

    Padley, Walter

    Watkins, Tudor

    Hunter, A. E. (Feltham)

    Page, Derek (King's Lynn)

    Weitzman, David

    Hynd, H. (Accrington)

    Paget, R. T.

    White, Mrs. Eirene

    Hynd, John (Attercliffe)

    Whitlock, William

    Irving, Sydney (Dartford)

    Palmer, Arthur

    Wigg, Rt. Hn. George

    Jackson, Colin

    Pannell, Rt. Hn. Charles

    Wilkins, W. A.

    Janner, Sir Barnett

    Pargiter, G. A.

    Willey, Rt. Hn. Frederick

    Jeger, George (Goole)

    Park, Trevor (Derbyshire, S.E.)

    Williams, Alan (Swansea, W.)

    Jenkins, Hugh (Putney)

    Parker, John

    Williams, Clifford (Abertillery)

    Jenkins, Rt. Hn. Roy (Stechford)

    Parkin, B. T.

    Williams, Mrs. Shirley (Hitchin)

    Johnson, Carol (Lewisham, S.)

    Pavitt, Laurence

    Williams, W. T. (Warrington)

    Johnson, James (K'ston-on-Hull, W.)

    Pearson, Arthur (Pontypridd)

    Willis, George (Edinburgh, E.)

    Jones, Dan (Burnley)

    Pentland, Norman

    Wilson, Rt. Hn. Harold (Huyton)

    Jones, J. Idwal (Wrexham)

    Perry, Ernest G.

    Wilson, William (Coventry, S.)

    Jones, T. W. (Merioneth)

    Price, J. T. (Westhoughton)

    Winterbottom, R. E.

    Kelley, Richard

    Probert, Arthur

    Woodburn, Rt. Hn. A.

    Kenyon, Clifford

    Pursey, Cmdr. Harry

    Woof, Robert

    Kerr, Mrs. Anne (R'ter & Chatham)

    Rankin, John

    Wyatt, Woodrow

    Kerr, Dr. David (W'worth, Central)

    Redhead, Edward

    Zilliacus, K.

    Leadbitter, Ted

    Rees, Merlyn

    Ledger, Ron

    Reynolds, G. W.

    TELLERS FOR THE NOES:

    Lever, Harold (Cheetham)

    Rhodes, Geoffrey

    Mr. George Lawson and

    Lever, L. M. (Ardwick)

    Roberts, Albert (Normanton)

    Mr. William Howie.

    Clause 58.—(SET-OFF OF LOSSES ETC. AGAINST FRANKED INVESTMENT INCOME.)
    Sir Henry d'Avigdor-Goldsmid: I beg to move Amendment No. 317, Clause 58, in page 123, line 17, at the end to insert:
    Provided always that where a claim under this section relating to section 48 or 53 is made by an investment company as defined in
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    section 53, paragraph (b) of this subsection shall not apply, and the company may require the reduction to be made in the amount treated as profit chargeable to corporation tax under this section rather than in profits chargeable to corporation tax.
    I am not quite sure whether this is a narrow or a broad point. It is, in fact, a very basic point which affects only a rather limited number of cases. But, limited or not, the case is one that is

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    generally accepted. The point, in simple terms, is that when relief is granted from taxation that relief is granted in respect of the top slice of the taxpayer's income.
    The easiest example is the Surtax payer whose relief is taken against his highest liability for Surtax. In the same way with a public company, the relief is allowed against income charged for tax at the full rate and only secondly against income charged at less than standard rate. This is a well-established principle but the Clause in its latest form contradicts the principle in respect of the rather limited but not negligible class of investment company in this country which holds investments in subsidiary companies operating abroad.
    Under the Clause as drafted an investment company in these conditions which has a surplus of franked income may also have a claim for repayment of tax in respect of charges on income as allowed under Clause 48 or for management expenses under Clause 43. It draws the major part of its income from an overseas subsidiary, but Clause 58 as drafted provides that the relief to which it is entitled goes against the franked income which it receives from abroad rather than the income which it receives in this country. This is the point.
    If one takes a holding company whose subsidiary is operating in the United States, where the withholding Corporation Tax is 28 per cent. and it receives a sum in franked income from the United States, it qualifies for tax relief in respect of management expenses and servicing prior charges, and at the same time it claims double taxation relief in respect of the 28 per cent. United States withholding tax.
    The object of the Amendment is to allow the company to put the expenses of management against the income which it draws from the United Kingdom, where, of course, it qualifies for Corporation Tax at whatever the United Kingdom rate may be, which would be certainly more than 28 per cent. We have been talking about a notional figure of 35 per cent. or 40 per cent. Corporation Tax, but this does not vitiate my argument that the claim for repayment should be placed first against the income which bears the higher
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    rate of tax, that is, the United Kingdom Corporation Tax and that only in so far as the United Kingdom income is not sufficient to meet the amount of the claim in respect of management or the servicing of prior charges should it be put against the income derived from the United States subsidiary where the tax deduction is only 28 per cent.
    I shall not bother the House with the arithmetical calculation but I can easily put it to the Minister without Portfolio if my remarks, though amply clear to me, have left him in some dubiety. With a zero knowledge of the law, but with a reasonable acquaintance with arithmetic, I put it to the hon. Gentleman that my argument is correct in respect of the tax suffered by the company. I draw his attention particularly to the point with which I started, namely, that the Clause seems to me to bring in a point which is new to our practice—that relief in respect of tax is not allowed against the highest rate but against the lowest rate of tax imposed.
    7.15 p.m.
    Sir Eric Fletcher: I have understood perfectly well what the hon. Member for Walsall, South (Sir H. d'Avigdor Goldsmid) has in mind, although it is a complicated matter. I say with respect to the hon. Member that he put his case very clearly and that I understood the point at which it is directed. At the same time, I must tell him that the point which he explained to the House would not be met by the Amendment. I need not go into the reasons for that, but I will deal with the substance of the view which he has expressed and explain why the Government are unable to accept the Amendment, apart from the reason that it does not give effect to what the hon. Member has in mind.
    The hon. Member began by saying that the rule, as we have it in Clause 58, violates what he described as an accepted principle that if a taxpayer is entitled to relief he is entitled to set that off against the top slice of his income. Incidentally, that does not apply universally even to personal Income Tax, so I cannot accept that there is violation of such a rule here. We are dealing with a separate matter, namely, whether the expenses of management of a company should be set against income, subject to Corporation Tax, from unfranked income derived from, for

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    example, overseas investments or should be set against franked income. It seems to us logical that since we are dealing with Corporation Tax payable by corporations the expenses of management should be set in the first place against revenue subject to Corporation Tax.
    In the majority of cases it would be immaterial how the relief was obtained, but the hon. Member said that there may well be a small number of cases in which an investment company has such a glut or surplus of franked income that the amount of franked income would exceed the distribution which it wanted to make. Therefore, it is perfectly true that in those limited number of cases the company would be at some disadvantage if this rule obtains. But apart from the fact that this rule is the logical application of the Corporation Tax principle, there is the further difficulty about accepting the Amendment that it would give the investment company in question an uncovenanted option.
    As I read the Amendment, in the case supposed by the hon. Member, the company would be able, at its option, to choose either the one method of getting relief or the other. The company, being able to take advantage of that option, would be enabled to reduce its distribution below its franked investment income in the years where it suited it, whereas in other years it could pay dividend which exhausted its franked investment income and set its relief against overseas income. There does not seem to be any particular merit in providing that they should have a choice of that kind, and to introduce such a provision would, I suggest, do violence to the general scheme of the Corporation Tax.
    I must, therefore, advise the House that the Government cannot accept the Amendment.
    Mr. William Clark: The Minister without Portfolio said that it is not a principle of our Income Tax law that one sets allowances against the top slice of income. I put it to him that any allowance given under our tax structure automatically goes against the higher slice of income. For example, if one's personal allowance goes up by £120 if one gets married, it is against the top rate of tax that the allowance is set. Therefore, the point made by my hon. Friend the
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    Member for Walsall, South (Sir H. d'Avigdor-Goldsmid) is valid. I think that there is no need to canvass his general argument on the Amendment.
    I cannot understand the Minister's point that companies will want to swap about, that they will say, "It pays us to take franked income sometimes and at other times unfranked income, so we shall swap about".
    Sir Eric Fletcher: I was saying that that would be the effect of what would happen if the Amendment were accepted.
    Mr. Clark: I shall come to the wording of the Amendment in a moment. To take the Corporation Tax rate at 40 per cent., for the sake of argument, if one receives dividends from abroad and the tax abroad is 50 per cent., all one can get over here is the allowance of 40 per cent., so one is still back with the 40 per cent. I cannot see any point in the Minister's suggestion that companies would swop from one year to another acording to whether it paid them or not.
    This is a highly technical point. With the greatest respect, I think it possible that the Treasury Bench may have further thought about it. There is every justification for looking at the matter again. I appreciate that, at this stage, they cannot introduce an Amendment to this Finance Bill, but, without in any way trying to extract a categorical undertaking, I should like the Minister to say that he will look at the point between now and next year, if the Labour Government are to introduce a Budget next year.
    If there is hardship and the point my hon. Friend has raised is seen to be one of substance, they can remedy it in the next Finance Bill, and, if the hardship is sufficient, make the remedy retrospective. I am not asking for an undertaking, but I should like that to be said.
    Mr Harold Lever: I rise to assist, not to prejudice, the purpose of the Amendment. Following the terms used by the hon. Member for Nottingham, South (Mr. William Clark), I do not expect the Minister to give an undertaking about it, but, as I understand the matter—I confess that I have not studied it closely—the point brought out by the hon. Member for Walsall, South (Sir H. d'Avigdor-Goldsmid) is this. If a company has income

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    which is not franked from gilt-edged investments and income which is franked from abroad but franked to produce a repayment of less than 40 per cent., its management expenses, as the Bill is now drafted, will produce relief against the lower rate and not the higher rate.
    I wish to go on record as saying that this is unjust and ought to be remedied. I suppose that the Minister, with the vast resources of Treasury briefing behind him, may be able to show anomalies to parallel this, but that will not impress me favourably. It is contrary to the spirit of our tax law in general that this should be the result. The justice of such a case is this. If a company receives income from gilt-edged securities and has a management expenses loss, it should set off the management expenses loss against the tax liability which would arise from the gilt-edged.
    If that be the position—I think I see the hon. Member for Walsall, South, nodding agreement—I hope that the Government will look at the matter again and give the company the relief intended by the Statute, namely, relief at the current rate of Corporation Tax against the management expenses loss.
    Amendment negatived.

    Clause 60.—(DOUBLE TAXATION RELIEF, AND OVERSEAS TRADE CORPORATIONS.)
    Mr. R. H. Turton: I beg to move Amendment No. 327, Clause 60, in page 126, line 36, to leave out from "profits" to the end of line 41.
    I moved a similar Amendment in Committee, and the Financial Secretary gave an assurance that he would look at the matter again because of certain peculiarities in this paragraph. There are two points here, one of form and one of content.
    As we were told by the hon. and learned Gentleman in Committee, the ending of unilateral relief purposed by the paragraph will not have statutory effect in itself. It will require another Act of Parliament before it can take effect. No doubt, there are precedents for such a course, but I put it to the House that that is an undesirable way of proceeding in a Finance Bill. We should not bind a succeeding Parliament or bind this Parlia-
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    ment in a succeeding Session. So much for the form.
    On the content, the argument is much stronger. This unilateral relief for Commonwealth countries was instituted in 1950 to help the young developing countries which could not afford to give double taxation relief. Two countries specially concerned with this form of unilateral relief are India and Pakistan. Both of them are at present suffering a good deal from the great division between the rich and the poor countries. It is, therefore, unwise and unhelpful to put in an exhortatory or cautionary paragraph which has no statutory effect and which will not help India and Pakistan. Moreover, it comes at a time when even America, which is being very stern in cutting down its overseas investment, has given preferential treatment for the developing countries.
    Is this paragraph really necessary? The Government give a warning that they intend at some future date to end unilateral Commonwealth relief. I hope that, when that purpose is brought forward in proper operative form, it will be opposed by hon. Members who want to see more preferential help given to the young developing countries. This is a matter of policy not of one party or another but of both sides of the House. We ought to seek ways of giving preferential treatment to the developing countries.
    There is another argument of some importance here. The paragraph deals with Section 36 of the 1950 Act, which was later embodied in the Income Tax Act, 1952. That Section 36 was put in by Sir Stafford Cripps, then Chancellor of the Exchequer, because of his great interest in the developing countries. It would be a very sad reflection on the present Government if, by their second Finance Bill, they sought to repeal in this ineffective way those provisions which Sir Stafford Cripps made in 1950.
    For these reasons, I hope that the Government will, on reflection, agree to delete the paragraph.
    7.30 p.m.
    The Financial Secretary to the Treasury (Mr. Niall MacDermot): In moving the Amendment, the right hon. Member for Thirsk and Malton (Mr. Turton) said that it raises two questions, one of form

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    and one of content. Both were discussed at some length in Committee. As to the question of content, I have very little to add to what I said in Committee. I gave the reason then why the Government found ii necessary to give notice—and to give notice in the most formal way possible—of the intention at some future date to be determined later to withdraw the unilateral relief now given for underlying tax on investment in the Commonwealth.
    The reason is that it has always been the principle that reliefs which we grant unilaterally within the Commonwealth are reliefs which we are prepared to negotiate on a reciprocal basis with other countries. For reasons which we have exhaustively considered and discussed, we have made it clear that we are not prepared to take that standpoint in future negotiations with other countries. Accordingly, it would not be right for us to continue the unilateral relief in favour of the Commonwealth.
    Hon. Members will remember that in Committee I was slightly taken by surprise on the question of form. I struggled as best I could and I think that in the end, if I may so without immodesty, I produced what were the right answers, which are that it is highly desirable to give notice in the most formal way possible since it is the intention that businessmen shall make their decisions in the knowledge of what the Government's intention is, and there is no more solemn way in which that intention can be declared than by writing it into an Act of Parliament.
    Of course, hon. Gentlemen opposite are right in saying that we cannot bind a future Parliament and that it must be left to a future Parliament to decide. It is not unusual in a matter of this kind where a decision has been taken and only the date has to be determined later for that date to be decided later by subordinate legislation with an affirmative or negative Resolution of the House, again leaving the decision to the House on a future occasion.
    But the supplementary answer that I can give now, which I could not give at the time, is that the reason why that was not chosen on this occasion, and, indeed, is not chosen generally in Finance Bills, is that Finance Bills come up every year and unless it is thought that the date will be in the very near future, within
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    the coming year, there will be plenty of future opportunities for Parliament to consider it.
    There are precedents for it in Part IV of the Finance Act, 1944, which dealt with the question of allowances for expenditure on scientific research, which was introduced as from a future date to be determined by Parliament. Again, there was the Income Tax Act, 1945—the matter was very similar to the question with which we are dealing—which introduced the post-war system of initial and annual allowances, and, as it were, notice was given to the business community of this change of policy with the intention that it should act upon it even though it was left to some future Finance Bill to determine what should be the date of introduction.
    In case anyone should say that those precedents are rather hoary or due to wartime circumstances, I remind the House of the Town and Country Planning Act, 1953, Section 2 of which, in a slightly different field, abolished the payments for the depreciation of land values, but it provided that claims for payments under the Act might be satisfied.
    "in such manner, in such cases, to such extent, at such times and with such interest as may hereafter be determined by Act of Parliament passed for that purpose."
    I hope, therefore, that what we have done here has the respectability of precedent as well as the arguments of good sense which have already been put to the House.
    Sir Edward Boyle: I am glad that we have returned to this matter. I am sure that the House is grateful to the Financial Secretary for having explained, on reflection, the point of the form of the Amendment. When explaining the form of the Amendment, he gave examples from the Finance Bills of 1944 and 1945. I was interested that, when giving those examples, he quoted the case of the postwar system of initial allowances. When the late Mr. Hugh Gaitskell, as Chancellor of the Exchequer, gave notice of the suspension of the initial allowances in 1951, he used a very different procedure from this. On that occasion he took power in the Clause to suspend the initial allowance in a year's time.
    Frankly, I rather agree with my right hon. Friend the Member for Thirsk and

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    Malton (Mr. Turton) that since this procedure and this sort of drafting have not been used in a Finance Bill now for about 20 years, I rather regret it. And I do not think that businessmen ought to assume as a matter of course that we shall take the step envisaged in the Clause. I want to make absolutely plain that my hon. Friends and I will not regard ourselves as bound by this Clause if we become the Government by the time the next Finance Bill is passed. Equally, I am not giving any pledge as to what we shall do. I am merely pointing out that I feel that this is a matter to which the House may well have to return on a future occasion before taking a final decision.
    I am sure that my right hon. Friend has been right to pinpoint this subject both in Committee and on Report. From the point of view of the substance of the matter, he is surely justified in pointing out that Section 348 of the Income Tax Act, 1952, the consolidation Measure, was re-enacting a Clause dating from the time of Sir Stafford Cripps. As my right hon. Friend pointed out when we were discussing this matter previously, there was here a very strong case for this unilateral relief bearing in mind the particular cases of India and Pakistan, to whom we could not give double taxation relief because of the weakness of their economies.
    It would be quite a serious matter finally to decide to withdraw the unilateral relief which has been operating during this period. I recognise—the Financial Secretary told us this last time—that there is a considerable amount of money at stake here. I recognise, also, his point that we do not at present grant any concession unilaterally within the Commonwealth which we are not prepared to offer to other countries reciprocally in a double taxation agreement. Remembering the number of past Finance Bills in which, when we were the Government, we were chastised by the present Prime Minister for not being sufficiently enthusiastic about the sterling area as a discriminatory trading bloc, I find it a little ironic that the Financial Secretary should have to rely so much on that argument today.
    While, in view of the money involved, I do not think that I could advise my hon. Friends to carry this matter to a Division
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    now, none the less I should like to make it perfectly plain that we on this side could not give any pledge that this notice is to be operated, and this unilateral relief finally withdrawn, should we become the Government.
    Mr. Turton: In view of the assurance given by my right hon. Friend the Member for Birmingham, Handsworth (Sir E. Boyle), that he will not use this paragraph to harm India and Pakistan when we are in power, I beg to ask leave to withdraw the Amendment.
    Amendment, by leave, withdrawn.

    Clause 61.—(DIVIDEND STRIPPING, AND BOND WASHING.)
    Mr. Diamond: I beg to move Amendment No. 185, in Clause 61, page 129, line 19, at the end to insert:
    (9A) Where a person having a holding in a company is a dealer, but a profit on the sale of the holding would not form part of his trading profits, then as regards that holding he shall be treated for purposes of this section as if he were not a dealer.
    This Amendment on dividend stripping brings greater precision to Clause 61. It clarifies the position of individuals and companies who hold some shares as trading stock simply because it is their business to buy and sell shares and others as part of the structure of the business which they are conducting.
    Sir E. Boyle: As one who took part in the 1960 Finance Bill debates and can, I think, be forgiven for saying that he recognises an old friend, may I say that I think that this Amendment is justified.
    Amendment agreed to.

    Clause 62.—(LOCAL AUTHORITIES.)
    Mr. Diamond: I beg to move Amendment No. 188, Clause 62, in page 129, line 31, at the end to insert:
    "; and this subsection shall apply to a local authority association as it applies to a local authority.".
    Perhaps it would be convenient to consider, at the same time, Mr. Speaker, Amendment No. 189, Clause 62, in the name of my right hon. Friend, page 130, line 21, at end insert:
    (4) In this section "local authority association" means any incorporated or unincorporated association of which all the constituent members are local authorities, groups of local authorities or local authority associations and which has for its object or primary object the

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    protection and furtherance of the interests in general of local authorities or any description of local authorities; and for this purpose, if a member of an association is a representative of or appointed by any authority, group of authorities or association, that authority, group or association (and not he) is to be treated as a constituent member of the association.
    Mr. Speaker: If the House so pleases.
    Mr. Diamond: These two Amendments implement a promise, made during the Committee stage, that we would introduce Amendments on Report to extend to local authority associations the exemption from Capital Gains Tax, Corporation Tax and, as from 1966–67, Income Tax, which Clause 62 confers on the local authorities themselves.
    The first Amendment is the substantive Amendment. It gives local authority associations the same exemption from Corporation Tax, Capital Gains Tax and as from 1966–67, Income Tax as Clause 62 confers on local authorities. The following Amendment defines local authority associations for the purposes of the exemption. The definition includes incorporated associations as well as unincorporated ones and excludes associations which are not composed exclusively of local authorities.
    Sir E. Boyle: I recall that, when the excess profits levy was introduced in 1952, the position of local authorities under that levy was rather a muddle—and, as a back bencher at the time, I admit that. Whatever our criticisms of the operation of the Corporation Tax, it is clear that considerably more trouble has been taken over the position of the local authorities under the tax than has sometimes occurred in bringing in new taxes in the past. This is more important than perhaps we sometimes realise because the operations of local authorities are of a much bigger scale than ever before. Obviously, considerable attention has been paid to this part of the scheme.
    Amendment agreed to.
    Mr. Diamond: I beg to move Amendment No. 186, Clause 62, in page 129, line 38, to leave out from "council" to end of line 40 and to insert:
    "and any statutory authority, commissioners or trustees".
    Perhaps we could discuss, at the same time, the following Amendment, also in the name of my right hon. Friend, No.
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    287, Clause 62, in page 129, line 42, leave out "that Act", and insert:
    "the Local Government (Scotland) Act 1947, or to issue a requisition for payment of money to be raised out of such a rate".
    Mr. Speaker: If the House so pleases.
    Mr. Diamond: These are drafting Amendments to the definition in Clause 62(2,b) of a local authority in relation to Scotland. In Committee, my hon. Friend the Minister without Portfolio undertook that the Government would ensure that the wording of the definition was reconsidered. It now appears that there should be a further Amendment to ensure that bodies which are not joint bodies or joint Committees and which have no power to levy a rate in the ordinary sense but which requisition for payment of money to be raised out of a rate should be within the definition. Such bodies are not common but at least one is thought to be affected. The Amendments are needed to bring within the definition any such bodies that there may be.
    7.45 p.m.
    Mr. Edward M. Taylor: I appreciate that a change has been made to meet certain points put to the Government in Committee. Nevertheless, the Amendment does not go far enough to achieve our objectives. A similar Amendment was discussed early on 16th June. At that time we thought that the Clause as it stood, together with the Amendment then put forward by the Government, created rather a confusing situation in so far as it referred to Section 270 of the Local Government (Scotland) Act, 1947.
    Section 270 defines a rate in a way quite different from the definition of a rate contained in a later section of the 1947 Act. Section 270 includes authorities with electricity, gas or water undertakings whereas in the later definition there is no question but that this is a levy on property, land and hereditaments.
    The Minister without Portfolio said that the Government were seeking to ensure an appropriate definition of a local authority or public authority which would be exempt from Corporation Tax and bodies which were not public authorities would not have such exemption. This Amendment does not achieve that objective so far as a certain body associated

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    with the corporation of my own city is concerned.
    It is sensible to exclude any reference to Section 270 and to note that certain of the joint local authority ventures which have the right to a requisition are included in the new definition. But what worries me is that in the case of a local authority trading department engaged in providing a monopoly public service, there appears to be no exemption at all.
    It is not our wish that trading organisations under the guise of local authorities should be excluded from the tax. We have pointed out that there were certain fears as to whether the newly-formed Highland Development Board would have exemption under the Clause as it stood. We were anxious that it should not be excluded because it will have the right to engage in trade. It is not our intention to encourage local authorities to engage in trading and to get exemption from tax which would give them an advantage over private traders but there are certain cases of local authorities which, for their own purposes, regard as trading departments departments which, in other authorities, might well be regarded as rating departments.
    For example, Glasgow Corporation transport department is not a rating department but a trading department. That department, if it so desired, could change itself over to being a rating department and I think that it might well do so if no further Amendment were made or clarification given. In this situation, there would be real dangers for the people of Glasgow and it would appear to be in conflict with the Government's own policy, because it could only lead to subsidised municipal transport and a further burden on the ratepayers.
    Under the definition that we now have of a local authority, it is my impression that the Glasgow transport department would not be given exemption from the Corporation Tax. If we could have clarification of that point at once it would be an advantage. The department has no power to levy a rate nor power to requisition money from rates of any sort. It is entirely a trading department and any profits made by it are transferred to the common good fund of the city, which can only be used to provide services or
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    amenities for the benefit of all the ratepayers.
    It is not entirely a unique organisation. I understand the same applies in Edinburgh, where the transport undertaking is a trading department and not a rating department. In other cities, such undertakings are, however, rating departments. The same applies in other areas served entirely by a transport organisation of a not dissimilar nature.
    I am concerned to ensure that the Glasgow department has this exemption. It is a public service provided by the local authority. It is not the intention to make profits and it is not competing with private organisations. It is providing a monopoly public service and if exemption is not given, and the transport department does make profits, I fear that there will only be two courses to take.
    Either they will have to raise fares, which could have a disastrous effect, particularly bearing in mind the special assistance which the Minister of Transport has recently offered in the case of London, or as a second alternative the department could be turned into a rating department. So far as I am aware, it is not a difficult thing for the transport department in Glasgow to become a rating department, but if they did this it could mean a complete change in the transport department of the city, and this could lead to a reluctance on the part of members of the corporation to raise transport fares when this proved necessary. In other words, it could become a further burden on the ratepayers.
    I would ask the Government to bear in mind that at present in the City of Glasgow our rates per head of population are about the highest in Great Britain. Therefore, I would like clarification on this point.
    Mr. Diamond: I am following what the hon. Gentleman has to say with all the care I can, but I have lost his argument. Would he mind making clear the connection between the present rates in Glasgow, which he has gone to considerable trouble to explain, and the Amendment which we are discussing, because I cannot see it myself?
    Mr. Taylor: I am sorry if I am unable to get this point clearly across to the Government. It is a very vital point. In the City of Glasgow at present, the

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    average rate burden per head of population is over £27, which means that the average family in the city, directly or indirectly, is paying about £100 in local rates. It is clearly the case that if the City of Glasgow transport undertaking was to become the rating department and if, in the circumstances, an additional burden were placed on the rates by way of a subsidy from the Corporation's general funds, this could have the effect of raising what is already a very excessive charge.
    If the right hon. Gentleman would like further clarification on this point I could instance a recent survey when it was found that in the City of Glasgow, where there is this burden of about £27 per head of population, when compared with towns in England, where there is a concentration of heavy industry—
    Mr. Diamond: I hope that it will be in order for me, in replying to this discussion on the rates of various towns in Scotland, to continue with the rates of various towns in England and Wales and Northern Ireland, all of which are exempt in the Bill, but none of which have anything to do with this particular Amendment.
    Mr. Deputy-Speaker (Sir Samuel Storey): I think that the hon. Gentleman is getting very wide of the Amendment. He must concentrate on the Amendment.
    Mr. Taylor: It was my intention to do so, Mr. Deputy-Speaker, but since the right hon. Gentleman interrupted me on this point I felt that it was only fair to clarify what I had in mind.
    The essential point is that the rate burden is high in Glasgow and this could make it worse. When we are granting a general exemption to local authorities, we should also include bodies which are providing a municipal public service and I hope it can be made clear that the Clause, as it now stands, or the Clause as amended, will grant exemption from Corporation Tax for a transport department similar to that which we have in the City of Glasgow.
    The other point, which is I think a vital one, deals with joint cemetery undertakings which are trading departments and in no sense of the word rating departments. There are several local authorities in Scotland which have come
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    together to promote a joint cemetery undertaking. They have no power to levy rates or requisition money. They are entirely a trading organisation. This point was put forward by my hon. Friend the Member for Aberdeenshire, West (Mr. Forbes Hendry) in Committee and no doubt the Government will have gone to some trouble to find out the application of this Clause in connection with such an organisation.
    I hope that we can obtain clarification on these points, and I hope that we can have the assurance that in particular, the City of Glasgow transport undertaking, will be covered by this general exemption from Corporation Tax.
    Mr. J. Bruce-Gardyne: I wish to obtain final clarification from the Chief Secretary on one point which arose in the Committee stage of the discussion in relation to this particular subsection. I am very glad to see that on this occasion, at least, we have the pleasure of the representative of the Scottish Department.
    The Under-Secretary of State for Scotland (Dr. J. Dickson Mahon): The hon. Gentleman had that pleasure before.
    Mr. Bruce-Gardyne: As far as I recollect, it was rather belated.
    The point is that when we were discussing this particular subsection in Committee the Minister without Portfolio considerably alarmed a number of us by suggesting that the application of this Clause, the exemption from Corporation Tax and Capital Gains Tax, might be extended and might be applicable to bodies such as the Highland Development Board, which engage in commercial operations in areas like the Highlands. Many of us on this side of the House felt that this was a highly undesirable extension of these exemptions and that it would give bodies such as the Highland Development Board an extremely undesirable competitive advantage over normal, established commercial undertakings in the Highlands or other areas of Scotland.
    All I want from the Chief Secretary, and I am sure he can give it to us, is a clear assurance that the subsection, as redrafted, does not cover such bodies as the Highland Development Board.
    Mr. Diamond: If I can answer the last question first, this matter was referred to in the discussion on the Highlands and Islands Development (Scotland) Bill which took place on the 17th June and reported in HANSARD at column 977. It was made clear that the Board would be treated for tax purposes, like any other corporate body. A statement was made by my hon. Friend the Minister of State, Scottish Office, the very same day that it was raised in Committee.
    If I can now reply to the earlier questions—
    Mr. Bruce-Gardyne: What was said by his hon. Friend the Minister of State was that this was a discussion more appropriate to the Finance Bill. This did not produce an answer on that occasion.
    Mr. Diamond: Would the hon. Gentleman be good enough to look at column 977? He has the advantage over me in having the column, but I am advised that in column 977 he will read that the Board would be treated for tax purposes like any other corporate body, or words to that effect.
    In reply to the question asked by the hon. Gentleman the Member for Glasgow, Cathcart (Mr. Edward M. Taylor), about the undertaker's undertaking, the answer is that that is a joint committee and is, therefore, included in the definition.
    Mr. Edward M. Taylor: I hope that I can obtain clarification on the transport undertaking.
    Mr. Deputy-Speaker: The hon. Gentleman has exhausted his right to speak. He must ask the leave of the House to speak again.
    Mr. Taylor: May I have the right to speak again on a point upon which I concentrated for five minutes, namely, the situation of the Glasgow transport department? It is a very vital question and it could involve a great deal of money.
    Mr. Diamond: If the hon. Gentleman is seeking to ask me a question about a particular organisation, and not seeking to amend a law, he can write to me and put his question before me, and I will be only to glad to give him a detailed, authoritative answer. I have already told him that so far as the undertaking of the kind he described is concerned, it is a joint board and would be included in the definition.
    Amendment agreed to.
    Further Amendments made: In page 129, line 42, leave out "that Act", and insert:
    "the Local Government (Scotland) Act 1947, or to issue a requisition for payment of money to be raised out of such a rate".
    In page 130, line 21, at end insert:
    (4) In this section "local authority association" means any incorporated or unincorporated association of which all the constituent members are local authorities, groups of local authorities or local authority associations and which has for its object or primary object the protection and furtherance of the interests in general of local authorities or any description of local authorities; and for this purpose, if a member of an association is a representative of or appointed by any authority, group of authorities or association, that authority, group or association (and not he) is to be treated as a constituent member of the association.—[Mr. Diamond.]

    Clause 63.—(UNIT TRUSTS AND INVESTMENT TRUSTS.)
    8.0 p.m.
    Mr. Diamond: I beg to move, Amendment No. 191, Clause 63, in page 130, line 44, to leave out from the beginning to "had" in line 3 on page 131 and insert:
    (1A) Where in an accounting period of a unit trust the aggregate of the capital sums paid in respect of the cancellation of units exceeds the aggregate of the capital sums received in respect of the creation of units, then the amount (as computed apart from this provision) of any chargeable gain allowable loss accruing to the unit trust in that period shall be taken as reduced by the appropriate fraction of it, that is to say, by the same fraction as the said excess is of the total net consideration received by the unit trust on the disposal of chargeable assets during the period after deduction of the incidental costs of making the disposal (or, if the said excess is greater than the said total net consideration, shall be taken to be nil).
    (2) For purposes of section 34 of this Act the total net gains of a unit trust for an accounting period are the excess, if any, of the chargeable gains accruing to the unit trust in the period over the allowable losses deductible from those gains (as those gains and losses are computed for the charge to tax on the unit trust), after deduction from that excess of the tax which will be charged on the unit trust for the period in respect of chargeable gains, and the proportion attributable to any unit holder of the total net gains for any accounting period shall be determined by the unit trust, regard being among other things.
    This Amendment implements an undertaking which I gave in Committee during the debates on Clause 34. May I quote from the words which I used. I said:

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    "… the trust will be assessed only on the capital gains made in respect of a continuing number of unit holders, and that the unit holders who have sold out will be assessed individually on any capital gains they have made … This is a reasonable half-way house. It will mean that the administrative problems of the trusts will be virtually extinguished."—[OFFICIAL REPORT, 31st May, 1965; Vol. 713, c. 1289.]
    Under the arrangement incorporated in the Amendment a unit trust will be exempted from tax on that part of its gains accruing in any accounting period which reflects a net contraction in the number of units in issue. For this purpose, the gains to be exempted are measured by means of the appropriate proportion.
    I hesitate to do so, but may I give an example? If a unit trust realised £500,000 worth of investments in an accounting period on which £50,000 worth of gains accrued, and if during that period the managers of the trust received £600,000 from the sales of units but applied £800,000 to the repurchase of units, the amount of gain on which the trust would be exempted from tax would be worked out in this way.
    First of all, there would be deducted from the £800,000 which was applied in the repurchase of units the £600,000 received from the sale. There is left £200,000 which is the net contraction. That is applied over the fraction of the £500,000 worth of investments which were realised in that accounting period. We have therefore a figure of two-fifths—£200,000 over £500,000. The figure to be apportioned is the gain of £50,000. Two-fifths of £50,000 is £20,000, and that is the figure in question. This result is secured by the Amendment.
    The Amendment has been agreed in draft with the representatives of the Association of Unit Trust Managers. I want to make it clear that the unit trust movement has always said that its real object is to secure exemption of chargeable gains for unit trusts, and it has always reserved, quite properly, its right to press for that. Nevertheless, the formula which is incorporated in the Amendment was put forward by the Association. Certainly, it is not the ideal formula from its point of view. I think that it was the third best, to be absolutely fair and accurate, but it is one which it drew up and which, as I indicated in my previous speech, represents a reasonable halfway house.
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    That is the most that the Government can do to meet the case made by the Association.
    Amendment agreed to.
    Mr. Diamond: I beg to move Amendment No. 192, Clause 63, in page 131, line 6, to leave out from "trust" to "and" in line 9.
    I hope that it will be convenient to discuss, at the same time, Amendments Nos. 288, 193, 194 and 195.
    Mr. Deputy-Speaker: Very well.
    Mr. Diamond: These Amendments provide what I might call even greater simplicity of the provisions in Clause 63 for apportioning the trusts' net gains among their unit holders and shareholders. Amendment No. 192 omits a complication in the apportionment and provides greater flexibility. Amendment No. 288 makes it absolutely clear who is the person entitled to receive a notice of apportionment. The notice is to be sent to the person whose name is on the register at the date when the books are closed. Amendment No. 193 deals with the provisions in Clause 63 to the effect that total net gains may be apportioned notwithstanding that any amounts are not finally ascertaining on the footing that any adjustment will be made in the apportionment for the following accounting period.
    The Clause envisages the situation in which there is an over-apportionment in one accounting period but no gains in the next accounting period from which the gains over-apportioned can be deducted. The Amendment meets this point by inserting a reference to a later accounting period or periods. Amendment No. 194 deletes the references to provisional apportionment in subsection (6) because these have been inserted in subsection (4) by Amendment No. 193. Amendment No. 195 makes it clear that the apportionment is to be done by the managers with the approval of the trustee.
    Amendment agreed to.
    Further Amendments made: No. 288, Clause 63, in page 131, line 20, leave out from first "the" to "specified" in line 22 and insert:
    "unit holders between whom the total net gains are to be apportioned shall (except on an

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    apportionment made in accordance with subsection (4) below) be determined by reference to the same date as the right to payment of the first dividend after the end of the accounting period, and that date shall be deemed to be the date when the apportionment is made and shall be"
    No. 193, Clause 63, in page 131, line 27, at end insert:
    ", and an apportionment (or final apportionment) for an accounting period may be made at or after the end of the period, notwithstanding that any amounts are not finally ascertained; but if at any time it is found that too much or too little has been apportioned it shall be corrected as soon as may be by deduction from or addition to the total net gains of a later accounting period or periods".
    No. 194, Clause 63, in page 131, line 38, leave out from "approval" to end of line 41.
    No. 195, Clause 63, in page 131, line 44, at end insert:
    (6A) Anything required by subsections (2) to (6) above to be done by a unit trust shall be done by the managers of the unit trust with the approval of the trustee.—[Mr. Diamond.]

    Clause 64.—(INSURANCE COMPANIES.)
    Mr. Diamond: I beg to move Amendment No. 285, Clause 64, in page 132, line 26, to leave out "but where this provision operates" and insert:
    "and where in any accounting period this subsection applies to prevent or restrict the deduction of expenses of management in computing profits chargable to corporation tax, then—

    (a) if the amount on which the company would be so charged under Case I of Schedule D exceeds those profits (before any such deduction) an amount equal to that excess shall be deducted from the amount of franked investment income that may be treated as profits of the period chargeable to corporation tax for purposes of a claim under section 58 of this Act; and

    (b) subject to any claim under section 58 for that accounting period,".

    I hope that it will be convenient to discuss, at the same time, Amendment No. 286, in Clause 64, in page 132, line 29, leave out lines 29 to 33.
    Mr. Deputy-Speaker: Yes.
    Mr. Diamond: These Amendments make clear how the limitation on deduction for management expenses allowable to a company carrying on the business of life assurance will work under Corporation Tax. They are an improvement which I believe will be welcomed by the companies themselves.
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    The Amendments first make it clear that the expenses of management of a life assurance company may be set against franked investment income. This was the subject of Amendment No. 657 moved by the hon. Member for Worcester (Mr. Peter Walker) in Committee, which was withdrawn when I gave the assurance reported in col. 747 of HANSARD for 16th June.
    The Amendment also deals with a somewhat technical point which arises out of the special rules found in the existing law for the taxation of life assurance companies under which the relief for the expenses of management is, if necessary, limited by reference to what is generally called the notional Case I liability, which is a phrase well understood in this context.
    The Amendments secure that the only circumstances in which there will be a restriction of management expenses are when the franked investment income and other income together are not enough to allow them all without the resulting figure being less than the notional Case I liability.
    Amendment agreed to.
    Further Amendment made: Clause 64, in page 132, line 29, leave out lines 29 to 33.—[Mr. Diamond.]
    Mr. Diamond: I beg to move Amendment No. 196, Clause 64, in page 133, line 31, at the end, to insert:
    (d) where section 429 of the Income Tax Act 1952 has effect in relation to income arising from investments of any part of a company's life assurance fund, it shall have the like effect in relation to chargeable gains accruing from the disposal of any such investments, and losses so accruing shall not be allowable losses.
    This Amendment implements an assurance which I gave in Committee when the hon. Member for Worcester (Mr. Peter Walker) moved an Amendment designed to ensure that United Kingdom life assurance companies were taxed on capital gains arising on investments held for the purpose of a foreign life fund only to the same extent as they are taxed on the income arising from those investments, namely, to the extent that the gains or income are remitted to the United Kingdom.
    The Amendment meets that point completely.
    Amendment agreed to.
    Mr. Diamond: I beg to move Amendment No. 198, Clause 64, in page 134, line 43, at the end, to insert:
    (7A) Where—

    (a) a company carrying on life assurance business has before the date of the passing of this Act issued policies of life assurance—

    (i) providing for benefits which consist to any extent of investments of a specified description or of a sum of money to be determined by reference to the value of such investments; but

    (ii) not providing for the deduction from those benefits of any amount by reference to tax chargeable in respect of chargeable gains; and

    (b) the investments of the company's life assurance fund, so far as referable to those policies, consist wholly or mainly of investments of the description so specified; and

    (c) on the company becoming liable under any of those policies for any such benefits (including benefits to be provided on the surrender of a policy), a chargeable gain accrues to the company from the disposal in meeting or for the purpose of meeting that liability of investments of that description forming part of its life assurance fund, or would so accrue if the liability were met by or from the proceeds of such a disposal;

    then the company shall be entitled as against the person receiving the benefits to retain out of them a part of them not exceeding in amount or value corporation tax in respect of the gain referred to at (c) above, computed without regard to any amount retained under this provision, and computed at the rate of corporation tax for the time being in force or, if no rate has yet been fixed for the financial year, at the rate last in force or, if no rate has yet been fixed for any financial year, at a rate of thirty-five per cent.:
    Provided that in so far as the chargeable gain represents or would represent a gain belonging or allocated to, or reserved for, policy holders the amount that is to be retained shall be computed by reference to a rate of tax not exceeding thirty-seven and a half per cent.
    This Amendment meets representations which have been made about the effect of the Capital Gains Tax on certain life assurance companies which issue endowment policies linked with unit trust schemes. As these insurance contracts stand, the insurance company is required on maturity or surrender of the policy to hand over to the beneficiary a gross amount of units or an equivalent gross amount of cash. By "gross" I mean before deducting Capital Gains Tax.
    The introduction of a tax on the capital gains of a life assurance company affects the arrangements of this kind. It is clear that the problem relates only to contracts entered into before the tax on
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    capital gains was introduced, because new policies, in general, are now being issued on a net basis, that is to say, on a basis which entitles the insurer to deduct from the proceeds any Capital Gains Tax liability incurred.
    The purpose of the Amendment, therefore, is to provide the companies concerned with a right of recoupment against the beneficiary under policies which provide for the benefits without any deduction of tax. It would be proper for me to add that the terms of the Amendment have been cleared with and agreed by the representatives of the assurance companies concerned.
    Amendment agreed to.

    Clause 65.—(INDUSTRIAL AND PROVIDENT SOCIETIES.)
    Sir Eric Fletcher: I beg to move Amendment No. 108, Clause 65, in page 137, line 2, at the end, to insert:
    (8A) Subsections (1) and (7) of this section shall have effect as if references to a registered industrial and provident society included any co-operative association established and resident in the United Kingdom, and having as its object or primary object to assist its members in the carrying on of agricultural or horticultural businesses on land occupied by them in the United Kingdom or in the carrying on of businesses consisting in the catching or taking of fish or shellfish.
    In this subsection "co-operative association" means a body of persons having a written constitution from which the Minister of Agriculture, Fisheries and Food (as regards England or Wales), the Secretary of State (as regards Scotland) or the Ministry of Agriculture for Northern Ireland (as regards Northern Ireland) is satisfied, having regard to the provision made as to the manner in which the income of the body is to be applied for the benefit of its members and all other relevant provisions, that the body is in substance a co-operative association.
    This Amendment implements an undertaking that was given in Committee in response to an Amendment put down by the hon. Member for the City of Chester (Mr. Temple). The hon. Member raised the point and we have had discussions with the interests affected. The practical purpose of the Amendment is to extend to certain co-operative companies operating in the agriculture and fishing industries the special treatment allowed by Clause 65 for Corporation Tax purposes to registered industrial and provident societies, generally known as co-operative societies. This extended treatment consists in allowing share interest payable

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    to members to be deducted in computing profits for Corporation Tax purposes. The effect also is to facilitate the amalgamation of such companies with each other or with co-operative societies without any immediate charge to tax to capital gains.
    In Committee, there was discussion between the hon. Member for the City of Chester and myself about whether it would be appropriate to make this Amendment in Clause 83 or in the present Clause. At that time, we thought that the Interpretation Clause would be more appropriate, but we have come to the conclusion that since the Amendment affects merely this Clause, this is the right place for it.
    The hon. Member for the City of Chester will realise that whereas we accepted the principle of his Amendment, we have put it down in a slightly different form. The reason for that is that the form proposed by the hon. Member was unsuitable, as it would have tied the tax relief to compliance by companies with an Act which had a substantially different purpose. Our Amendment will work out much better. The hon. Member's Amendment would have covered co-operative companies connected with forestry, whereas the Amendment which I now move does not. The reason is that we have ascertained from the Forestry Commission that there are no such companies.
    8.15 p.m.
    Mr. Barber: We on these benches have almost given up thanking right hon. and hon. Members on the Government Front Bench or congratulating ourselves on our achievements. At the end of this mammoth series of Amendments which have been so courteously and succinctly moved from the Government Front Bench, I should, however, like to say that we are grateful for the Amendments to Clauses 63, 64 and 65, which have met so many of the points that were raised by us in Committee.
    Mr. John M. Temple: I thank the Government for bringing forward the Amendment in the form in which they have presented it. I should like particularly to thank them for the reference to fishery co-operatives. As a Governor of the Fisheries Organisation
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    Society, I will convey this good news to the fishing industry. I regard the Government's Amendment as being entirely satisfactory.
    Mr. James Scott-Hopkins: I also join in the thanks to right hon. and hon. Members opposite. I was a little confused about why the Amendment was put down after the assurance which I was given by the Chief Secretary when we discussed the Clause in Committee. On that occasion, the right hon. Gentleman assured me that all co-operatives were included under these provisions which we are now discussing and that an Amendment of this kind was not needed. Nevertheless, I am glad that the Minister without Portfolio has brought forward the Amendment.
    I agree with the hon. Gentleman that there are at present no forestry co-operatives, but this does not mean that there will not be any in future. I regret that, because there are none at the moment, the hon. Gentleman has decided to exclude them. This is a pity, because in a later Finance Bill it will be more than probable that we shall need a Clause reinstating them so that they can get exemption in the same way as agricultural and horticultural societies are able to do. I understand that an agricultural co-operative which carries on forestry as a subsidiary business is covered by the Government's Amendment.
    My next point concerns the need to satisfy the Minister of Agriculture, Fisheries and Food under the second paragraph of the Amendment. There is no provision, I understand, regarding the size of capital of a co-operative and I understand from the wording of the Amendment that the size of the capital is of no relevance. I hope that the Minister without Portfolio will be able to confirm this.
    What kind of certificate will be required by the Ministry of Agriculture? Will all the accounts have to be produced? What exactly is the meaning of the words in the latter part of the second paragraph of the Amendment concerning the Minister's responsibility? Must a co-operative get a certificate from the Minister before it can qualify? A word of clarification from the Minister without Portfolio would be helpful.
    Sir Eric Fletcher: I think that I can satisfy the hon. Member on the two points which he has raised. To deal first with his second point about what has to be done to satisfy the Ministry of Agriculture so that a co-operative society can come within the benefit of the Clause, I give the assurance that the amount of capital involved is not a relevant consideration. Secondly, I think that the hon. Member will be satisfied with the assurance that the Ministry of Agriculture will apply precisely the same kind of tests as those which the Registrar of Friendly Societies applies in deciding whether to register an industrial and provident society. I think that that is the proper approach.
    The hon. Member asked about forestry co-operatives and agreed that at the moment there is no co-operative company connected with forestry which could benefit from the provisions of the Bill. My information is that there is unlikely to be, because all co-operative marketing of forestry products, which obtains only to a very limited extent, is at present carried out by registered industrial and provident societies, and it is unlikely that there will be any change in that regard.
    Amendment agreed to.

    Clause 69.—(RESTRICTION FOR CLOSE COMPANIES ON DEDUCTION FOR DIRECTORS' REMUNERATION.)
    Mr. Diamond: I beg to move Amendment No. 199, Clause 69, in page 42, line 11, after "remuneration", to insert:
    "or for investment allowances".
    The Amendment provides for investment allowances to be added back in calculating the profits of a close company by reference to which the 15 per cent. limitation on allowable directors' remuneration under the Clause will apply. The Clause as it stands might conceivably work harshly in a case in which a company spends heavily during a period on new plant and machinery ranking for investment allowances and then finds that its taxable profits have been greatly reduced on that account. The Amendment is introduced to remove that possibility of unfairness.
    Amendment agreed to.
    Mr. Diamond: I beg to move Amendment No. 200, Clause 69, page 142, line 13, at the end to insert:
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    Provided that for any accounting period for which the company so elects this subsection shall apply with the substitution for the reference to fifteen per cent. of the company's profits for that period of a reference to fifteen per cent. of the profits of a period of the same length, computed as aforesaid but according to the average of the three years preceding the acounting period, or of such part (not being less than twelve months) of those three years as falls after the company commenced to carry on business or became resident in the United Kingdom, so, however, that in arriving at the average for a period beginning before the year 1966–67 there shall be brought into the computation profits arising from the company's trade or business which are chargeable to profits tax, computed as for that tax, together with any such franked investment income (within the meaning of that tax) as would not, if received in like circumstances after the year 1965–66, be treated as coming from within the company's group.
    It would be convenient if the House discussed Amendment No. 201, at the same time.
    Mr. Deputy-Speaker: That would be satisfactory.
    Mr. Diamond: These Amendments are intended to help a close company which finds that the 15 per cent. of profits limit on allowable directors' remuneration hits it hard when it has a bad year in which its profits drop heavily or it incurs a loss. The effect of the Amendments is that a company may elect that the 15 per cent. limit shall be applied by reference to the average profit of the three preceding years.
    The second Amendment provides for the necessary apportionments where not all the previous accounting periods which are brought into the average are of one year's duration and it is necessary to make the appropriate adjustment to get the relevant figure.
    Mr. Barber: I rise only to express my thanks to the Chief Secretary for the gratitude which he, in turn, expressed to my hon. Friends for having raised this point.
    Mr. Bruce-Gardyne: I join my hon. Friend the Member for Altrincham and Sale (Mr. Barber) in thanking the Chief Secretary for the benefit contained in the Amendment, but it does not seem to me to go as far as it might. I am particularly concerned about the position of a close company within the meaning of the Bill which in all good faith entered into a service contract with its managing director who has a shareholding of, let us say,

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    10 per cent. in the equity of the company. In view of the squeamishness of hon. Members opposite on this matter I must declare right away that I have no interest whatever to declare. Did the Chief Secretary wish to interrupt?
    Mr. Diamond: I apologise for interrupting the hon. Member from a sedentary position. I merely said, as has been said in relation to other Amendments, "But one might have in the future".
    Mr. Bruce-Gardyne: I am grateful to the right hon. Member for that intervention.
    Will he consider the position of a company which in 1961 entered in all good faith into a 10-year service contract with its managing director which entitled him to a salary of £8,000 a year. It seems to me that while the Amendment is a move in the right direction, it does not cover the point completely. The company may run into a period of heavy weather which might not be confined to a single financial year. As a result it may find that the salary of £8,000 a year which it is bound under the service contract to pay to its managing director, who also has a substantial interest in the equity of the company, has to be paid out of taxed profits.
    As my hon. Friend the Member for Altrincham and Sale said in Committee, in those circumstances a salary of £8,000 a year would attract tax at the rate of 20s. in the pound under Corporation Tax. No doubt the Chief Secretary will tell us that this was liable to be the case under the previous rules about Surtax direction. We have gone over that many times, and he has been told on many previous occasions that the net has been drawn very much wider in the case of the close company provisions of the Bill. I appreciate that we cannot discuss Amendments to Schedule 17 at this point, but we are bound to note that the net will have been somewhat widened if one Amendment proposed by the Chancellor is made later.
    Nevertheless, the fact is that a great many companies which are not liable for Surtax direction will be liable to the close company provisions. I suggest to the Chief Secretary that it is precisely
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    these companies, with 35 per cent. public interest in the equity, who are liable to have full-time service directors holding substantial shareholdings in the company and who may have entered into these service contracts; and these are precisely the companies which may be harshly dealt with if during a difficult period they honour their legal obligations to pay the salary to which their managing director is entitled under a service contract.
    Moreover, a point which has been made many times but which should be made again is that the rate of Corporation Tax is far higher than the rate of Profits Tax which has been in operation for many years. The two cannot be compared. I hope that in answering this short intervention the Chief Secretary will not use the arguments which we have heard so often in Committee.
    8.30 p.m.
    Mr. Diamond: The hon. Member or South Angus (Mr. Bruce-Gardyne) has already deployed most of the arguments, so I will merely say "ditto" to them. He asks me to accept that £8,000 is a not excessive salary. I am not suggesting that it is—in appropriate cases. I have heard of salaries which go far beyond that, even running into levels of £250,000 or so. I have even heard, although I do not know whether or not this is authoritative, that it is possible for managing directors with service agreements to forgo part of their salaries when they are thought to be excessive, having regard to the level of company earnings. There may be precedents for that being done.
    The hon. Member for South Angus will recognise that what we are doing here is going a good deal further than has ever been done before in circumstances which, if not exactly comparable, are not wholly unlike one another. I believe that we are going as far as one needs to go and I suggest that most managing directors who are at the level of responsibility to receive salaries of £8,000 a year, which is the appropriate remuneration of men carrying very responsible tasks, would, if the companies under their managing directorship struck a period of more than three years of lack of profitability, themselves feel disposed to suggest to their boards that there should perhaps be a reduction in their salaries.

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    I suggest that that would be a normal and responsible act.
    I suggest in all seriousness that that is what would happen in the circumstances described by the hon. Member for South Angus, particularly when one is considering a company which is justified in entering into a service agreement at the rate of £8,000 a year with a managing director and is not able to make the kind of profits which justify that for as long a period as 15 years.
    To put it the other way round, the hon. Gentleman will immediately appreciate that all that need be done to avoid the provisions limiting the remuneration to close corporations is for the company to enter into an agreement with a managing director who is not a whole-time service director to give him a salary and say, "You are safe, whatever the level of profits. Whether they exceed 15 per cent. or not, you will be safe". That would make complete nonsense of the close corporation provisions. I hope, therefore, that the hon. Gentleman will agree that the Amendment is reasonable and will meet most cases.
    Amendment agreed to.
    Further Amendment made: Clause 69, in page 142, line 17, at the end insert:
    "and, where the proviso to this subsection has effect, the amount of the profits of the three years there mentioned or the relevant part of those three years shall, if the case requires, be arrived at by division and apportionment or aggregation of profits or losses for periods of account wholly or partly comprised therein".—[Mr. Diamond.]
    Mr. Diamond: I beg to move Amendment No. 202, Clause 69, in line 19, to leave out "£3,500" and to insert "£4,000".
    Mr. Deputy-Speaker: I suggest that it would be convenient for the House to discuss, at the same time, Amendments Nos. 203, 204, 205, 206, 207, 208 and 303.
    Mr. Diamond: This Amendment and the others which you have kindly suggested we should discuss at the same time, Mr. Deputy-Speaker, make a substantial increase in the limits on the allowable directors' remuneration of a close company and are based, in effect, on the number of full-time working directors not being whole-time service directors. We have discussed these definitions and I am sure that the House will not wish me to go over them again today.
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    To quote my words when we discussed the matter last, I said:
    "My own opinion is that the figures we suggest—£3,500 for one director … are about right".
    I went on to say:
    "I do not say … that one could measure it exactly and no other figure could be right. I do not want to be as dogmatic as that …"—[OFFICIAL REPORT, 17th June, 1965, Vol. 714, c. 824–5.]
    We have considered the matter further. The suggestion made at that time was an amount of £5,000, which the Committee rejected. We are accordingly bringing forward proposals which substantially improve the situation. I think that it would be the fairest way to compare the proposed figures with the existing statutory figures—not with the proposed figures in the Bill. If, therefore, we move from the present situation under the Finance Acts to the Amendments, we get these comparisons: for one full-time working director, where, at the moment, the maximum is £3,000, it goes up to £4,000, an increase of 33⅓ per cent. For two full-time working directors it goes up from £5,000 to £7,000; for three, from £7,000 to £10,000; and for four or more, from £9,000 to £13,000. These are very substantial increases.
    I must remind the House that £3,000 is exactly the same figure as existed under the Profits Tax provisions and has been in operation since 1959, and the increase from £3,000 to £4,000 is substantial. As I said on an earlier occasion, it is recognised that this figure is not one to be put in for all time, but one that we shall obviously have to discuss from period to period, and bring up to date in the light of the circumstances of the time. I therefore hope that it will be felt that although this proposal does not reach the very maximum figure considered on an earlier occasion, and a figure that one could not help feeling was put forward with, perhaps, a fraction less than certainty—
    Mr. W. R. van Straubenzee: No—well argued.
    Mr. Diamond: Every Amendment has been well argued. I am talking of the actual words and moods of which I took very careful note at the time. I therefore hope that this half-way house would be regarded as reasonable and satisfactory to the House.
    Mr. William Clark: The Chief Secretary says that all these Amendments have been well argued, and I should be inclined to agree with him if he said that they were well argued from this side. The right hon. Gentleman keeps trying, on a wholly fallacious argument, to compare Corporation Tax with Profits Tax. He said that under Profits Tax the first director is allowed £3,000, and that the Government proposed to increase the amount to £4,000. He omitted to say, however, that under Profits Tax there was a £2,000 exemption limit which we do not have in the Corporation Tax.
    In Committee, and in our present Amendment, we have said that a more realistic figure would not be £3,500, as it was originally in the Bill, but £5,000. The Chief Secretary says that he has come half way but, if I may say so, his arithmetic is a little wrong; the difference is £750, so the halfway mark should have been £4,250. However, I suppose that, as the Government have shown a certain amount of sense in that they have, on the initiative of my hon. Friends, increased the ceiling to £13,000 and have also taken the five year average, we must accept it.
    We are not happy about the figure of £4,000 but it is better than £3,500, and no doubt we can come back to this point on some other Finance Bill when even the Government will realise that £4,000 is not a realistic figure, but that it should be £5,000. At this late stage of the Bill we probably have no option but to accept the £4,000, which is given with the so-called bounty of a Socialist Government, although I would have called it the niggardliness of a Socialist Government.
    Mr. Barnett: One should not exaggerate the case as hon. Members opposite tend to do, but it is important to understand that in far and away the majority of small, close, family, husband-and-wife companies, the husband and wife would not wish between them to draw more than £5,000, so they would be amply covered by this provision. At the same time it is unnecessary to penalise the very small companies if at the same time we are not giving opportunities for any great degree of tax avoidance. I do not need to remind the House that there is a method of avoidance by avoiding paying the withholding tax under the provisions of Corporation Tax, but it is important
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    to understand the two types of avoidance there could be.
    The first case is where the company is not ploughing back. Here, it has to make a distribution on top of whichever salary we allow, so it would not be avoiding Surtax but paying the same amount of Surtax. The only avoidance is on the amount of earned income relief they get on the additional salary, which is comparatively small although the amount of avoidance would be in the sense that it would reduce the amount of distribution available. I should be interested to hear if my right hon. Friend has any figures on this.
    The other type of company is where there is a plough-back. The only extent of avoidance here is upon earned income relief on the extra salary. The amount of tax avoidance made possible by allowing slightly more would be very trivial.
    Far and away the greatest disadvantage in this anti-avoidance measure is that it could positively discourage boards from enabling bright young men—the technocrats—from acquiring shares and joining the board. This is precisely the opposite of what I want to achieve and what I think my right hon. Friend wants to achieve. What we need is new young blood on the many old boards.
    My criteria of when it is necessary to act against avoidance I am afraid has not been satisfied in this case. The extent of lost revenue by way of avoidance if Amendment No. 303 was accepted would be amply compensated by the good will that this would show towards the small close family company. The amount involved would be small. I am therefore sorry that my right hon. Friend has not seen his way clear to accept the Amendment.
    Mr. Patrick Jenkin: I am encouraged by the speech of the hon. Member for Heywood and Royton (Mr. Barnett) to make a few remarks about Amendment No. 303. I am confident, in view of what he has said, that he, and perhaps his hon. Friends the hon. Members for Birkenhead (Mr. Dell) and Ashton-under-Lyne (Mr. Sheldon), will come with us into the Lobby if and when we divide on that Amendment.
    I am getting very tired of the Treasury Bench doing what I believe is called in

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    the Scottish courts approbating and reprobating—blowing hot and cold. When we are dealing with the problem of directors' remuneration we are told that the principles are the same as in Profits Tax, that this amount operated under the previous Administration and therefore a reasonable increase is being made because of the passage of time. When we dealt with a subject such as grouping this was said by the Minister without Portfolio on 3rd June:
    "As I have said on other occasions, we do not want to draw any analogy with what was appropriate in the case of Profits Tax and argue that the same thing should apply to Corporation Tax. It is part of the basic philosophy of this part of the Bill that we are getting rid of both Profits Tax and Income Tax for corporations, and introducing a new, separate Corporation Tax to which different principles shall apply."—[OFFICIAL REPORT, 3rd June, 1965; Vol. 713, c. 2097.]
    The Government cannot have it both ways. Either there is to be something new, in which case it is appropriate to look at this matter de novo, or we should make Amendments applicable in relation to Profits Tax. Here we are getting something new, because the limitations on directors' remuneration as applied to Profits Tax apply only to director-controlled companies, whereas the limitations under this Bill apply to a very much wider range of companies, close companies which are controlled by five or fewer directors as well as director-controlled companies.
    It has been the contention on this side of the House that the same principles do not necessarily apply and that it would be wise to go somewhat wider and be more liberal in regard to directors' remuneration because we may be dealing with directors who have as little as 5 per cent. of the equity of a company. For this reason, it would be right to look at this matter with more liberality and to allow £5,000, which is the figure at which Surtax begins. That is the point at what a man may be said to become so well off that precautions need to be taken against tax avoidance.
    8.45 p.m.
    Turning now to Amendment No. 303, quite apart from the substitution of the figure of £5,000 for £4,000, I think that this is the one that the Government can accept. The business written into the Bill about how much may be paid to a second
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    director, how much less to a third director and how much less to a fourth director is the most fiddly nonsense. This is really the Treasury trying to dictate to companies about how much they should pay their participating directors. It seems to me to be a quite inappropriate use of the powers of the Executive, even to prevent tax avoidance, and that the purpose could be fulfilled by letting them have an aggregate amount up to a maximum of, we suggest, £5,000 per director. Let the remuneration be averaged out and the amounts paid to directors as the company thinks fit. After all, they are the people paying the directors, and they should decide how much should be paid to each director, without any tiresome, niggling limits which have applied to the Profits Tax and which the Bill now says should apply to close companies for the purpose of Corporation Tax.
    I think that the Amendment is some thing the Government could accept, failing which I hope that it will be looked at during the year ahead, If it is thought that there is no opportunity for undue avoidance, as I feel quite sure is the case, it would be proper to introduce an Amendment at a later stage.
    Mr. Raymond Gower: When the right hon. Gentleman was making his last speech he said that he was sensitive to atmosphere, and felt somehow that those who advanced this point of view in Committee did not do so entirely with conviction in relation to the larger figures. I think that I was also sensitive to his last statement and that, while he was giving the appearance of being magnanimous, at the same time I felt that he was asking us to believe that it was just a question of this small amount.
    I felt that the right hon. Gentleman was accepting the validity of the arguments adduced in Committee, but, in effect, all he was saying was that it would not be seemly to accept the amounts from this side exactly and that, consequently, he was giving something slightly less. I hope that he has taken note of the powerful arguments put forward by his own colleague, the hon. Member for Heywood and Royton (Mr. Barnett), particularly about the need to encourage younger men to come forward and take their seats on the boards of these companies.

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    Is it worth arguing about a small margin like this? As my hon. Friend the Member for Wanstead and Woodford (Mr. Patrick Jenkin) has just said, it is niggling, and I hope that the right hon. Gentleman will look at it in that light.
    Mr. Diamond: May I add a few comments to what has been said already? I pay the closest attention to anything my hon. Friend the Member for Heywood and Royton (Mr. Barnett), who speaks with great authority on these matters, contributes to our discussions. He knows and, indeed, he himself has said that what we are discussing is mostly the small companies. The larger companies have the percentage limitation and are not affected by these provisions. The small companies would mostly be amply satisfied by the proposed margins. If I may repeat this to the hon. Member for Nottingham, South (Mr. William Clark), on whose ability to add up and divide by two I would never attempt to cast aspersions at all, the half-way house between £3,000 to £5,000 is somewhere round about £4,000.
    Mr. William Clark: The right hon. Gentleman started at £3,500.
    Mr Diamond: I did not start at £3,500, I made it perfectly clear that I was comparing the existing position in the Statute with the proposed position in the Amendment. Every single figure I gave was a comparison between the present situation and the new situation, and no one outside the House will be concerned or know anything about £3,500. It was a figure which arose during the course of our deliberations. The law of the land at the moment provides for £3,000. In future the law of the land will provide for £4,000, if the House sees fit to accept the Government's proposal and if the hon. Member for Wanstead and Woodford (Mr. Patrick Jenkin) does not lead a revolt against those on his own Front Bench, who have said that it does not want to divide.
    My hon. Friend the Member for Heywood and Royton considerably underestimates the amount of tax avoidance, or the cost of the Amendment. He will be surprised, as I was, to find that it will cost a minimum—I repeat "a minimum"—of £8 million to operate the Amendment
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    which I am proposing to the House. When I say "a minimum of £8 million", I refer to director-controlled companies in respect of which we have statistics. I am not referring to the bigger figure of close corporations, in respect of which we have not got figures. Therefore, I base myself only on the minimum figure of £8 million for those companies which were director-controlled and which will therefore be close corporations. That is the minimum cost of the Amendment I propose. The Amendment for which the hon. Member for Wanstead and Woodford seeks to get my support would cost some £30 million at a minimum. I repeat "minimum", defined in the same way by reference to director-controlled companies only.
    Mr. Patrick Jenkin: I accept the right hon. Gentleman's meaning of the word "minimum". Would he confirm that he is assuming for the purposes of those figures that every company which he has included in the figures takes the maximum possible advantage of the change? Is not this a very unrealistic assumption?
    Mr. Diamond: No, I am not assuming that at all. I am talking about the probable cost to the Revenue. If we had only close companies, defined in the way director-controlled companies are defined, the probable cost to the Revenue of accepting Amendment No. 303 would be £30 million. I ask my hon. Friend the Member for Heywood and Royton to remember that we spent a few days and nights discussing the Capital Gains Tax, which is estimated to yield in its first year £12½ million. This is an Amendment which would cost £30 million as a minimum in the first year.
    Mr. Barnett: I am following my right hon. Friend's argument. I accept the figures he has stated. Obviously he has had some advice on this. Surely there must have been some considerable assumptions in arriving at those figures. How have the figures been arrived at without making certain assumptions as to the amount of directors' remuneration which will be paid?
    Mr. Diamond: I repeat that this is the best estimate that the Revenue can arrive at of the likely cost. This is based on the same assumption as every Amendment is based on: it is the likely event.

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    It is what is likely to happen if the Amendment is accepted and what those happenings would be likely to cost in terms of lost revenue. I therefore repeat that it is an Amendment which would be surprisingly expensive. The reaction of the House confirms that. Hon. Members find it difficult to accept the figures and think that they must have been got out specially with a view to arriving at a large answer. It is not the practice of the Revenue to advise Ministers in that way. The practice of the Revenue is to try to get as near to the truth as it is capable of getting. Therefore, the figure has been put at its minimum, because it would be undoubtedly much more under the present wider definition of close corporations. I hope that I have made it clear that this limit is neither tiresome, nor niggling, nor little.
    Mr. W. R. van Straubenzee: Would the Chief Secretary illustrate one point? I realise that it is not easy always to follow these technical matters when there are exchanges across the Floor of the House. When he introduced that interesting figure which was given by the Treasury in its quasi-judicial capacity, as it were, I think that he used words to the effect that tax of that amount would be avoided if Amendment No. 303 were accepted.
    Mr. Diamond: I do not think I used the word "avoided". I thought that I had used the word "lost". I certainly intended to use that word.
    Mr. Geoffrey Lloyd: In other circumstances, I would certainly wish to probe this figure of £30 million and the assumption on which it is based. While accepting the fact that the Revenue put it forward in good faith, I should like to know the basis on which it is calculated.
    I will content myself by saying that while I understand the point that the right hon. Gentleman makes about the large company and the small company, I fear that there is a middle company in between where his provisions are unduly restrictive and make it difficult to pay the £5,000 a year which is absolutely justified for certain of the participators who are engaged in this work.
    It is a pity that the right hon. Gentleman has not been able to devise some scheme which, while preventing avoid-
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    ance, would have given greater flexibility to what I would call, in shorthand, the middle companies.
    Amendment agreed to.
    Further Amendments made: In Clause 69, in page 142, line 29, leave out "£11,000 "and insert "£13,000".
    In line 29, leave out "£8,500"and insert "£10,000".
    In line 31, leave out "£6,000" and insert "£7,000".
    In line 33, leave out "£3,500" and insert "£4,000".
    In line 34, leave out "£2,500" and insert "£3,000".
    In line 36, leave out "£3,500" and insert "£4,000".—[Mr. Diamond.]

    Clause 70.—(ASSESSMENT OF CLOSE COMPANIES TO INCOME TAX IN RESPECT OF CERTAIN LOANS.)
    Amendment made: Clause 70, in page 144, line 21, leave out "a".—[Mr. Diamond.]
    Mr. Geoffrey Lloyd: I beg to move Amendment No. 316, Clause 70, in page 144, line 33, at the end to insert:
    (8) This section shall not apply to any loan or advance made by a close company to any person accountable by law for the payment of any estate duty due by reason of the death of a deceased participator in the said company in respect of any shares or other interest in the said company beneficially held or enjoyed by such participator at, or at any time within five years immediately prior to, his death:
    Provided that this subsection shall not apply unless the inspector is satisfied—

    (a) that the said loan or advance is made bona fide and for a full consideration for the purpose of paying such estate duty as aforesaid, and is duly applied in or towards the payment of such estate duty as aforesaid; and

    (b) that the said loan or advance is reasonably necessary in order to ensure the payment of such estate duty as aforesaid without imposing hardship on any individual beneficially entitled to any interest in the said company or in the estate of the said deceased participator;

    and it is hereby declared that hardship within the meaning of this subsection shall be deemed to include the loss of control of the said company enjoyed whether by the said individual alone or with other participators by reason of the disposal of any shares or other interest in the said company in favour of any person or persons other than the said individual or such other participators.
    I raised this point first in Committee and the Chief Secretary said that he

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    would look into it, but he has not put down an Amendment to meet the point and, therefore, we have done so ourselves.
    Briefly, I will give an example of the sort of case that we have in mind. This is where a merchanting company with annual profits of the order of £20,000 before tax was held in equal shares by two cousins, one of whom died. By the time that all the outside assets of the dead cousin had been disposed of, there was a deficiency of £20,000 in the amount of cash available to pay Estate Duty. The surviving cousin, anxious to acquire the shares of the deceased, had no assets other than his own shares in the business and was, therefore, in practice unable to do so.
    The problem in this case was solved by the company making a loan to the executors of the deceased shareholder, which enabled them to pay the duty. Subsequently, as a result of the merger with another company, cash was made available to the shareholders which enabled the executors to repay the loan. I fear that under the Bill as it stands, a practice of this kind which seems to be reasonable would not be legal, and the purpose of the Amendment is to meet a case of that kind.
    Mr. Diamond: I could engage in a long series of arguments which would convince nobody—certainly not the right hon. Gentleman—that what he is proposing has no basis and that what the Government are doing is, as usual, perfect. I do not propose to repeat the obvious.
    I think it far better to say to the right hon. Gentleman that I am grateful to him for bringing forward this Amendment, as he did on a previous occasion. There is a measure of hardship involved which his Amendment goes too far to meet, which we ourselves have tried to meet and have not found a successful way of meeting yet.
    9.0 p.m.
    It is a difficult matter. I assure the right hon. Gentleman that the Government have considered with sympathy the point which he has put forward. I hope that he will allow us to give it further consideration during the ensuing year to see whether we can possibly find a workable scheme. The present scheme goes
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    far too wide and has certain deficiencies and there is considerable point in the essential argument which has been brought forward.
    Mr. William Clark: I am most grateful to the right hon. Gentleman for being a little more reasonable on this occasion. If he is to look at this matter between now and next April there might be some companies involved in the current year, as has been suggested. Obviously, the right hon. Gentleman cannot categorically commit himself now, but if a company has to make a loan to a participator for Estate Duty in the circumstances envisaged by my right hon. Friend the Member for Sutton Coldfield (Mr. Geoffrey Lloyd), and if, in the next Finance Bill, this matter is to be put right, could we have an assurance that any company which, in the interim, is caught because of this distribution will receive retrospective relief?
    Mr. Diamond: I am grateful to the hon. Gentleman for raising that point, because it enables me to say that I would not have suggested to the House, and particularly to the right hon. Member for Sutton Coldfield, this method of applying oneself to the problem if I thought that there was any possibility of any company being affected in practice between now and next April. I do not think that there is and in the sense that there is not I could give the undertaking. I am advised that there is not and I do not see how there could be. If the hon. Gentleman would care to write to me afterwards and give me a case which he could conceive of I should be glad to deal with it. The amount of retrospection which might be involved to Budget day when it is not exactly 5th April is something which I am sure the House would overlook when we got that far.
    Mr. Geoffrey Lloyd: I beg to ask leave to withdraw the Amendment.
    Amendment, by leave, withdrawn.

    Clause 72.—(SHORTFALL IN DISTRIBUTIONS OF CLOSE COMPANY (INCOME TAX AT STANDARD RATE).)
    Mr. Diamond: I beg to move Amendment No. 110, Clause 72, in page 146, line 19, leave out "by law".
    Perhaps we might also discuss with this Amendment No. 111.

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    These Amendments are what I call clarificatory. They make clear that a restriction must be imposed by law. They dispose of any possible argument that the condition in Clause 72(4) is satisfied by a restriction written into the company's own constitution.
    Amendment agreed to.
    Further Amendment made: No. 111, Clause 72, in page 146, line 19, after "restriction", insert "imposed by law".—[Mr. Diamond.]

    Clause 75.—(COMMENCEMENT OF CORPORATION TAX FOR EXISTING COMPANIES, AND TRANSITION FROM INCOME TAX.)
    Mr. Diamond: I beg to move Amendment No. 165, Clause 75, in page 149, line 21, after "year" to insert:
    "and the company possesses the source at the end of that year".
    Mr. Deputy-Speaker: I suggest that the House could conveniently discuss at the same time Amendment No. 259, Clause 75, in page 149, line 25, at the end to insert:
    Provided always that a company shall not come within the charge to corporation tax in respect of a trade, if the company is no longer carrying on the trade at the end of the year 1965–66.
    Mr. Diamond: This Amendment deals with a point raised in Committee by the hon. Member for Wanstead and Woodford (Mr. Patrick Jenkin), who moved an Amendment on the matter but later withdrew it on my promise to examine the question further. Under the Clause as drafted, there could in rather special circumstances be a charge both to Corporation Tax and Income Tax on the same measure of profits. If a company is carrying on a trade in 1965–66 but transfers that trade to an individual during 1965–66 and the individual owns three-quarters of the ordinary share capital in the company, then, assuming that the accounts are made up, say, to the end of December, the individual will be charged to Income Tax for 1966–67 by reference to the profits of the calendar year 1965, and the company will be charged to Corporation Tax on the profits from 1st January, 1965, to the date of the transfer to the individual.
    This was not intended. We are grateful to the hon. Gentleman for bringing
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    the matter to our notice. This Amendment is moved in order to prevent such a double charge by providing that there will be no charge to Corporation Tax on the company in these very limited and exceptional circumstances.
    Mr. Patrick Jenkin: I acknowledge with gratitude the kind remarks of the right hon. Gentleman, but one is prompted to ask how many more mistakes of this sort—the right hon. Gentleman will concede that, as this was not intended, a mistake must have been made—are lurking as yet undiscovered in the pages of the Bill. How many people will find themselves paying tax twice over on the same profits because something has remained undiscovered?
    This is exactly the sort of point we were dealing with in our earlier argument. The Bill requires very much more attention before we can be satisfied that it really represents what the Government intend to happen as regards the Corporation Tax. However, having said that, and not wishing to be accused of ingratitude, I thank the Treasury Bench for having accepted the substance of our earlier Amendment.
    Amendment agreed to.

    Clause 77.—(INTERIM CHARGE OF TAX ON CAPITAL GAINS OF COMPANIES, AND EXCLUSION OF COMPANIES AND LOCAL AUTHORITIES FROM CASE VII OF SCHEDULE D.)
    Amendments made: Clause 77, in page 152, line 27, after "Act)", insert:
    "or a local authority association (as so defined),".
    Clause 77, in page 153, line 29, after "tax", insert:
    ", including the relief from tax of gains not received in the United Kingdom, or provide for any corresponding restriction of allowable losses;".—[Mr. Diamond.]

    Clause 78.—(DIVIDEND INCREASES IN 1965–66.)
    Mr. Deputy-Speaker: The next Amendment selected is No. 341, and we can discuss with it the following three Amendments: Amendment No. 342, Clause 78, in page 55, line 22, at the end to insert:
    Provided that where an insurance company exercises its option under the proviso to subsection (3) above, the standard dividends shall be the average annual dividends paid in the valuation period referred to in such proviso.

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    Amendment No. 343, Clause 78, in page 155, line 28, at the end to insert:
    Provided that where an insurance company exercises its option under the proviso to subsection (3) above the standard profits in subsection (6)(d) shall be the profits of such proportion of the valuation period preceding that referred to in the proviso to subsection (3) above as corresponds in length to the said valuation period.
    Amendment No. 304, Clause 80, in page 162, line 19, at the end to insert:
    (3) In the case of a company which carries on, whether alone or in conjunction with some other trade or business, a life assurance business or other long-term business as defined in section 33 of the Insurance Companies Act 1958 but including sinking fund and capital redemption insurance business (hereinafter collectively referred to as "long-term business") and has made or makes a valuation of its liabilities in respect of such business or businesses on or before the 31st day of December 1965, for the purpose of making a distribution, the next preceding valuation having been made two years or more before the date of such valuation, the notional surplus shall be the aggregate of the following—

    (i) so much of the surplus resulting from such valuation as has been or shall be allocated to the company's shareholders less any distributions that have been made out of such surplus to the shareholders prior to the 6th day of April 1966, and

    (ii) the notional surplus, determined according to the provisions of subsection (2) hereof, which that company would have had had it not carried on long-term business.

    Mr. William Clark: I beg to move Amendment No. 341, Clause 78, in page 154, line 34, at the end to insert:
    Provided also that where an insurance company which carries on life assurance business and carries out a valuation of its assets and liabilities for the purposes of distribution of profits as at 31st December 1963 or 1965, or any intermediate date, the profits of the last valuation period before 1st January 1966 shall at the option of the company be substituted for profits in the taxable year 1965.
    The object of this Amendment is precisely the same as the object of the Amendment which we put down in Committee and relates to life assurance businesses in which the valuation is carried out on a three-year or five-year basis. The Chief Secretary will understand this rather technical point. I shall not weary the House at this hour by rehearsing the argument. Perhaps the right hon. Gentleman will now say what he could not say in Committee, that he recognises the validity of our proposal and is prepared to accept the Amendment.
    Mr. Diamond: I am always glad to respond to the hon. Member for Nottingham, South (Mr. William Clark), but I am afraid that I cannot go so far as to use the words which he endeavoured, very charmingly, to put into my mouth. In fact, this is an unnecessary Amendment. Therefore, I am not able to say anything like he would have wished me to say.
    Shortly, this deals with the problem of the life offices, which have argued that a dividend increase in 1965–66 which is merely the result of the normal working of the customary arrangements for measuring and disposing of the surplus thrown up by a periodical valuation should not be regarded as forestalling. This argument is accepted. My hon. Friend the Minister without Portfolio expressed general sympathy, and the Board of Inland Revenue has given an oral assurance to representatives of the Life Offices Association that an increased dividend resulting from the normal application of the customary rules following a periodical valuation would be exempted under the Chancellor's new motive test.
    So, in a sense, it is unnecessary for the Opposition to bring forward the Amendment brought forward previously. If, on the other hand, they wish me to give from this Box the same assurance as was given orally by the Board of Inland Revenue to the life offices, I gladly do so now.
    Mr. William Clark: In view of the categorical assurance which the Chief Secretary has given, I beg to ask leave to withdraw the Amendment.
    Amendment, by leave, withdrawn.
    Sir John Barlow: I beg to move Amendment No. 249, Clause 78, in page 155, line 20, after "1964", to insert:
    Provided that any dividend paid after the beginning of December, 1964 shall be regarded as having been paid before that date if—

    (i) it was declared by the company in general meeting before that date; or

    (ii) it was declared in general meeting after that date but in accordance with a recommendation of the directors and the directors' decision to make that recommendation was, with the authority of the directors, publicly announced before that date; or

    (iii) it was paid in accordance with a decision of the directors, and that decision was, with their authority, publicly announced before that date.

    Mr. Deputy-Speaker: It will be convenient to discuss, at the same time, Amendment No. 250, in Clause 78, page 155, line 22, at end insert:
    Provided that where the dividend paid by a company in respect of any accounting period ending in the standard period was less than such sum as after deduction of income tax at the standard rate then in force was equivalent to three-fourths of the amount shown by the accounts of the company for such accounting period to have been available for payment of a dividend the company may elect to substitute for the purpose of subparagraph (c)(i) of this subsection the gross sum so ascertained in place of the dividend actually paid in respect of such accounting period and for this purpose a dividend shall be treated as paid in respect of an accounting period when expressed to be so paid or if not expressed to be paid in respect of any period when paid within an accounting period.
    Sir J. Barlow: My Amendments relate to dividends paid after 1st December, 1964, bit declared and announced before that date. A company having profits available for dividend as shown by its audited accounts may during the three years up to the beginning of December, 1964, either pay no dividend in respect of an Accounting period or pay a low dividend in relation to available profits. Such a company is penalised in the calculation of its standard dividends under Clause 78(6,b) although it has retained the profits in the business rather than distributed them to the shareholders. My Amendments would provide for the company in this difficulty, and I hope that the Chief Secretary will be able to accept them.
    Mr. Diamond: I think that I can meet the point of the hon. Member for Middleton and Prestwich (Sir J. Barlow) but not in precisely the way in which he invited me to do so. I recognise that there is some point in the argument, but what I want to demonstrate to him is that the Amendment is unnecessary.
    The hon. Gentleman will be aware of the Chancellor's Amendment No. 178 in Clause 78, page 14, line 4, which excludes from the operation of the Clause cases where it is shown that the main purpose was no': avoidance. I think that that will take account of a whole host of exceptional cases where there might otherwise have been hardship and for which it is impossible to provide by separate provision for each individual case. I hope,
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    therefore, that the hon. Member will feel that this has met the point. Although I am grateful to him and recognise the validity of his argument, I think that the solution which my right hon. Friend proposes in his Amendment is perhaps the better one.
    Sir J. Barlow: In view of the Amendment in the name of the Chancellor, which largely meets my point, I beg to ask leave to withdraw the Amendment.
    Amendment, by leave, withdrawn.
    9.15 p.m.
    Mr. Diamond: I beg to move Amendment No. 166, Clause 78, to leave out "fifteen" and to insert "ten".
    Lest I should be accused of ungraciousness, let me say on this exclusive occasion how grateful we are to the Liberal bench for having moved this Amendment at an earlier stage. The hon. Member for Bodmin (Mr. Bessell) is keenly aware of the details of the Amendment and is in his place to receive this bouquet which I am happy to accord to the Liberal Party.
    The Amendment restores to the original figure the minimum amount to be treated as the measure of the profits of the standard period. The minimum was originally 10 per cent. of the company's share capital. The increase from 10 to 15 per cent. was made in Committee in line with an increase from 5 per cent. to 7½ per cent. of share capital as minimum standard dividends to be assumed under the Clause.
    The hon. Member for Orpington (Mr. Lubbock) drew our attention to the effect that this might have in a particular case, and we are very glad therefore to bring forward this Amendment to restore the original position because otherwise it might, in that case, not have been as helpful as it was the Government's intention to be. [HON. MEMBERS: "Oh."]I am sure that that did not come from the Liberal bench, although I do not know where it came from. However, some minimum is necessary and it should be more than 7½ per cent. As 15 per cent. is perhaps too high in terms of statutory assumptions, the best course, and one which goes as far as is reasonably possible in the company's favour, is to revert to the figure of 10 per cent. originally proposed.
    Mr. Peter Bessell: I feel that it would be ungracious to allow this occasion to pass without expressing the thanks of the Liberal bench, particularly of my hon. Friend the Member for Orpington (Mr. Lubbock), for the very good common sense that the Treasury has shown in this matter. On behalf of my party, I express my thanks to the Chief Secretary.
    Mr. Patrick Jenkin: Here again we are to have 10 instead of 15 which was put in instead of 10 in Committee. What seemed right to the Treasury at the outset seems wrong now. If we went on for another few weeks would there be more? How do we know that we have the Bill right now according to the Government? This points the unwisdom of trying to rush through legislation of this sort.
    Amendment agreed to.
    Mr. Diamond: I beg to move Amendment No. 167, Clause 78, in page 156, line 39, after "districts)", to insert
    "or under section (Annual allowances for new ships) of this Act".
    This Amendment is consequential on the Chancellor's new Clause 28, allowing free depreciation for new ships.
    Amendment agreed to.
    Mr. Diamond: I beg to move Amendment No. 178, Clause 78, in page 157, line 4, at the end to insert:
    (10A) Where a company has in the year 1965–66 paid a gross amount in dividends greater than the standard amount, it may, not later than two years after the end of that year, apply to the Board to be exempted from the foregoing provisions of this section, and if the company shows that it was not the company's main purpose or one of its main purposes in paying that excess to avoid or reduce a liability under section 43(3) of this Act in respect of dividends paid after that year, the Board shall certify that the company is entitled to exemption under this subsection, and subsection (1) above shall then not apply to the company.
    If on an application duly made by a company the Board refuse a certificate under this subsection, the company shall have the like right of appeal to the Special Commissioners against the refusal as if it were an assessment made on the company under Schedule D, and the enactments relating to an appeal against such an assessment (including any enactment relating to the statement of a case for the opinion of the High Court) shall apply accordingly.
    This Amendment excludes from the operation of Clause 78 cases where a company shows that tax avoidance was not
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    the main purpose or one of the main purposes in paying a dividend. The object of Clause 78 is to define forestalling. It provides that companies must account for the Income Tax deducted from dividend both in 1965 and 1966, if those dividends are excessive. The tests originally laid down in Clause 78 were purely objective and arithmetical.
    It became apparent from representations received, and from points raised in the House, that there could be a variety of circumstances in which this objective approach could operate harshly. The Chancellor has therefore decided to adopt the principle of the official Opposition Committee stage Amendment, for which we are duly grateful, and particularly grateful to the hon. Gentleman the Member for Wanstead and Woodford (Mr. Patrick Jenkin). If he will forgive me, I will start every future Amendment by saying how grateful we are to the hon. Member for Wanstead and Woodford, or occasionally the hon. Member for Woodford and Wanstead.
    It will now be unnecessary to deal with a number of specific hardship cases which have been brought to notice. A motive test is not normally a satisfactory criteria to apply in matters of taxation, because motives are notoriously difficult to establish. In this case it is less open to objection, because the provision is a purely transitional one and it would come into play only if certain, clearly defined objective tests, are clearly satisfied. It does not apply to capital dividends. I should like to make that perfectly clear. I am happy to adopt the essence and some of the wording, of the Opposition Amendment put down earlier.
    Mr. William Clark: I beg to move, as an Amendment to the proposed Amendment, Clause 78, in line 14, at the end to insert:
    (10B) The following provisions shall have effect where in pursuance of this subsection a company furnishes to the Board particulars of a dividend or dividends to be paid by it in the year 1965–66 which will cause the gross amount of all such dividends to exceed the standard amount, that is to say—

    (a) if the Board is of opinion that the particulars, or any further information furnished in pursuance of this paragraph, are not sufficient for the purposes of this subsection, it shall within thirty days of the receipt thereof notify to the said company what further information it requires for

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    those purposes, and unless that further information is furnished to the Board within thirty days from the notification or such further time as the Board may allow it shall not be required to proceed further under this subsection;

    (b) subject to the foregoing paragraph, the Board shall within thirty days of the receipt of the particulars, or where that paragraph has effect of all further information required thereunder, notify the said company whether or not it is satisfied that the dividend or dividends described in the particulars were or will be such that subsection (1) above ought not to apply to the company on the grounds that it was not the company's main purpose or one of its main purposes in paying that excess to avoid or reduce a liability under section 43(3) of this Act in respect of dividends paid after the said year 1965–66;

    and if the Board notifies the company that they are so satisfied, the said subsection (1) shall not apply to it in respect of that excess:
    Provided that if the particulars, and any further information given under this subsection with respect to any dividend or dividends are not such as to make full and accurate disclosure of all facts and considerations relating thereto which are material to be known to the Board any notification given by the Board under the subsection shall be void.
    (10C) A company aggrieved by a decision of the Board under the last preceding subsection may appeal to the Special Commissioners and all the provisions of the enactments relating to appeals against assessments to the corporation tax shall have effect with respect to any appeal to the Special Commissioners under this subsection.
    The Chief Secretary has said, quite rightly, that this is the result of opposition criticism to the original Bill. We on this side of the House are grateful that he has been gracious enough to say how much he owes to the Opposition for having improved the Bill. The main purpose of his Clause is to deal with tax avoidance. This may occur where a company, in general meeting before the printing of the Finance Bill, has said that it will pay a dividend of £x. It could also apply to a company which became public before the Corporation Tax provisions were known and in its prospectus asking for capital from the public said that dividends for the future would be 15 per cent., 10 per cent. or whatever percentage it may be.
    I think that the Chancellor of the Exchequer's Amendment covers that. The Amendment we propose deals with the question of clearance on the subject of tax avoidance. As the Chancellor's Amendment stands, it means that for a dividend paid in the year 1965–66 it could
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    be claimed there was no tax avoidance and the Revenue would then decide whether there was such avoidance.
    This means one could have a period of uncertainty up to the 5th April, 1968. What we are suggesting—there is no question of us wanting to create a loophole for persons wishing to avoid the payment of tax—is a streamlining of the clearance procedure. Briefly, we are saying that where a dividend is paid in 1965–66, then within 30 days the Board of Inland Revenue can ask for information as to why the increase has been from 5 to 10 per cent., or whatever figure it may be. Then we go on to say that information must be given within 30 days. If it is not given, tax avoidance is lost to the company. But if it is given, then the Board of Inland Revenue must decide within 30 days.
    The Chief Secretary will accept from his great personal experience that one of the main criticisms of our tax system is that when one appeals there is often a great delay between notification of the appeal and the time that it is decided. This matter applies only to the one year, 1965–66, on forestalling.
    I should have thought that the Chief Secretary could accept the Amendment. I hope that its wording is right. We paid particular care to its drafting. I assure the right hon. Gentleman that all we attempt to do is to streamline the clearance procedure. There is no question that any taxpayer, a company or otherwise, will get any additional advantage. We merely suggest that in this time limit the matter should be decided one way or the other. I hope that the right hon. Gentleman will accept that this is a point of great validity, and that our Amendment would help not only companies but the profession of which he is such a distinguished member.
    Mr. Diamond: Although I thought that part of the argument of the hon. Member for Nottingham, South (Mr. William Clark) was very persuasive, I regret that I cannot advise the House, for reasons which I hope will appear satisfactory, to accept the Amendment to the Amendment, which, as the hon. Gentleman clearly explained, is based on a clearance procedure already in use in perhaps two cases. But there is this very substantial difference, that in connection

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    with the position which we are discussing the motive test is not the only test. The motive test has been put in to clear up a host of individual detailed cases for which provision might not otherwise be made. There are full provisions as to whether an excessive dividend has been paid without relying on the motive test. The motive test is residual. In the other cases where the motive test is applied and there is clearance, the motive test is part of the permanent legislation and there is no other way of arriving at the answer.
    The first reply which I have to give is that there is no real parallel or need to introduce this procedure because in the vast majority of cases there will be objective arithmetical tests against which the company will know whether the dividend which it proposes is acceptable. Furthermore, the directors know what is in their minds—or should do, and indeed must do. They know full well whether the dividend which they propose is proposed for good sound commercial reasons or for tax avoidance reasons. They must be prepared to rely on their own knowledge and judgment, and they know full well that if it is not proposed for avoidance reasons they need not expect any trouble.
    When there are objective arithmetical tests and the motive test is added only to clear up the odd case, and if we were then to introduce the clearance procedure, we should be inviting people to say, "Let us make an application. Let us try a higher dividend. We cannot possibly lose in the sense that the objective arithmetical tests are satisfied. That is our floor. We could not go below that. Let us try for a higher dividend. If we get our application cleared, well and good. If we cannot get it cleared, we are no worse off because these objective arithmetical tests are satisfied in any event". Those are three good reasons why I do not regard this as appropriate in the circumstances.
    9.30 p.m.
    A further and compelling reason is that in the vast majority of cases it would not be possible to know until the end of the period what the facts were to enable the Inland Revenue to give a clearance certificate. Therefore, on grounds of
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    impracticability, on the ground that it is not really relevant to this kind of situation and as it might invite certain companies to take advantage of the situation, the procedure is not one which I could recommend to the House.
    Mr. Barber: I am not wholly convinced that the balance of argument lies with the Chief Secretary. On the other hand, as the Amendment is not of profound importance to the Corporation Tax and in view of the great services of the Chief Secretary to the accountancy profession, I do not on this occasion advise my hon. Friends to divide the House.
    Amendment to the proposed Amendment negatived.
    Proposed words there inserted in the Bill.
    Mr. William Clark: I beg to move Amendment No. 248, Clause 78, in page 157, line 45, at the end to insert:
    (14) This section shall not apply to any dividends paid before the first day of April 1966 in respect of which the company paying such dividends shows to the satisfaction of the Commissioners that the main purpose, or one of the main purposes of paying such dividends was not the avoidance of the payment of any income tax in respect of such dividends which would, apart from this subsection, have otherwise been payable by the company.
    Mr. Speaker: With this Amendment, I propose that we should discuss Amendment No. 309, in the name of the hon. Member for Walthamstow, East (Mr. John Harvey), in Clause 78, page 157, line 29, at end insert:
    (11A) Where a company has in the year 1965–66 paid a gross amount in dividends greater than the standard amount, it may, not later than two years after the end of that year, apply to the Board to be exempted from the foregoing provisions of this section, and if the company shows that it was not the company's main purpose or one of its main purposes in paying that excess to avoid or reduce a liability under section 43(3) of this Act in respect of dividends paid after that year, the Board shall certify that the company is entitled to exemption under this subsection and subsection (1) above shall then not apply to the company.
    If on an application duly made by a company the Board refuse a certificate under this subsection, the company shall have the like right of appeal to the Special Commissioners against the refusal as if it were an assessment made on the company under Schedule D, and the enactments relating to an appeal against such an assessment (including any enactment relating to the statement of a case for the opinion of the High Court) shall apply accordingly.
    Mr. Clark: We have already had this argument. It is precisely the same as the tax avoidance point. I move the Amendment formally and should like my hon. Friend the Member for Walthamstow, East (Mr. John Harvey) to have the opportunity of explaining his Amendment.
    Mr. John Harvey: I sought to put down an Amendment which, I thought, might be helpful in clearing up any possible residual difficulties in capital dividends. I decided to use exactly the same words as the Chancellor of the Exchequer had used because it had occurred to me that the Chief Secretary could not argue about the drafting of his right hon. Friend, because, presumably, he would accept that he had the best possible drafting at his service.
    It is perfectly possible, as the Chief Secretary will understand, for capital dividends to be paid in no less good faith than ordinary dividends without any intention of forestalling. I thought, therefore, that the Chancellor's Amendment No. 178, in Clause 78, page 157, line 4, would more logically follow subsection (11) than subsection (10). I accept, however, that subsection (11) was improved by the addition of a number of provisions proposed in Committee by my hon. Friend the Member for Yeovil (Mr. Peyton). Even so, there are some firms which are not entirely sure whether their case would be met by the wording of subsection (11) in its present form.
    If the Chief Secretary accepted my Amendment or, as an alternative Amendment, No. 248 moved by my hon. Friend the Member for Nottingham, South (Mr. William Clark), either of these Amendments would make it possible for such companies to state a case and explain their motives to the Special Commissioners should the need arise. Failing this, capital dividends might be caught inequitably by comparison with ordinary dividends.
    Since the Chief Secretary has insisted all along that, as we know, it is not part of the intention of the Clause to catch any company that is not seeking to forestall, it would be a tremendous help to many companies which still are not quite sure about their position if the right hon. Gentleman could accept an Amendment on these lines.
    Mr. Diamond: I gathered from the hon. Member for Nottingham, South (Mr. William Clark) that he does not wish me to go into the arguments at length as to why his Amendment would not be acceptable.
    The hon. Member for Walthamstow, East (Mr. John Harvey) is proposing to exempt from liability by reference to a motive test with regard to capital dividends. I cannot see that capital dividends come into the same category as ordinary dividends. Indeed, this matter has been authoritatively considered. As far back as 1955 it was considered by the Royal Commission on Taxation, which at paragraph 808 in its Report recommended that capital dividends should be taxable as ordinary income in the shareholder's hands. That recommendation could have been implemented at any time since the date of the Report. It has not been implemented, but it remains an authoritative statement on the subject and it remains the Government's view.
    In those circumstances, it is not possible to have a motive test with regard to capital dividends. I am therefore not prepared to recommend to the House that any proposal of this sort about capital dividends should be approved. My right hon. Friend's Amendment meets any possible case in which a normal dividend is concerned. I therefore hope that the official Opposition will not think it necessary to pursue their Amendment No. 248.
    Amendment negatived.

    Clause 79.—(TRANSITIONAL RELIEF FOR EXISTING COMPANIES WITH OVERSEAS TRADING INCOME.)
    Mr. Peter Emery: I beg to move Amendment No. 289, Clause 79, in page 159, line 21, to leave out "four fifths" and to insert "three-fifths".
    We move to the Corporation Tax overseas. The Amendment, although short, is technical and involved. The Government's policy so far has meant re-writing the transitional relief, and this has been after considerable pressure. We have welcomed it as far as it has gone but it means that at certain times there is bound to be a dividend freeze if certain companies are not to lose the amount of relief which the Bill would allow. It is to deal specifically with a dividend freeze which

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    might last as long as seven years that the Amendment has been moved. The position at the moment is that in order to recompense for the considerable loss of double taxation relief after the introduction of Corporation Tax for companies trading overseas, the Government have given this relief.
    Two set principles have arisen for the Government. The first is the overall principle that they wish to see less investment overseas. I do not intend to go into that in detail because we have discussed it already. They want to see greater investment in the United Kingdom.
    Secondly, a point affecting the Amendment, we have the proposal that relief should be given. We believe that "relief" is not the right word and that it should be allowed as a matter of right to companies whose dividend distribution would be unfairly hit by the Government's policy. So far that is quite good, and there is no criticism, but the story must be taken two steps further. Let us take a company Z which follows the Chancellor's special policy, decreases its overseas investment and turns some of its investable money into investment in this country. As a successful company, according to the Chancellor's own statement at the Dispatch Box, its returns will be greater than they would have been overseas. We come to the last stage of this company; that if it sees fit to distribute any of these greater returns—indeed, if it follows the policy set by the Chancellor—then, if its dividends are greater than the base calculation, that company is immediately penalised for doing what the Treasury has urged. Its relief allowed under the Clause as drafted would immediately be decreased.
    It is fair to say, therefore, that for every £ extra that a company distributes over its base year calculation then, from the point of view of relief, it will have to pay £1 16s.; and this is the distributable income after Corporation Tax and withholding tax. This seems to be a particular hardship and something of a nonsense.
    Several things will result and they cannot be to the benefit of the Treasury, the country or the company. It is for these reasons that the Amendment might alleviate the position. The first is that it
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    will stop any company in this position trading overseas from increasing its dividends over this seven-year period, because it will immediately lose part of this relief. If the relief is considerable, it will be the normal trading practice of the company not to increase its trading dividends so as not to avoid losing the relief.
    This is where we come to the dividend freeze over the seven-year period. It would mean that successful companies would be likely to hold unusually large cash balances over this seven-year period. Large amounts of cash would be held in balance, which is something the Treasury and companies would not wish to happen. The strangest thing is that it is only the really progressive, go-ahead and successful companies, doing precisely what the Chancellor is urging companies to do, which would be so penalised, which seems to be a complete nonsense.
    The transitional relief—although we are not criticising it in this context—makes the position worse in the way the Chancellor has organised it, because instead of a dividend freeze over five years it is likely to be extended over seven years. This is an even greater reason for us returning to this point and for our attempting to meet some of the problems which I have outlined.
    The Amendment does not go as far as we originally urged on the Government. We originally urged that the four-fifths position should be brought to a two-fifths position. That suggestion was rejected by the Government and we are now suggesting a three-fifths position in an attempt to get agreement in the centre, as it were. In other words, whereas the Government have said that for every £ distributed over the base year position this would cost £1 16s., we are urging that instead of it costing £1 8s., as we originally suggested, it should be £1 12s. There can be no doubt that this is a difficult problem. Indeed, the Chancellor himself said:
    "Then there is the question of the dividend freeze. Here is involved a choice between being fair to the company and being fair to the nation … I must consider carefully when I am helping shareholders … that I do not give away too much of the taxpayers' money in this regard. I have to try to hold the balance".
    That was a reasonable statement, but I do not see how it applies to this situation.

    165
    If there is to be a dividend freeze the same amount of relief money will be given and we will not have the distribution for seven years.
    9.45 p.m.
    If, therefore, it will not affect the amount given in relief, why will the Chancellor not attempt to get the money distributed and get companies to think it worth while to do exactly what he wants—invest at home, and be able to show their shareholders that the policy is working? No company will want to invest over a period as long as seven years and not be able to show the shareholders that the policy is working. I therefore do not think that this is a matter of holding the balance between the shareholders and the nation's interests. It is only sensible to try to ensure that there are not these large-scale balances. I suggest that if the Chancellor does not accept Amendments like this one, or Amendment No. 344 in Clause 79, he will not obtain the overall policy he seeks of having more investment at home than overseas.
    I have just quoted from the Chancellor's remarks. In the next column he said:
    "My view is, after the conclusion of 14 hours of debate on this aspect, that overseas investment will continue on a very substantial scale. I have no doubt of that. I am reinforced in that by the views of the chairmen of companies who have been in touch with me."—[OFFICIAL REPORT, 22nd June, 1965; Vol. 714, c. 1571–2.]
    Since that statement was made the Chancellor has been challenged both in this House and outside it to reveal his sources. The right place to do so would seem to be in dealing with an Amendment which we think will go some way to assist the policy the Chancellor wants and, at the same time, assist companies.
    Mr. MacDermot: In a short and forceful speech the hon. Member for Reading (Mr. Peter Emery) has again raised some questions that were discussed very fully in Committee. In many ways his argument appeared to have been addressed both to this Amendment and to Amendment No. 344 in Clause 79, although we are not discussing the two together. In a sense, some of his arguments would be more relevant to the next Amendment.
    The Opposition's argument ignores the real purpose of the transitional overspill relief, and to some extent attributes to my right hon. Friend motives which have
    166
    not guided him in framing the Bill. The purpose of this transitional relief is to assist those companies trading overseas in countries with a high rate of company taxation which, as a result of the introduction of the Corporation Tax here, would, during the interim period, be compelled either to cut back severely in their plough-back of profits or cut their dividends so severely that it might in some cases cause hardship to their shareholders.
    That is the object of the relief, and its purpose is to meet the case that was made widely that, without relief of this kind, companies would be unable to maintain their dividends. I would stress that the relief that has been given in this respect is very considerable, and the further concessions that were made in Committee were probably, in terms of cost, more expensive than almost all the other concessions put together. It is a very substantial relief indeed. The ground then shifts, and we have the argument about the dividend freeze.
    We must face the fact that there is only one long-term solution that can enable these companies to absorb the impact in the change in the system, and that is growth. It is to tide them over the period and to extend that period—it has been extended from five to seven years—that they are given the opportunity to tide over this impact of the new tax system. In so far as they achieve the growth they are not in need of this interim relief. Nevertheless, so long as they plough back increased profits they will continue to enjoy the benefit of the relief. It is this which is now characterised as a dividend freeze. Only if they increase their dividend distribution will relief be reduced by four-fifths of the increase in the distributions.
    The Opposition case, as argued in Committee and today, is based on the assumption that it is the intention of the Chancellor in all cases to induce these companies which are trading overseas to disinvest abroad and bring their money back to invest it in this country. I remind the House, if it is necessary—it was contained in one of the passages of the Chancellor's speeches read by the hon. Member—that my right hon. Friend made it abundantly clear that it is his belief and intention that our investments

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    overseas should continue to grow and we should continue to be net investors overseas.
    One of the main purposes of these tax changes in their effect on overseas investment is to bring this into balance so that we do not invest overseas more than we can afford. That does not mean that we are trying to make every overseas company bring its profits over here. It is a matter for judgment by the companies concerned, but, if they can extend their business overseas given the assistance of this relief, that is something perfectly consistent with the whole framework of my right hon. Friend's policy. We cannot accept the hypothesis upon which these Amendments are based.
    With reference to the four-fifths, as I stated in Committee in strict logic it might be quite defensible to say that the whole amount by which dividends are increased should go in reduction of the relief, but it was thought right that there should be some margin and some room left. Consequently, the four-fifths was decided upon. We have had a number of Opposition Amendments. One which was put on the Notice Paper and was not selected was that there should be no reduction at all. One moved in Committee said that there should be two-fifths and now we have this Amendment which says the amount should be three-fifths. Bearing in mind the general purpose of the transitional relief as I have stated it, we feel that four-fifths can be regarded as fair.
    In Committee, I was asked what the cost of a further reduction from four-fifths would be. I was not in a position then, and I must tell the House that I am not in a position now, to give a reliable estimate, because this is not a matter susceptible to the kind of calculation on which one can usefully put a figure. I do not want to exaggerate the matter, or to suggest that any very large sums are involved running into many millions of pounds as there were in some Amendments we discussed earlier today, but in some companies this could represent very substantial figures. It is not on that basis that I advise the House to
    reject the Amendment, but on the basis of the principle underlying the transitional relief.
    Mr. Emery: I speak again by leave of the House. I did not find the Financial Secretary's reply particularly convincing. There is no doubt that we shall not be able to see the effect until we see what happens in future. It is something which will affect companies on their reinvestment, and, as the Financial Secretary is unable to give us estimates, I advise my hon. Friends not to press this Amendment to a Division, because obviously the position will have to be re-examined in the light of events in the next two or three years.
    Mr. Lubbock: This is the second occasion this evening on which the Opposition have failed to press to a Division a matter which I consider to be of the utmost importance. I am at a loss to understand why they are being so squeamish in their treatment of these objectionable provisions.
    I was entirely dissatisfied with the Financial Secretary's answer. He failed to deal with the case of the overseas company which has ploughed a lot of money into development. I am thinking particularly of a mining company which, over a period of years, has invested in exploration in an overseas territory. It is only now beginning to receive any benefit from that investment. Hitherto it would have been able to pay dividends, but it is now going to be penalised by this Finance Bill—a position the board could not have foreseen at the time it decided to invest large sums overseas.
    I fear that the Clause will deter large mining companies in particular from investing at the same rate overseas as they have done in the past, and that this will do immense damage to the help we have given hitherto to developing countries, particularly in the Commonwealth.
    Therefore, whatever the hon. Member for Reading (Mr. Peter Emery) may say, this Amendment should be pressed to a Division.
    Question put, That "four-fifths" stand part of the Bill:—
    The House divided: Ayes 271, Noes 251.

    Division No. 250.]

    AYES

    [9.57 p.m.

    Abse, Leo

    Alldritt, Walter

    Bagier, Gordon A. T.

    Albu, Austen

    Atkinson, Norman

    Barnett, Joel

    Allaun, Frank (Salford, E.)

    Bacon, Miss Alice

    Baxter, William

    Beaney, Alan

    Harper, Joseph

    Orbach, Maurice

    Bellenger, Rt. Hn. F. J.

    Harrison, Walter (Wakefield)

    Orme, Stanley

    Bence, Cyril

    Hart, Mrs. Judith

    Oswald, Thomas

    Benn, Rt. Hn. Anthony Wedgwood

    Hattersley, Roy

    Owen, Will

    Bennett, J. (Glasgow, Bridgeton)

    Hayman, F. H.

    Padley, Walter

    Binns, John

    Hazell, Bert

    Page, Derek (King's Lynn)

    Bishop, E. S.

    Henderson, Rt. Hn. Arthur

    Paget, R. T.

    Blackburn, F.

    Herbison, Rt. Hn. Margaret

    Palmer, Arthur

    Blenkinsop, Arthur

    Hobden, Dennis (Brighton, K'town)

    Pannell, Rt. Hn. Charles

    Boston, T. G.

    Holman, Percy

    Pargiter, G. A.

    Bottomley, Rt. Hn. Arthur

    Houghton, Rt. Hn. Douglas

    Park, Trevor (Derbyshire, S.E.)

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

    Howarth, Harry (Wellingborough)

    Parker, John

    Boyden, James

    Howarth, Robert L. (Bolton, E.)

    Parkin, B. T.

    Braddock, Mrs. E. M.

    Howell, Denis (Small Heath)

    Pavitt, Laurence

    Bradley, Tom

    Howie, W.

    Pearson, Arthur (Pontypridd)

    Bray, Dr. Jeremy

    Hoy, James

    Pentland, Norman

    Broughton, Dr. A. D. D.

    Hughes, Cledwyn (Anglesey)

    Perry, Ernest G.

    Brown, Hugh D. (Glasgow, Provan)

    Hughes, Emrys (S. Ayrshire)

    Prentice, R. E.

    Brown, R. W. (Shoreditch & Fbury)

    Hughes, Hector (Aberdeen, N.)

    Price, J. T. (Westhoughton)

    Buchanan, Richard

    Hunter, Adam (Dunfermline)

    Probert, Arthur

    Butler, Herbert (Hackney, C.)

    Hunter, A. E. (Feltham)

    Pursey, Cmdr. Harry

    Butler, Mrs. Joyce (Wood Green)

    Hynd, H. (Accrington)

    Rankin, John

    Callaghan, Rt. Hn. James

    Hynd, John (Attercliffe)

    Redhead, Edward

    Carmichael, Neil

    Irving, Sydney (Dartford)

    Rees, Merlyn

    Castle, Rt. Hn. Barbara

    Janner, Sir Barnett

    Reynolds, G. W.

    Chapman, Donald

    Jeger, George (Goole)

    Rhodes, Geoffrey

    Coleman, Donald

    Jenkins, Hugh (Putney)

    Richards, Ivor

    Conlan, Bernard

    Jenkins, Rt. Hn. Roy (Stechford)

    Roberts, Albert (Normanton)

    Corbet, Mrs. Freda

    Johnson, Carol (Lewisham, s.)

    Roberts, Goronwy (Caernarvon)

    Cousins, Rt. Hn. Frank

    Johnson, James (K'ston-on-Hull, W.)

    Robertson, John (Paisley)

    Craddock, George (Bradford, S.)

    Jones, Dan (Burnley)

    Robinson, Rt. Hn. K. (St. Pancras, N.)

    Crawshaw, Richard

    Jones, Rt. Hn, Sir Elwyn (W. Ham, S.)

    Rodgers, William (Stockton)

    Crosland, Rt. Hn. Anthony

    Jones, J. Idwal (Wrexham)

    Rogers, George (Kensington, N.)

    Crossman, Rt. Hn. R. H. S.

    Jones, T. W. (Merioneth)

    Rose, Paul B.

    Dalyell, Tam

    Kelley, Richard

    Ross, Rt. Hn. William

    Darling, George

    Kenyon, Clifford

    Rowland, Christopher

    Davies, G. Elfed (Rhondda, E.)

    Kerr, Mrs. Anne (R'ter & Chatham)

    Sheldon, Robert

    Davies, S. O. (Merthyr)

    Kerr, Dr. David (W'worth, Central)

    Shinwell, Rt. Hn. E.

    de Freitas, Sir Geoffrey

    Lawson, George

    Shore, Peter (Stepney)

    Delargy, Hugh

    Leadbitter, Ted

    Short, Rt. Hn. E. (N'c'tle-on-Tyne, C.)

    Dell, Edmund

    Short, Mrs. Renée (W'hampton, N. E.)

    Dempsey, James

    Ledger, Ron

    Silkin, John (Deptford)

    Diamond, Rt. Hn. John

    Lever, Harold (Cheetham)

    Silkin, S. C. (Camberwell, Dulwich)

    Dodds, Norman

    Lever, L. M. (Ardwick)

    Silverman, Julius (Aston)

    Doig, Peter

    Lewis, Arthur (West Ham, N.)

    Silverman, Sydney (Nelson)

    Donnelly, Desmond

    Lipton, Marcus

    Skeffington, Arthur

    Driberg, Tom

    Loughlin, Charles

    Slater, Mrs. Harriet (Stoke, N.)

    Duffy, Dr. A. E. P.

    Mabon, Dr. J. Dickson

    Slater, Joseph (Sedgefield)

    Dunn, James A.

    McBride, Neil

    Small, William

    Dunnett, Jack

    MacColl, James

    Snow, Julian

    Edelman, Maurice

    MacDermot, Niall

    Soskice, Rt. Hn. Sir Frank

    Edwards, Rt. Hn. Ness (Caerphilly)

    McGuire, Michael

    Spriggs, Leslie

    Edwards, Robert (Bilston)

    McInnes, James

    Steele, Thomas (Dunbartonshire, W.)

    English, Michael

    McKay, Mrs. Margaret

    Stewart, Rt. Hn. Michael

    Ennals, David

    Mackenzie, Gregor (Rutherglen)

    Stonehouse, John

    Ensor, David

    Mackie, John (Enfield, E.)

    Evans, Albert (Islington, S. W.)

    MacMillan, Malcolm

    Stones, William

    Evans, Ioan (Birmingham, Yardley)

    Mahon, Peter (Preston, S.)

    Strauss, Rt. Hn. G. R. (Vauxhall)

    Fernyhough, E.

    Mahon, Simon (Bootle)

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

    Finch, Harold (Bedwellty)

    Mallalieu, E. L. (Brigg)

    Swain, Thomas

    Fitch, Alan (Wigan)

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

    Swingler, Stephen

    Fletcher, Sir Eric (Islington, E.)

    Manuel, Archie

    Symonda, J. B.

    Fletcher, Ted (Darlington)

    Mapp, Charles

    Taverne, Dick

    Fletcher, Raymond (Ilkeston)

    Marsh, Richard

    Taylor, Bernard (Mansfield)

    Floud, Bernard

    Mason, Roy

    Thomas, George (Cardiff, W.)

    Foley, Maurice

    Maxwell, Robert

    Thomas, Iorwerth (Rhondda, W.)

    Foot, Michael (Ebbw Vale)

    Mellish, Robert

    Thornton, Ernest

    Ford, Ben

    Mendelson, J. J.

    Tinn, James

    Fraser, Rt. Hn. Tom (Hamilton)

    Mikardo, Ian

    Tomney, Frank

    Galpern, Sir Myer

    Millan, Bruce

    Tuck, Raphael

    Garrett, W. E.

    Miller, Dr. M. S.

    Urwin, T. W.

    Ginsburg, David

    Milne, Edward (Blyth)

    Varley, Eric G.

    Gourlay, Harry

    Molloy, William

    Wainwright, Edwin

    Greenwood, Rt. Hn. Anthony

    Monslow, Walter

    Walden, Brian (All Saints)

    Gregory, Arnold

    Morris, Alfred (Wythenshawe)

    Walker, Harold (Doncaster)

    Grey, Charles

    Morris, John (Aberavon)

    Wallace, George

    Griffiths, David (Rother Valley)

    Murray, Albert

    Watkins, Tudor

    Griffiths, Rt. Hn. James (Llanelly)

    Neal, Harold

    Weitzman, David

    Griffiths, Will (M'chester, Exchange)

    Newens, Stan

    Wells, William (Walsall, N.)

    Gunter, Rt. Hn. R. J.

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

    White, Mrs. Eirene

    Hale, Leslie

    Norwood, Christopher

    Whitlock, William

    Hamilton, James (Bothwell)

    Oakes, Gordon

    Wigg, Rt. Hn. George

    Hamilton, William (West Fife)

    Ogden, Eric

    Wilkins, W. A.

    Hamling, William (Woolwich, W.)

    O'Malley, Brian

    Willey, Rt. Hn. Frederick

    Hannan, William

    Oram, Albert E. (E. Ham, S.)

    Williams, Alan (Swansea, W.)

    170

    171

    Williams, Clifford (Abertillery)

    Winterbottom, R. E.

    Williams, Mrs. Shirley (Hitchin)

    Woodburn, Rt. Hn. A.

    TELLERS FOR THE AYES:

    Willis, George (Edinburgh, E.)

    Woof, Robert

    Mr. Ifor Davies and

    Wilson, Rt. Hn. Harold (Huyton)

    Zilliacus, K.

    Mr. John McCann.

    Wilson, William (Coventry, S.)

    NOES

    Agnew, Commander Sir Peter

    Foster, Sir John

    MacArthur, Ian

    Alison, Michael (Barkston Ash)

    Fraser, Rt. Hn. Hugh (St'fford & Stone)

    Mackenzie, Alasdair (Ross & Crom'ty)

    Allan, Robert (Paddington, S.)

    Fraser, Ian (Plymouth, Sutton)

    McLaren, Martin

    Allason, James (Hemel Hempstead)

    Galbraith, Hn. T. G. D.

    Macleod, Rt. Hn. Iain

    Amery, Rt. Hn. Julian

    Gardner, Edward

    McNair-Wilson, Patrick

    Anstruther-Gray, Rt. Hn. Sir W.

    Gibson-Watt, David

    Maitland, Sir John

    Astor, John

    Giles, Rear-Admiral Morgan

    Marples, Rt. Hn. Ernest

    Atkins, Humphrey

    Gilmour, Ian (Norfolk, Central)

    Marten, Neil

    Awdry, Daniel

    Gilmour, Sir John (East Fife)

    Mathew, Robert

    Baker, W. H. K.

    Glover, Sir Douglas

    Maude, Angus

    Barber, Rt. Hn. Anthony

    Glyn, Sir Richard

    Maudling, Rt. Hn. Reginald

    Barlow, Sir John

    Codber, Rt. Hn. J. B.

    Mawby, Ray

    Batsford, Brian

    Goodhart, Philip

    Maxwell-Hyslop, R. J.

    Bell, Ronald

    Goodhew, Victor

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

    Bennett, Sir Frederic (Torquay)

    Gower, Raymond

    Meyer, Sir Anthony

    Berry, Hn. Anthony

    Grant, Anthony

    Mills, Peter (Torrington)

    Biffen, John

    Grant-Ferris, R.

    Miscampbell, Norman

    Biggs-Davison, John

    Grieve, Percy

    Mitchell, David

    Birch, Rt. Hn. Nigel

    Griffiths, Eldon (Bury St. Edmunds)

    Monro, Hector

    Black, Sir Cyril

    Griffiths, Peter (Smethwick)

    More, Jasper

    Blaker, Peter

    Gurden, Harold

    Morrison, Charles (Devizes)

    Bowen, Roderic (Cardigan)

    Hall, John (Wycombe)

    Munro-Lucas-Tooth, Sir Hugh

    Box, Donald

    Hall-Davis, A. G. F.

    Murton, Oscar

    Boyd-Carpenter. Rt. Hn. J.

    Hamilton, M. (Salisbury)

    Neave, Airey

    Boyle, Rt. Hn. Sir Edward

    Harris, Frederic (Croydon, N.W.)

    Nicholson, Sir Godfrey

    Brewis, John

    Harris, Reader (Heston)

    Noble, Rt. Hn. Michael

    Brinton, Sir Tatton

    Harvey, Sir Arthur Vere (Macclesf'd)

    Nugent, Rt. Hn. Sir Richard

    Bromley-Davenport, Lt.-Col. Sir Walter

    Harvey, John (Walthamstow, E.)

    Onslow, Cranley

    Brooke, Rt. Hn. Henry

    Harvie Anderson, Miss

    Orr-Ewing, Sir Ian

    Brown, Sir Edward (Bath)

    Hastings, Stephen

    Osborn, John (Hallam)

    Bruce-Gardyne, J.

    Hawkins, Paul

    Osborne, Sir Cyril (Louth)

    Bryan, Paul

    Hay, John

    Page, John (Harrow, W.)

    Buchanan-Smith, Alick

    Heald, Rt. Hn. Sir Lionel

    Page, R. Graham (Crosby)

    Bullus, Sir Eric

    Heath, Rt. Hn. Edward

    Pearson, Sir Frank (Clitheroe)

    Burden, F. A.

    Hendry, Forbes

    Peel, John

    Butcher, Sir Herbert

    Higgins, Terence L.

    Percival, Ian

    Campbell, Gordon

    Hiley, Joseph

    Peyton, John

    Carlisle, Mark

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

    Pickthorn, Rt. Hn. Sir Kenneth

    Carr, Rt. Hn. Robert

    Hirst, Geoffrey

    Pike, Miss Mervyn

    Cary, Sir Robert

    Hobson, Rt. Hn. Sir John

    Pitt, Dame Edith

    Channon, H. P. G.

    Hogg, Rt. Hn. Quintin

    Powell, Rt. Hn. J. Enoch

    Chataway, Christopher

    Hopkins, Alan

    Price, David (Eastleigh)

    Clark, William (Nottingham, S.)

    Hordern, Peter

    Pym, Francis

    Clarke, Brig. Terence (Portsmth, W.)

    Hornby, Richard

    Quennell, Miss J. M.

    Cole, Norman

    Hornsby-Smith, Rt. Hn. Dame P.

    Ramsden, Rt. Hn. James

    Cooke, Robert

    Howard, Hn. G. R. (St. Ives)

    Rawlinson, Rt. Hn, Sir Peter

    Cooper, A. E.

    Howe, Geoffrey (Bebington)

    Redmayne, Rt. Hn. Sir Martin

    Cooper-Key, Sir Neill

    Hunt, John (Bromley)

    Rees-Davies, W. R.

    Cordle, John

    Hutchison, Michael Clark

    Renton, Rt. Hn. Sir David

    Corfield, F. V.

    Iremonger, T. L.

    Ridley, Hn. Nicholas

    Costain, A. P.

    Irvine, Bryant Godman (Rye)

    Roberts, Sir Peter (Heeley)

    Courtney, Cdr. Anthony

    Jenkin, Patrick (Woodford)

    Rodgers, Sir John (Sevenoaks)

    Craddock, Beresford (Spelthorne)

    Johnson Smith, G. (East Grinstead)

    Roots, William

    Crawley, Aidan

    Johnston, Russell (Inverness)

    Scott-Hopkins, James

    Crosthwaite-Eyre, Col. Sir Oliver

    Jones, Arthur (Northants, S.)

    Sharples, Richard

    Crowder, F. P.

    Jopling, Michael

    Sinclair, Sir George

    Curran, Charles

    Joseph, Rt. Hn. Sir Keith

    Smith, Dudley (Br'ntf'd & Chiswick)

    Dalkeith, Earl of

    Kaberry, Sir Donald

    Smyth, Rt. Hn. Brig. Sir John

    Dance, James

    Kerr, Sir Hamilton (Cambridge)

    Soames, Rt. Hn. Christopher

    Davies, Dr. Wyndham (Perry Barr)

    Kershaw, Anthony

    Spearman, Sir Alexander

    d'Avigdor-Goldsmid, Sir Henry

    Kimball, Marcus

    Stainton, Keith

    Dean, Paul

    King, Evelyn (Dorset, S.)

    Stanley, Hn. Richard

    Deedes, Rt. Hn. W. F.

    Kitson, Timothy

    Steel, David (Roxburgh)

    Digby, Simon Wingfield

    Lagden, Godfrey

    Stodart, Anthony

    Doughty, Charles

    Lambton, Viscount

    Stoddart-Scott, Col. Sir Malcolm

    Douglas-Home, Rt. Hn. Sir Alec

    Lancaster, Col. C. G.

    Studholme, Sir Henry

    Drayson, G. B.

    Langford-Holt, Sir John

    Talbot, John E.

    Elliot, Capt. Walter (Carshalton)

    Legge-Bourke, Sir Harry

    Taylor, Edward M. (G'gow, Cathcart)

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

    Lewis, Kenneth (Rutland)

    Teeling, Sir William

    Emery, Peter

    Litchfield, Capt. John

    Temple, John M.

    Errington, Sir Eric

    Lloyd, Rt. Hn. Geoffrey (Sut'n C'dfield)

    Thatcher, Mrs. Margaret

    Farr, John

    Lloyd, Ian (P'tsm'th, Langstone)

    Thomas, Sir Leslie (Canterbury)

    Fell, Anthony

    Lloyd, Rt. Hn. Selwyn (Wirral)

    Thomas, Rt. Hn. Peter (Conway)

    Fisher, Nigel

    Loveys, Walter H.

    Thompson, Sir Richard (Croydon, S.)

    Fletcher-Cooke, Charles (Darwen)

    Lucas, Sir Jocelyn

    Tiley, Arthur (Bradford, W.)

    Fletcher-Cooke, Sir John (S'pton)

    McAdden, Sir Stephen

    Tilney, John (Wavertree)

    172

    173

    Turton, Rt. Hn. R. H.

    Ward, Dame Irene

    Woodhouse, Hn. Christopher

    Tweedsmuir, Lady

    Weatherill, Bernard

    Woodnutt, Mark

    van Straubenzee, W. R.

    Wells, John (Maidstone)

    Wylie, N. R.

    Vaughan-Morgan, Rt. Hn. Sir John

    Whitelaw, William

    Yates, William (The Wrekin)

    Vickers, Dame Joan

    Williams, Sir Rolf Dudley (Exeter)

    Younger, Hn. George

    Walder, David (High Peak)

    Wills, Sir Gerald (Bridgwater)

    Walker, Peter (Worcester)

    Wise, A. R.

    TELLERS FOR THE NOES:

    Walker-Smith, Rt. Hn. Sir Derek

    Wolrige-Gordon, Patrick

    Mr. Eric Lubbock and

    Wall, Patrick

    Wood, Rt. Hn. Richard

    Mr. Peter Bessell.

    Sir E. Boyle: I beg to move Amendment No. 344, Clause 79, in page 159, line 45, at the end to insert:
    (d) if in the related period of any year of assessment for which relief is claimed there has been any increase in the company's profits over the profits of the next preceding accounting period, then for the purposes of this subsection the dividends paid by the company in the year of assessment shall be treated as reduced by the proportion of the excess that the dividends paid in the next preceding year of assessment bore to the profits of the next preceding accounting period.
    The purpose of the Amendment is to ensure that as, during the seven-year transitional period, the profits of a company investing overseas rise, the dividends should be able to rise in proportion. I should like to make clear to the House at the start of my remarks that it is certainly our intention on this side of the House if necessary to press the Amendment to a Division. The only reason why it was not our intention originally to press the previous Amendment to a Division was that each of these Amendments relates to Clause 79(4); and it is a fairly common proceeding on the Report stage of the Finance Bill that when we have two successive Amendments to a subsection we divide on one but not on both.
    I should like to explain why we consider this Amendment of considerable importance. The Chancellor said in Committee, and the Financial Secretary has said it again just now, that Clause 79 as amended by the Chancellor is an expensive Clause. That may be, but it is also important to remember that the Chancellor's Amendments have made subsection (4) a more serious matter than it was before, because the subsection means that we now have not a five-year transitional period but a seven-year transitional period. Therefore the idea of a seven-year dividend freeze is clearly a more serious matter than a five-year dividend freeze, and it is that matter with which the Amendment seeks to deal.
    We have made it quite clear, and I think that I made it clear in Committee,
    174
    that we had two strong objections to the thought of a seven-year dividend freeze for the companies investing overseas. First, I pointed out that it was in the public interest and not just in the shareholders' interest that a corporation should be able to go to the market on reasonable terms. One reason which I pointed out was that it was clearly in the interest of our balance of payments that shareholders in this country should be able to act as a catalyst to attract overseas borrowing. Secondly, I pointed out that in my view any idea of dividend limitation over a long period was totally contrary to the economic system as we have it in this country, and with some justice I quoted from the writing of Mr. Kaldor himself during the early 1950s in advancing that point.
    I give a simple example of the purpose of the Amendment. The Amendment says that if one takes a company which in the past year has profits of £1,000 and distributes £50, then, during the period of seven-year transition, if its profits rise to £1,200 it should be able to raise dividends in proportion, that is to £60, without suffering the penalties under this subsection.
    What were the arguments in Committee which the Chancellor raised against the Amendments which we moved then and which are relevant to the Amendment which I am moving now? The Chancellor simply relied on two points. First of all, he said that he had a choice between being fair to the company and being fair to the nation. We on this side simply do not accept that distinction. It is in the national interest, not just in the shareholders' interest, that companies should be able to raise capital on reasonable terms.
    10.15 p.m.
    Second, the Chancellor said that he must see that he does not give away too much of the taxpayers' money. I was interested in his remark,
    "I should like to give away more, in one sense, to the shareholders … "—[OFFICIAL REPORT, 22nd June, 1965 Vol. 714, c. 1571.]

    175
    I do not quite know what he meant by those words, "in one sense". When people say that they would like to do something "in one sense" or "in the strict sense", they are apt to become rather obscure. I think that it was Dean Inge, years ago, who said that, in the strict sense Marx was not a Marxist. I am not at all clear what the Chancellor meant when he said that he would like to give away more, "in one sense", to the shareholders.
    But in any case I do not have to pursue that inquiry too far because the Financial Secretary, in replying to the last Amendment, gave me the point which is the most important one of all. He said, quite rightly, that the essential matter for large corporations trading abroad and earning income for this country is growth. I completely agree. I am sure that the hon. and learned Gentleman will not dispute that growth is bound up with the raising of new capital, and neither will he dispute in this context the importance of not cutting dividends and not restraining the increase of dividends below what is reasonable.
    I maintain that, if a company increases its profits, it is entirely right and reasonable that its dividends should grow in proportion so that the proportion of dividend cover remains as it was before. The proposal we now make in this respect is entirely reasonable from the point of view of the transition period covered by the Clause.
    I realise the Chancellor's difficulty here. The transitional arrangements are so designed, and the drafting of the Clause is such, that the help which is given under it is in the form of, as it were, special assistance. But I maintain that, although it may not be possible to devise a Clause which in all respects works absolutely equitably—indeed, one of our objections to the scheme of Corporation Tax in the Bill especially in its overseas aspects, is precisely that it will not work out equitably, and that there are a number of companies which will feel hardly done by—it is possible in this instance to devise a formula which will work equitably as between one company and another. The idea of dividends rising in proportion to profits is a perfectly simple matter and one which the Chancellor could adopt
    176
    without violating the general principles in the Bill.
    Those are the reasons why, quite rightly, we come back to this matter on Report. We regard acceptance of this Amendment as essential for large corporations whose growth is of vital importance to this country. My hon. Friend the Member for Reading (Mr. Peter Emery) has already referred to the Chancellor's statement in Committee that those chairmen whom he had consulted had told him that they intended to continue with overseas investment, and he has drawn attention to the correspondence in The Times since we last raised this matter.
    I maintain that the Amendment is entirely justified in itself. It is essential that these large corporations should be able to pursue a policy of growth and to raise capital on reasonable terms. The Chancellor could accept this Amendment without violating the general principles of the Corporation Tax which he has introduced. We object to a number of aspects of his scheme of Corporation Tax. We cannot believe that it will remain unaltered for the future, but we cannot now, on this Amendment, go over the debates on Clause 60 again. However, even within this general framework, this is an Amendment which ought to be accepted, and I, therefore, press it strongly in the hope that, even at this late stage, the Financial Secretary will show that he realises how important is the raising of capital to these corporations whose activities are vital to the nation.
    Mr. MacDermot: We are dealing with an Amendment very similar to the last one. We are not only going over again ground which we covered in Committee; we are inevitably going over a good deal of the ground that we covered just a few minutes ago. I say at once to the right hon. Gentleman that if we felt able to move in the direction in which we are being urged to move on this Clause, I think that this Amendment would provide a better guide to the kind of action that we should take rather than the last one, because it is directly related to the growth factor.
    The point of common agreement which is established between us is that for these companies which are in need of transitional relief the long-term solution must lie in growth. There have been argument as to where the greatest incentive to

    177
    growth comes and where growth companies look to for their capital—to what extent it comes from plough-back, to what extent it comes from going into the market for fresh capital. It is easy, but foolish, to generalise too much on these matters because circumstances vary enormously for different companies.
    For that reason, I would accept to some extent what the right hon. Gentleman has said, that whatever solution one takes in these matters it may broadly be the right solution but it will not meet the case of every single company. That is inevitable when one is seeking to alter a tax system in this way, which we believe will provide more useful real incentives. That, we think, applies also to our treatment of this problem, because we think that by limiting the concession as we are doing in the case of companies which pay increased dividends so that four-fifth of that increase goes in reduction of the amount they receive by way of relief, we are providing a real built-in incentive to the companies to plough back their increased profits in a way that will assist them in the long run towards the solution of their own problems.
    This must, as I say, be a matter for the individual judgment of particular boards as to how their own company is affected. We have to take a general view and say which way we think that the incentives should operate. But, as I commented on the last Amendment that we discussed, when one has a company trading overseas, it is trading in a country with a high rate of company taxation. This is, by definition, what we are considering, because it is here throat the overspill relief problem arises—how it is going to meet the ultimate situation when the transition period is over and it is then confronted with the effect of the Corporation Tax system with no overspill relief for that higher tax that it pays abroad than the Corporation Tax in this country.
    Broadly, such companies are faced with a choice, either that they seek during the interim period to expand and increase their overseas trading by increased investment abroad so that at the end of the
    period they will be able to pay as good dividends to their shareholders here and continue with a prosperous business overseas, or, if they think that this is not something which they feel confident they can do, they may take the alternative decision and bring back their profits to this country and invest them here.
    But we think that the right kind of incentive which we ought to build into the tax system is to provide an incentive to such companies to plough back, to maintain their position overseas and to be able to use this transition period for the purpose for which it was originally asked and for which it is designed—to tide them over this period, to enable them to do the requisite amount of reinvestment without depriving their shareholders of the sort of dividend distribution to which they have been accustomed.
    It is for these reasons that, as a matter of judgment, we think it right to stand by our decision. As the hon. Member for Reading (Mr. Emery) said in discussing the last Amendment, it is a matter of judgment and on any basis it will be some years before one can see whose judgment is proved right. If, in that situation then, it is shown that some companies are being harshly treated, no doubt that will be considered by the Chancellor of the day. But, as matters stand, we feel bound to advise the House to adhere to the Government's decision.
    Mr. Peter Emery: Although it may be a matter of judgment, we are trying to establish a definite principle that, where there is a rise of profits, these companies should have the right to a rise in their dividend distribution. Let it be clearly understood that twice we have asked for substantiation of the Chancellor's remarks in Committee which are being contradicted outside this House and that at no time have we had a direct answer. It was obvious that the hon. and learned Gentleman did not have his heart in his work and we urge the House to divide.
    Question put, That those words be there inserted in the Bill:—
    The House divided: Ayes 254, Noes 272.

    Division No. 251.]

    AYES

    [10.27 p.m.

    Agnew, Commander Sir Peter

    Amery, Rt. Hn. Julian

    Awdry, Daniel

    Alison, Michael (Barkston Ash)

    Anstruther-Gray, Rt. Hn. Sir W.

    Baker, W. H. K.

    Allan, Robert (Paddington, S.)

    Astor, John

    Barber, Rt. Hn. Anthony

    Allason, James (Hemel Hempstead)

    Atkins, Humphrey

    Barlow, Sir John

    Batsford, Brian

    Grant, Anthony

    Murton, Oscar

    Bell, Ronald

    Grant-Ferris, R.

    Neave, Airey

    Berry, Hn. Anthony

    Gresham Cooke, R.

    Nicholson, Sir Godfrey

    Bessell, Peter

    Grieve, Percy

    Noble, Rt. Hn. Michael

    Biffen, John

    Griffiths, Eldon (Bury St. Edmunds)

    Nugent, Rt. Hn. Sir Richard

    Biggs-Davison, John

    Griffiths, Peter (Smethwick)

    Onslow, Cranley

    Birch, Rt. Hn. Nigel

    Gurden, Harold

    Orr-Ewing, Sir Ian

    Black, Sir Cyril

    Hall, John (Wycombe)

    Osborn, John (Hallam)

    Blaker, Peter

    Hall-Davis, A. G. F.

    Osborne, Sir Cyril (Louth)

    Bowen, Roderic (Cardigan)

    Hamilton, M. (Salisbury)

    Page, John (Harrow, W.)

    Box, Donald

    Harris, Frederic (Croydon, N.W.)

    Page, R. Graham (Crosby)

    Boyd-Carpenter, Rt. Hn. J.

    Harris. Reader (Heston)

    Pearson, Sir Frank (Clitheroe)

    Boyle, Rt. Hn. Sir Edward

    Harvey, Sir Arthur Vere (Macclesf'd)

    Peel, John

    Braine, Bernard

    Harvey, John (Walthamstow, E.)

    Percival, Ian

    Brewis, John

    Harvie Anderson, Miss

    Peyton, John

    Brinton, Sir Tatton

    Hastings, Stephen

    Pickthorn, Rt. Hn. Sir Kenneth

    Bromley-Davenport, Lt.-Col. Sir Walter

    Hawkins, Paul

    Pike, Miss Mervyn

    Brooke, Rt. Hn. Henry

    Hay, John

    Pitt, Dame Edith

    Brown, Sir Edward (Bath)

    Heald, Rt. Hn. Sir Lionel

    Powell, Rt. Hn. J. Enoch

    Bruce-Gardyne, J.

    Heath, Rt. Hn. Edward

    Price, David (Eastleigh)

    Bryan, Paul

    Hendry, Forbes

    Pym, Francis

    Buchanan-Smith, Alick

    Higgins, Terence L.

    Quennell, Miss J. M.

    Bullus, Sir Eric

    Hiley, Joseph

    Ramsden, Rt. Hn. James

    Burden, F. A.

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

    Rawlinson, Rt. Hn. Sir Peter

    Butcher, Sir Herbert

    Hirst, Geoffrey

    Redmayne, Rt. Hn. Sir Martin

    Campbell, Gordon

    Hobson, Rt. Hn. Sir John

    Rees-Davies, W. R.

    Carlisle, Mark

    Hogg, Rt. Hn. Quintin

    Renton, Rt. Hn. Sir David

    Carr, Rt. Hn. Robert

    Hopkins, Alan

    Ridley, Hn. Nicholas

    Cary, Sir Robert

    Hordern, Peter

    Roberts, Sir Peter (Heeley)

    Channon, H. P. G.

    Hornby, Richard

    Rodgers, Sir John (Sevenoaks)

    Chataway, Christopher

    Hornsby-Smith, Rt. Hn. Dame P.

    Roots, William

    Clark, William (Nottingham, S.)

    Howard, Hn. G. R. (St. Ives)

    Scott-Hopkins, James

    Clarke, Brig. Terence (Portsmth, W.)

    Howe, Geoffrey (Bebington)

    Sharples, Richard

    Cole, Norman

    Hunt, John (Bromley)

    Sinclair, Sir George

    Cooke, Robert

    Hutchison, Michael Clark

    Smith, Dudley (Br'ntf'd & Chiswick)

    Cooper, A. E.

    Iremonger, T. L.

    Smyth, Rt. Hn. Brig. Sir John

    Cooper-Key, Sir Neill

    Irvine, Bryant Godman (Rye)

    Soames, Rt. Hn. Christopher

    Cordle, John

    Jenkin, Patrick (Woodford)

    Spearman, Sir Alexander

    Corfield, F. V.

    Johnston, Russell (Inverness)

    Costain, A. P.

    Jones, Arthur (Northants, S.)

    Stainton, Keith

    Courtney, Cdr. Anthony

    Jopling, Michael

    Stanley, Hn. Richard

    Craddock, Sir Beresford (Spelthorne)

    Joseph, Rt. Hn. Sir Keith

    Steel, David (Roxburgh)

    Crawley, Aidan

    Kaberry, Sir Donald

    Stodart, Anthony

    Crosthwaite-Eyre, Col. Sir Oliver

    Kerr, Sir Hamilton (Cambridge)

    Stoddart-Scott, Col. Sir Malcolm

    Crowder, F. P.

    Kershaw, Anthony

    Studholme, Sir Henry

    Curran, Charles

    Kimball, Marcus

    Talbot, John E.

    Dalkeith, Earl of

    King, Evelyn (Dorset, S.)

    Taylor, Edward M. (G'gow, Cathcart)

    Dance, James

    Kitson, Timothy

    Teeling, Sir William

    Davies, Dr. Wyndham (Perry Barr)

    Lagden, Godfrey

    Temple, John M.

    d'Avigdor-Goldsmid, Sir Henry

    Lambton, Viscount

    Thatcher, Mrs. Margaret

    Dean, Paul

    Lancaster, Col. C. G.

    Thomas, Sir Leslie (Canterbury)

    Deedes, Rt. Hn. W. F.

    Langford-Holt, Sir John

    Thomas, Rt. Hn. Peter (Conway)

    Digby, Simon Wingfield

    Legge-Bourke, Sir Harry

    Thompson, Sir Richard (Croydon, S.)

    Dodds-Parker, Douglas

    Lewis, Kenneth (Rutland)

    Tiley, Arthur (Bradford, W.)

    Doughty, Charles

    Litchfield, Capt. John

    Tilney, John (Wavertree)

    Douglas-Home, Rt. Hn. Sir Alec

    Lloyd, Rt. Hn. Geoffrey (Sut'n C'dfield)

    Turton, Rt. Hn. R. H.

    Drayson, G. B.

    Lloyd, Ian (P'tsm'th, Langstone)

    Tweedsmuir, Lady

    du Cann, Rt. Hn. Edward

    Lloyd, Rt. Hn. Selwyn (Wirral)

    van Straubenzee, W. R.

    Elliot, Capt. Walter (Carshalton)

    Loveys, Walter H.

    Vaughan-Morgan, Rt. Hn. Sir John

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

    Lubbock, Eric

    Vickers, Dame Joan

    Emery, Peter

    Lucas, Sir Jocelyn

    Walder, David (High Peak)

    Errington, Sir Eric

    McAdden, Sir Stephen

    Walker, Peter (Worcester)

    Farr, John

    MacArthur, Ian

    Walker-Smith, Rt. Hn. Sir Derek

    Fell, Anthony

    Mackenzie, Alasdair (Ross & Crom'ty)

    Wall, Patrick

    Fisher, Nigel

    McLaren, Martin

    Fletcher-Cooke, Charles (Darwen)

    Macleod, Rt. Hn. Iain

    Ward, Dame Irene

    Fletoher-Cooke, Sir John (S'pton)

    McNair-Wilson, Patrick

    Weatherill, Bernard

    Maitland, Sir John

    Wells, John (Maidstone)

    Foster, Sir John

    Marples, Rt. Hn. Ernest

    Whitelaw, William

    Fraser, Rt. Hn. Hugh (St'fford & Stone)

    Marten, Neil

    Williams, Sir Rolf Dudley (Exeter)

    Fraser, Ian (Plymouth, Sutton)

    Mathew, Robert

    Wills, Sir Gerald (Bridgwater)

    Galbraith, Hn. T. G. D.

    Maude, Angus

    Wise, A. R.

    Gardner, Edward

    Maudling, Rt. Hn. Reginald

    Wolrige-Gordon, Patrick

    Gibson-Watt, David

    Mawby, Ray

    Wood, Rt. Hn. Richard

    Giles, Rear-Admiral Morgan

    Maxwell-Hyslop, R. J.

    Woodhouse, Hn. Christopher

    Gilmour, Ian (Norfolk, Central)

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

    Woodnutt, Mark

    Gilmour, Sir John (East Fife)

    Meyer, Sir Anthony

    Wylie, N. R.

    Glover, Sir Douglas

    Mills, Peter (Torrington)

    Yates, William (The Wrekin)

    Glyn, Sir Richard

    Miscampbell, Norman

    Younger, Hn. George

    Godber, Rt. Hn. J. B.

    Mitchell, David

    Goodhart, Philip

    Monro, Hector

    TELLERS FOR THE AYES:

    Goodhew, Victor

    Morrison, Charles (Devizes)

    Mr. Geoffrey Johnson Smith and

    Gower, Raymond

    Munro-Lucas-Tooth, Sir Hugh

    Mr. Jasper More.

    180

    181

    NOES

    Abse, Leo

    Garrett, W. E.

    Miller, Dr. M. S.

    Albu, Austen

    Ginsburg, David

    Milne, Edward (Blyth)

    Allaun, Frank (Salford, E.)

    Gourlay, Harry

    Molloy, William

    Alldritt, Walter

    Greenwood, Rt. Hn. Anthony

    Monslow, Walter

    Atkinson, Norman

    Gregory, Arnold

    Morris, Alfred (Wythenshawe)

    Bacon, Miss Alice

    Grey, Charles

    Morris, John (Aberavon)

    Bagier, Gordon A. T.

    Griffiths, David (Rother Valley)

    Mulley, Rt. Hn. Frederick (Sheffield Pk)

    Barnett, Joel

    Griffiths, Rt. Hn. James (Llanelly)

    Murray, Albert

    Baxter, William

    Griffiths, Will (M'chester, Exchange)

    Neal, Harold

    Beaney, Alan

    Gunter, Rt. Hn. R. J.

    Newens, Stan

    Bellenger, Rt. Hn. F. J.

    Hale, Leslie

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

    Bence, Cyril

    Hamilton, James (Bothwell)

    Norwood, Christopher

    Benn, Rt. Hn. Anthony Wedgwood

    Hamilton, William (West Fife)

    Oakes, Gordon

    Bennett, J. (Glasgow, Bridgeton)

    Hamling, William (Woolwich, W.)

    Ogden, Eric

    Binns, John

    Hannan, William

    O'Malley, Brian

    Bishop, E. S.

    Harrison, Walter (Wakefield)

    Oram, Albert E. (E. Ham, S.)

    Blackburn, F.

    Hart, Mrs. Judith

    Orbach, Maurice

    Blenkinsop, Arthur

    Hattersley, Roy

    Orme, Stanley

    Boston, Terence

    Hazell, Bert

    Oswald, Thomas

    Bottomley, Rt. Hn. Arthur

    Henderson, Rt. Hn. Arthur

    Owen, Will

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

    Herbison, Rt. Hn. Margaret

    Padley, Walter

    Boyden, James

    Hobden, Dennis (Brighton, K'town)

    Page, Derek (King's Lynn)

    Braddock, Mrs. E. M.

    Holman, Percy

    Paget, R. T.

    Bradley, Tom

    Houghton, Rt. Hn. Douglas

    Palmer, Arthur

    Bray, Dr. Jeremy

    Howarth, Harry (Wellingborough)

    Pannell, Rt. Hn. Charles

    Broughton, Dr. A. D. D.

    Howarth, Robert L. (Bolton, E.)

    Pargiter, G. A.

    Brown, Hugh D. (Glasgow, Provan)

    Howell, Denis (Small Heath)

    Park, Trevor (Derbyshire, S.E.)

    Brown, R. W. (Shoreditch & Fbury)

    Howie, w.

    Parker, John

    Buchanan, Richard

    Hoy, James

    Parkin, B. T.

    Butler, Herbert (Hackney, C.)

    Hughes, Cledwyn (Anglesey)

    Pavitt, Laurence

    Butler, Mrs. Joyce (Wood Green)

    Hughes, Emrys (S. Ayrshire)

    Pearson, Arthur (Pontypridd)

    Callaghan, Rt. Hn. James

    Hughes, Hector (Aberdeen, N.)

    Peart, Rt. Hn. Fred

    Carmichael, Neil

    Hunter, Adam (Dunfermline)

    Pentland, Noman

    Castle, Rt. Hn Barbara

    Hynd, H. (Accrington)

    Perry, Ernest G.

    Chapman, Donald

    Hynd, John (Attercliffe)

    Prentice, R. E.

    Coleman, Donald

    Irving, Sydney (Dartford)

    Price, J. T. (Westhoughton)

    Conlan, Bernard

    Janner, Sir Barnett

    Probert, Arthur

    Corbet, Mrs. Freda

    Jeger, George (Goole)

    Pursey, Cmdr. Harry

    Cousins, Rt. Hn. Frank

    Jenkins, Hugh (Putney)

    Rankin, John

    Craddock, George (Bradford, S.)

    Jenkins, Rt. Hn. Roy (Stetchford)

    Redhead, Edward

    Crawshaw, Richard

    Johnson, Carol (Lewisham, S.)

    Rees, Merlyn

    Cronin, John

    Johnson, James (K'ston-on-Hull, W.)

    Reynolds, G. W.

    Crosland, Rt. Hn. Anthony

    Jones, Dan (Burnley)

    Rhodes, Geoffrey

    Jones, Rt. Hn. Sir Elwyn (W. Ham, S.)

    Richard, Ivor

    Crossman, Rt. Hn. R. H. S.

    Jones, J. Idwal (Wrexham)

    Roberts, Albert (Normanton)

    Cullen, Mrs. Alice

    Jones, T. w. (Merioneth)

    Roberts, Goronwy (Caernarvon)

    Dalyell, Tam

    Kelley, Richard

    Robertson, John (Paisley)

    Darling, George

    Kenyon, Clifford

    Robinson, Rt. Hn. K. (St. Pancras, N.)

    Davies, G. Elfed (Rhondda, E.)

    Kerr, Mrs. Anne (R'ter & Chatham)

    Rodgers, William (Stockton)

    Davies, S. O. (Merthyr)

    Kerr, Dr. David (W'worth, Central)

    Rogers, George (Kensington, N.)

    de Freitas, Sir Geoffrey

    Lawson, George

    Rose, Paul B.

    Delargy, Hugh

    Leadbitter, Ted

    Ross, Rt. Hn. William

    Dell, Edmund

    Ledger, Ron

    Rowland, Christopher

    Dempsey, James

    Lever, Harold (Cheetham)

    Sheldon, Robert

    Diamond, Rt. Hn. John

    Lever, L. M. (Ardwick)

    Shinwell, Rt. Hn. E.

    Dodds, Norman

    Lewis, Arthur (West Ham, N.)

    Shore, Peter (Stepney)

    Doig, Peter

    Lipton, Marcus

    Short, Rt. Hn. E. (N'c'tle-on-Tyne, C.)

    Donnelly, Desmond

    Loughlin, Charles

    Short, Mrs. Renée (W'hampton, N. E.)

    Driberg, Tom

    Mabon, Dr. J. Dickson

    Silkin, John (Deptford)

    Duffy, Dr. A. E. P.

    McBride, Neil

    Silkin, S. C. (Camberwell, Dulwich)

    Dunn, James A.

    McCann, J.

    Silverman, Julius (Aston)

    Dunnett, Jack

    MacColl, James

    Skeffington, Arthur

    Edelman, Maurice

    MacDermot, Niall

    Slater, Mrs. Harriet (Stoke, N.)

    Edwards, Rt. Hn. Ness (Caerphilly)

    McGuire, Michael

    Slater, Joseph (Sedgefield)

    Edwards, Robert (Bilston)

    McInnes, James

    Small, William

    English, Michael

    McKay, Mrs. Margaret

    Snow, Julian

    Ennals, David

    Mackenzie, Gregor (Rutherglen)

    Soskice, Rt. Hn. Sir Frank

    Ensor, David

    Mackie, John (Enfield, E.)

    Steele, Thomas (Dunbartonshire, W.)

    Evans, Albert (Islington, S.W.)

    MacMillan, Malcolm

    Stewart, Rt. Hn. Michael

    Evans, Ioan (Birmingham, Yardley)

    Mahon, Peter (Preston, S.)

    Stonehouse, John

    Fernyhough, E.

    Mahon, Simon (Bootle)

    Stones, William

    Finch, Harold (Bedwellty)

    Mallalieu, E. L. (Brigg)

    Strauss, Rt. Hn. G. R. (Vauxhall)

    Fitch, Alan (Wigan)

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

    Swain, Thomas

    Fletcher, Sir Eric (Islington, E.)

    Manuel, Archie

    Swingler, Stephen

    Fletcher, Ted (Darlington)

    Mapp, Charles

    Symonds, J. B.

    Fletcher, Raymond (Ilkeston)

    Marsh, Richard

    Taverne, Dick

    Floud, Bernard

    Mason, Roy

    Taylor, Bernard (Mansfield)

    Foley, Maurice

    Maxwell, Robert

    Thomas, George (Cardiff, W.)

    Foot, Sir Dingle (Ipswich)

    Mayhew, Christopher

    Thomas, Iorwerth (Rhondda, W.)

    Foot, Michael (Ebbw Vale)

    Mellish, Robert

    Thornton, Ernest

    Ford, Ben

    Mendelson, J. J.

    Tinn, James

    Fraser, Rt. Hn. Tom (Hamilton)

    Mikardo, Ian

    Tomney, Frank

    Galpern, Sir Myer

    Millan, Bruce

    Tuck, Raphael

    182

    183

    Urwin, T. W.

    White, Mrs. Eirene

    Wilson, Rt. Hn. Harold (Huyton)

    Varley, Eric G.

    Whitlock, William

    Wilson, William (Coventry, S.)

    Wainwright, Edwin

    Wigg, Rt. Hn. George

    Winterbottom, R. E.

    Walden, Brian (All Saints)

    Wilkins, W. A.

    Woodburn, Rt. Hn. A.

    Walker, Harold (Doncaster)

    Willey, Rt. Hn. Frederick

    Woof, Robert

    Wallace, George

    Williams, Alan (Swansea, W.)

    Zilliacus, K.

    Watkins, Tudor

    Williams, Clifford (Abertillery)

    Weitzman, David

    Williams, Mrs. Shirley (Hitchin)

    TELLERS FOR THE NOES:

    Wells, William (Walsall, N.)

    Willis, George (Edinburgh, E.)

    Mr. Ifor Davies and

    Mr. Joseph Harper.

    Clause 80.—(TRANSITIONAL RELIEF FOR COMPANIES PAYING DIVIDENDS OUT OF PRE-1966–67 PROFITS.)
    Mr. Diamond: I beg to move, Amendment No. 209, Clause 80, in page 162, line 22, after "at" to insert:
    "(subject to subsection (3A) below)".
    I hope that it will be convenient to discuss at the same time Amendments Nos. 210 and 211.
    Mr. Deputy-Speaker (Dr. Horace King): If the House has no objection.
    Mr. Edward Heath: That is agreeable.
    Mr. Diamond: The Amendments are consequential on the concessions made by the new Schedule 18 added to the Bill in Committee. They provide that for the purpose of the one-year surplus relief under Clause 80, the dividend income of the year 1965–66 shall not include income by way of dividends from subsidiaries if those dividends would have been treated as forestalling dividends had the forestalling rule applied to dividends from subsidiaries to parents.
    Amendment agreed to.
    Mr. William Clark: I beg to move, Amendment No. 256, Clause 80, in page 162, line 36, to leave out "the appropriate fraction of".
    Mr. Deputy-Speaker: With this Amendment should be discussed the following:
    Amendment No. 255, Clause 80, in page 162, line 24, to leave out from "rate" to "deducted" in line 25.
    Amendment No. 257, Clause 80, in page 162, line 38, to leave out from "above" to the end of line 42.
    Amendment No. 258, Clause 80, in page 162, line 42, at the end to insert
    "and
    (d) any double taxation relief deducted in arriving at the profits tax charged on the company under (b) above and the income tax borne by the company under (c) above".
    Mr. Clark: These are highly technical Amendments, and it is gratifying to see so many hon. Members on the Government benches, who will no doubt take part in the deliberations on them. The series of Amendments is directed to dealing with the company which is on an
    186
    actual rather than an assessment basis. The one-year surplus calculation under Clause 80 is designed to give transitional relief to a company. One of the provisions of the Clause is that if a company's income includes dividends where the net United Kingdom rate of restriction applies, the transitional relief which that company can obtain against the tax which it has to account for on its own dividends payable shall be limited to the net United Kingdom rate on the dividend received.
    This is where the technicality arises. Under Section 350 (1, a) of the Income Tax Act, 1952, where the net United Kingdom relief is adopted, it is applied only to the personal taxpayers for a personal repayment. As Clause 80 is drafted, the net United Kingdom rate is being applied to the company rather than to the resultant recipient of the dividend.
    May I point out to the Chief Secretary how this works? Take a company with an investment income of £10 million in the year ended 5th April, 1966. It is a constant £10 million; consequently, if we take the year to 31st October, 1966, it is still £10 million. Under the 1952 Act the Company can receive this £10 million dividend and pay a gross dividend of £10 million.
    I will not weary the House with the arithmetical computation of what happens under Clause 80, but the result is that where the half-year's dividend—£5 million out of £10 million—is paid, because of this restriction of the net United Kingdom rate for the company, in fact the company will pay an extra £1,262,500.
    I am sure that this was not the Government's idea when they proposed Clause 80, but I assure the Chief Secretary that there is a clear point of principle here. We seem to be getting away from Section 350 of the 1952 Act. I am sure that the hon. Member for Heywood and Royton (Mr. Barnett) agrees with me. This has been in our tax legislation for the last 13 years and even before that, but now the onus of being at a net United Kingdom rate, instead of being on the recipient of the dividend, where I suggest it rightly belongs, is being placed on the company.
    I hope that the Chief Secretary will look at the point. I am sure that he has

    187
    worked out various examples of the effect of the Clause, and he must agree that an anomalous position is created whereby, because it overlaps the 1965–66 provisions of the transitional one-year surplus, a company is being penalised to the extent of £1¼ million.
    10.45 p.m.
    Mr. Diamond: I listened closely to everything the hon. Member for Nottingham, South (Mr. William Clark) said, but I do not know why he said that this was such a technical matter. It is perfectly straightforward and all my hon. Friends completely understand it. It is simply that under the Clause a company is allowed to pay a dividend without paying the tax if it has real tax in its kitty to use. The hon. Gentleman is saying, "No. Do not let us have real tax but pretend tax". My hon. Friends understand full well the difference between real tax and pretend tax, and that is why we cannot accept the Amendment.
    Amendment negatived.
    Amendments made: Amendment No. 210, Clause 80, in page 162, line 38, leave out "at (a) above", and insert:
    "deducted from dividends received from companies resident in the United Kingdom".—[Mr. Diamond.]
    Amendment No. 211, Clause 80, in page 163, line 6, at end insert:
    (3A) Where the dividends received by the company in the year 1965–66 include dividends from a member of the same group of companies, and that member pays in the year a gross amount in dividends greater than its standard amount, then there shall be excluded from the dividends taken into account under subsection (3)(a) above a part of the dividends received from that member which bears to the whole the same proportion as the excess bears to all the dividends paid by that member in the year 1965–66:
    Provided that this subsection shall not apply unless the gross amount of the dividends received by the company in the year 1965–66 from members of the same group of companies exceeds one-third of the gross amount of the dividends received by the company in its standard period from companies then being members of the same group of companies (or, if the standard period is less than three years, an amount bearing to the dividends last mentioned the same proportion as one year bears to the standard period), and where any dividends would fall to be excluded under this subsection, the company may elect that the exclusion shall be of such part of the dividends received from members of the same group as is equal to the excess referred to in this proviso.
    188
    This subsection shall be construed in accordance with section 78 of and Schedule 18 to this Act.—[Mr. Diamond.]
    Mr. Diamond: I beg to move Amendment No. 212, Clause 80, in page 163, line 34, to leave out first "or" and to insert:
    "(on the basis that deductions for capital allowances are referred to other allowances in priority to investment or scientific research allowances), and of any deductions so made".
    This Amendment fulfils a promise which was made by my hon. Friend the Minister without Portfolio to the hon. Member for Glasgow, Cathcart (Mr. Edward M. Taylor) in Committee, when the hon. Gentleman withdrew a similar Amendment, No. 673, which he had moved. This Amendment makes clear the order in which capital allowances are to be treated as having been made when calculating distributable profits for the purposes of the three-year surplus, which gives greater relief to companies which are concerned with this particular point.
    Mr. Edward M. Taylor: I am obliged to the Chief Secretary. The Amendment fully covers the point I had in mind.
    Amendment agreed to.
    Mr. Diamond: I beg to move Amendment No. 213, Clause 80, in page 164, line 44, at the end to insert:
    (11) A company claiming relief under this section may, if the greater part of its undertaking consists in the ownership or operation of ships, elect that in the application to it of subsection (2) (b) above there shall be substituted for the income tax ultimately borne by the company in the years 1963–64, 1964–65 and 1965–66 the income tax ultimately borne by it in a period ending with the year 1965–66, but beginning with such year of assessment earlier than the year 1963–64, but not earlier than the year 1956–57, as may be specified in the election; and subsection (5) (d) shall then apply to the years comprised in that period as it is expressed to apply to the years 1963–64, 1964–65 and 1965–66.
    This Amendment affects the shipping industry solely. It relates to the three-year surplus relief given under the Clause. It allows the shipping industry to take, instead of those three years, any greater number of years ending on the same date—that is, 1965–66—but going back as far as 1956–57 if desired.
    My right hon. Friend decided that he would allow the shipping companies to look to the longer period for the purposes

    189
    of their claims. He has made clear on several occasions, and I have repeated on his behalf, the interest that the Government have in the welfare of the shipping industry, and our recognition of what I might call the cyclical movement of profits in that industry—and I recognise that they derive from world-wide competition which those in industry obviously cannot control themselves as a result of which they may have a period of lack of profits extending over a long period. It is for that reason that my right hon. Friend has thought it fit to allow the industry to go back this number of years in order to find tax which it has paid, and which it will therefore be entitled to use for the purposes of this Clause.
    I want to make it absolutely clear that the essential principle behind the three-year surplus relief, namely, that the relief can only be given in respect of tax that has actually been paid—what I referred to earlier as the real, as opposed to the pretend, tax—has been maintained.
    Mr. Simon Wingfield Digby: Many of us on this side of the House who are interested in the shipping industry—in which, incidentally, I have no financial interest—will welcome this attempt to help it in the transitional stage. An Amendment that we moved in Committee would have made it possible for the industry, for transitional purposes, to have selected any three years, the earlier years, of course, being more favourable than the later. Under the Government's proposal it will be necessary for the industry to choose a number of years up to 10, ending in 1965–66. That will mean, in effect, that with the earlier years, which are more favourable, there will have to be included the latter years, which are unfavourable.
    Therefore, this Amendment does not go as far as we would have hoped, but I understand that the industry welcomes it. We are therefore glad to see it on the Notice Paper, because we believe that it will be of real help to the industry.
    The Chief Secretary has stressed that under Clause 80 only the tax actually paid will be recoverable. We are, therefore, a little at a loss to understand some of the words used by the Chancellor in column 1317 of the OFFICIAL REPORT when, talking of these Government proposals, he inferred that in some cases, if
    190
    our full proposals had been met, the tax that had not been paid would have been recoverable. I think that it was just a slip of the tongue,* but perhaps that might be altered for the sake of the record, because under Clause 80, only tax actually paid is recoverable. On that understanding, I give a limited welcome to these proposals.
    The Chancellor of the Exchequer (Mr. James Callaghan): I note what the hon. Gentleman says.
    Amendment agreed to.
    Dame Irene Ward: I beg to move Amendment No. 347, Clause 80, in page 164, line 44, after the words last inserted, to insert:
    (11) A company claiming relief under this section may, if the greater part of its undertaking consists in the building of ships, elect that in the application to it of subsection (2)(b) above there shall he substituted for the income tax ultimately borne by the company in the years 1963–64, 1964–65 and 1965–66 the income tax ultimately borne by it in a period ending with the year 1965–66, but beginning with such year of assessment earlier than the year 1963–64, but not earlier than the year 1956–57, as may be specified in the election; and subsection (5)(d) shall then apply to the years comprised in that period as it is expressed to apply to the years 1963–64, 1964–65 and 1965–66.
    I would say to the Chief Secretary that as this proposal is a very straightforward one we need to have no argument about it. I hope that he and the Chancellor will agree that as a maritime nation our shipping and shipbuilding industries are inextricably interwoven. I was therefore at a little loss to understand why in practically the whole discussions on the Bill nothing has been said about the shipbuilding industry. I have no personal interest in this matter except the interest of my constituency and all the shipbuilding areas. I imagine that my interest is the same as that of the Chancellor and the Chief Secretary and all who sit behind them.
    It is no good having a prosperous shipping industry unless we also have a prosperous shipbuilding industry. One is entirely dependent on the other. I have found it rather odd, having regard to what was said before the change of Government about what the present Government would do, that nothing has appeared in this Finance Bill to help the shipbuilding industry. Perhaps my
    * Note: This correction has been made.
    optimism may not be justified, but I am always optimistic, even in reference to hon. and right hon. Members opposite in regard to a great industry such as this, which is tremendously important to the prosperity of the country and those who work in industry, whether as management or directors. It is most important that we should have a satisfactory shipbuilding industry.
    As the words which by my Amendment I would add to Clause 80 for the shipbuilding industry are exactly the same as those added for the shipping industry, I do not need to deploy—dare I use the word—a technical argument. I use only straighforward arguments. This seems common sense. It would be marvellous to have the Chancellor and the Chief Secretary taking action on behalf of common sense. I understand that the shipbuilding industry has sent a very nice letter to the Chancellor. I do not intend to read it all—it is a very long letter—but I will read one paragraph which, I think, puts the case quite clearly:
    "Although since last year, the United Kingdom shipbuilding trading situation has shown a modest improvement, our ship builders, during the first three years of the Corporation Tax, will be continuing to work off orders taken at sacrificial prices in the past and, because of the continuing highly competitive conditions, any new orders undertaken are likely to be barely profitable. The prospects are, therefore, that any dividends which shipbuilding companies may feel it necessary to pay in this period will not be covered by earnings and because the three years prior to the inception of the tax represented the low ebb in ship builders' trade, the shortfall will require to be found out of profits retained from even earlier years."
    I am sure that both right hon. Gentlemen will have read the whole letter. I think it puts the case exactly and I hope that, as in the case of the shipping industry, it will be acceptable.
    I have always tried to be present in the House whenever shipping interests have been discussed. I wish to make an observation on some figures which appear in the Economist Quarterly Returns of Industrial Profits and Assets. For the years 1964, 1963 and 1962, right at the bottom of the lists of profits one finds shipping and, just one above shipping, shipbuilding.
    11.0 p.m.
    I quote this publication only because I think it ought to help the Chancellor of
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    the Exchequer and the Chief Secretary, who are not always particularly favourable towards profits, to know that we are asking support for the shipbuilding industry which, certainly in recent years, has not been a very large profit-making industry.
    Therefore, I have the greatest confidence in moving this addition to Clause 80, and I look forward to a very happy and delightful speech either by the Chancellor of the Exchequer or by the Chief Secretary saying that the Government understand the relationship we seek between shipping and shipbuilding and that they are delighted to accept the words I have proposed with the support of my hon. Friends.
    Mr. Wingfield Digby: I would like to say a few words in support of my hon. Friend. The shipping and shipbuilding industries very often have divergent interests, as would be expected between the suppliers and those who use their products. But in some way the two are similar.
    We have mentioned before the question of cycles, and certainly the shipbuilding industry is just as subject to cycles of prosperity as the shipping industry. To a large extent, its prosperity is bound up with that of the shipping industry which orders the ships they build. In recent years when things have not been too good orders have been accepted by the shipbuilding industry even at a loss, in order to keep the yards open and—an even more important factor—to try to keep the skilled labour force, which is tending to drift away and is very hard to get back.
    I feel that shipbuilding has some kind of case and that it is not unnatural, when they see the concession being given to the shipping industry, that they should be interested in it. I therefore hope that the problems of shipbuilding as well as those of shipping will be remembered by the Government.
    Mr. Edward M. Taylor: I want to submit two short arguments in support of the case that my hon. Friend the Member for Tynemouth (Dame Irene Ward) has presented. It would be difficult to criticise either her logic or her presentation, because the case put for shipbuilding is even stronger than that advanced for shipping.

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    My hon. Friend referred to the profit statements and dividend figures in the shipping industry generally, and the figures for shipbuilding are even worse than they would appear. The only reason why shipbuilding companies have been able to pay dividends is because of the outside interests that certain of the major firms have in the steel industry and in general engineering. If figures were given in respect of shipbuilding operations alone, I think that they would be worse than the average cover of 1·2 per cent., which is, I believe, the average figure over the last three years.
    The Clause refers to relief, and it is only fair to expect relief for firms which will be worse off as a result of the new proposals. It was suggested in Committee that the new proposals would not affect adversely the position of an industry or firm whose dividends were covered about twice. In shipbuilding, the situation is that the average dividend over the last three years has been covered only about 1·2 times and, to that extent, certainly the shipbuilding industry would suffer.
    It could be argued that the concession given no the shipping industry will have the effect of helping our British shipbuilding industry and, looking to the past, that would be the case. Even last year, more than 80 per cent. of all orders undertaken by British shipyards were contracts on behalf of British shipping companies. However, looking to the future, the position could be different. We have heard of British shipping firms which have found that, because of the credit terms available, it is cheaper to build abroad. On the other hand, because of the new credit position of the Government for export orders, a great increase in export orders has been gained by British shipyards. The percentages being undertaken by home firms have tended to reduce over the past few years and, looking to the future, I think they will reduce even more. I can foresee a situation where more British shipping companies will be building ships abroad and more foreign shipping companies will be building ships in Great Britain. The recent order undertaken by Harland & Wolff in Belfast is a clear example of this situation.
    In these circumstances, bearing in mind the position of the two industries, and
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    the likelihood that British shipbuilding will depend less as the years go by on the British shipping industry, I hope the Chancellor will accept this Amendment.
    Mr. R. W. Elliott: I support the Amendment. There is no one more conscious of the special needs of the shipbuilding industry within the shipping industry than one who represents, as I do, a section of one of this country's greatest ports. In development areas a great deal has been done to assist in the redevelopment of these areas which is necessary in the face of contracting existent industry. We should not fail to recognise that there are industries in such areas which have done a great deal to help themselves, and this applies very much to the shipbuilding industry.
    On the Tyne there is a famous yard which has done a great deal over many years, sometimes with Government financial assistance and sometimes without as much assistance as it should have received, to assist the recovery and re-establishment of industrial areas which needed to recast and refurbish their industry and make it face the modern problems of these industrial times. I therefore have pleasure in supporting the Amendment, because I believe that the shipbuilding industry should be given this special consideration.
    Mr. Callaghan: I should like very much to meet the views expressed by the hon. Member for Tynemouth (Dame Irene Ward) and other hon. Members. The difficulty is this. My right hon. Friends and I discussed the position of the shipping industry, and, indeed, I approached the case on the basis that it was in a unique position, and I introduced the Clause which provided free depreciation which we discussed the other night with the Amendments to the Clause.
    I recognise that there is a close relationship between the shipbuilding industry and the shipping industry, but it is not quite as close as might be suggested. I have respectable, or disreputable, precedent to rely upon. In the 1961 Finance Bill debates an attempt was made to link the shipping industry with the shipbuilding industry, which was resisted by my predecessor on the ground that the shipping industry was entirely

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    unique. I fall back on that—that he felt then, as I feel now, that it would be making the extension a little too wide in this direction.
    I should like to reassure the hon. Lady that I am not against profits at all. Indeed, without trespassing on the general debate, I think she will find that a number of companies, under Corporation Tax, will have larger retentions than they have now, and that is part of the object of the exercise. It is not a case of preventing companies from making profits.
    The shipping industry as such is in a unique position in the sense that it is at the whim of world freight rates which it has no power to decide. It is therefore in a special position, even more so than the shipbuilding industry, because the building of ships is spread out over a rather more even cycle. There is more control over that than there is over the freight rates from which shipping companies suffer.
    I have very great respect for the record of the shipbuilding industry. I do not think it is yet generally appreciated in this country, although perhaps it is beginning to be appreciated abroad, what great steps have been made by the British shipbuilding and ship-repairing industries in modernising themselves and being able to compete on equal terms with shipbuilding industries in other countries. I think the industry is in a position to take advantage of the shipping revival and I hope and expect to see it over the next two or three years putting in competitive tenders that will match those of any other nation.
    I hope that the industry will feel that it will be able to meet that competition without the additional aid that I would be glad to concede if we accepted this Amendment; but I fear, with all due respect to that hon. Lady, that that would be opening the door too wide to other industries which might come along with similar claims. I feel then that I would be destroying the unique position of the shipping industry. I cannot accept the hon. Lady's Amendment although I always try to meet her when she introduces Amendments in her siren, dulcet tones, but on this occasion I cannot do so.
    Amendment negatived.

    Clause 81.—(TRANSITIONAL RELIEF FOR EXISTING COMPANIES ON CESSATION OF TRADE ETC.)
    Sir J. Hobson: I beg to move, Clause 81, in page 165, line 10, at the end, to insert:
    Provided that a company qualifying for relief under this section shall be granted relief beyond the year 1970–71 if it ceases to possess that source within fifteen years of the source arising.
    This provision deals with transitional relief for existing companies when they cease to trade. It is no more than plain, fair and ordinary equity and justice, and indeed mere common sense, that on the introduction of a Corporation Tax the cessation relief should be granted when a company which had commenced trading before Corporation Tax ceased to trade after its introduction. The White Paper dealing with the accounting basis for company taxation provided for cessation relief whenever such a company ceased to trade, because otherwise such a company would have paid tax for more years than it had in fact been trading. The Bill concedes this principle because it provides that such relief should be given. The Bill could do no less than that, but what it goes on to do is to provide that the actual relief shall be very limited indeed. Indeed, the complaint is that it cuts down that relief to an absolutely minimal and very mean degree, because it provides that not only is the relief to stop at the year 1970–71 but that it is to taper off as from the year 1968–69. This is fundamentally unjust and amounts to a double charge to taxation on all companies which started before Corporation Tax and which ceased to trade after the year 1970–71.
    It is particularly unfair to those companies which actually began their trading life and history in a period shortly before the present time, because they will have traded only for a short period, and yet the tapering relief and limitation provision will remove this transitional relief which they might otherwise have enjoyed if they ceased to trade before 1968–69. The Amendment proposes to remedy this injustice. I would have submitted that it was perfectly fair to allow a period of 15 years of trading after which the cessation relief would cease to apply because, of course, the cessation relief arises

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    from the fact that profits of the opening year have been brought into charge in two and sometimes in three years.
    On the Committee stage we had a discussion about the way in which the date on which a company begins its financial year may make a substantial difference as between one company and another and the amount of the cessation relief which is liable to be given according to when the actual financial year of a trading company begins in relation to the fiscal year.
    11.15 p.m.
    Many of us enjoy post-war credits. I waited 23 years for them. The Inland Revenue does not think it unfair to withhold from the taxpayer for a substantial number of years relief to which he is entitled at some future date. It makes provision that it shall be payable only on some future and remote date up to very substantial periods.
    But this provision, which everyone admits to be fair and ought to be given, is to be made and to be available only in the event of a company ceasing to trade in the short period between 1968 and 1969 before it begins to taper off, and the company will not receive any relief at all if it ceases to trade in 1970–71. If it has begun to trade only recently it will have existed for only six years, yet the relief which it ought to have had will be removed from it and in the course of its very short history it will have paid taxation for periods of trading which are more than the actual period during which it has traded. One would have thought that it must be unfair to deprive a company of such relief. If there were 15 years before relief ceased to operate one would treat with some equity those companies which began to trade a long time ago and those which began only recently.
    Mr. Diamond: The right hon. and learned Member for Warwick and Leamington (Sir J. Hobson) recognises by putting the Amendment forward that one cannot put no limit whatsoever to the time when this matter has to be disposed of. The difference between us therefore is not on principle but on degree—as to whether the five years proposed in the Bill, that is two years at the full rate and three years tapering, is appropriate relief or whether 15 years is appropriate. I suggest that 15 years is far too long a
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    period when, as in this case, we are dealing with a major change in taxation.
    It would be foolish to attempt to deny that as a result of the change from Income Tax to Corporation Tax there will be in many cases a situation, which the right hon. and learned Gentleman has described, of companies being called upon to pay tax in respect of a longer period than they have existed; but it is not quite as simple as that. In the majority of cases the opening years of the business are much less profitable than the later years and the system, as the right hon. and learned Gentleman knows, results in the earlier years—the first and second year most generally—being taken as the basis of more than the appropriate period of tax. Therefore, one may have the first or the second or a combination of those years being taxed twice over. But they are frequently very low profits as compared with the quite high profits in the later and ending years of a business. Frequently the business ends when it is taken over in some circumstances because it is at the height of its prosperity. Therefore, it is not simple justice to say that one pays twice in an opening year and therefore one should be free from tax in respect of the closing year.
    As I said at an earlier stage, no one can say with certainty that a particular tapering period is the only one one could possibly consider. But I think that the Government have given reasonable recognition of the circumstances by providing two years at full relief and three years with tapering relief. I could not recommend the House to accept an Amendment the effect of which went on for as long as 15 years, leaving people in some measure of uncertainty for all that time, especially when we are considering a major change of taxation.
    Sir J. Hobson: It is not that the cessation relief goes on for 15 years; it is only that the benefit may continue for 15 years from the time when a company started trading. The point of the Amendment, which I cannot have made clear, is that some companies which started trading 12 or 13 years ago will have no more than the right hon. Gentleman has provided for under the Bill whereas other companies which have been in existence for only four years will lose their cessation relief very

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    quickly indeed. This is inequitable, because one would be paying the extra year over a short period instead of paying it over a longer period. I quite see the other argument, but I put it to the Chief Secretary that our proposal is perfectly reasonable, and I urge him to consider it.
    Mr. Diamond: I recognise that. I was dealing only with the more extreme case of a company which has fairly recently started; and one would, in that case, have to wait the whole period before one could say that the matter was at an end. It is true that the shorter the base of the fraction the higher is the resulting answer, and extra tax over a short period of years is more than the same amount divided by a longer period of years. Nevertheless, it will be agreed that, where a company has been trading for only a short time, it has recently had the benefit of two years' assessment on very small profits and without having lost a great deal by the change to Corporation Tax. I can only repeat what I have said before, that I regard the Opposition's proposed period as too long. I understand the point of the Amendment, and I am grateful to the right hon. and learned Gentleman for his further explanation of it, but I think that it is too long. It is not impossible that, in later years, one may look at it to see whether it is right to take the matter further. There are precedents in the Bill for tapering periods which go on for slightly longer.
    I can only repeat that one is not married to any particular period, but the period suggested by the right hon. and learned Gentleman would delay the matter for too long and I could not recommend acceptance of it.
    Amendment negatived.

    Schedule 10.—(MEANING OF "DISTRIBUTION".)
    Amendment made: Schedule 10, in page 179, line 9, at end insert:
    "for the use of money so advanced".—[Mr. Diamond.]
    Mr. van Straubenzee: I beg to move Amendment No. 265, Schedule 10, in page 179, line 13, after "to" to insert:
    "a director who is not a whole-time service director but is".
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    Adopting the words of the Chief Secretary, we now move into the nice, simple and straightforward matters of Schedule 10. I do not need to remind the right hon. Gentleman that we always seem to discuss this subject late at night, although, mercifully, at an earlier hour today than on the previous occasion in Committee.
    Originally, paragraph 9 of the Schedule prohibited entirely any deduction for tax purposes of interest paid to a participator, whatever the status of that participator might be. This was substantially amended in Committee so that paragraph 9(1,a) now reads as we have it before us in the Bill. The short point of the Amendment is to import into the prohibited payments under 9(1,c) the same provisions as the Chief Secretary accepted, under pressure from this side, in 9(1,a). I concede to the Chief Secretary that I would much have preferred it if our Order Paper had been so arranged as to have allowed us to hear first what he had to say about his own Amendment next on the Paper; that is, No. 214. It would be quite churlish of me not to appreciate that when we get there he will go a quite considerable way towards meeting my point.
    However, I think it important that we should make it clear that we are seeking to import the same principle—although I will not delay the House by going over the argument in any detail—in having agreed to the previous subsection. I am certain that the Chief Secretary will have noticed that there is a technical difficulty, which we have noticed, in the sense that this does not deal with associates as they were dealt with in the earlier Amendments which were accepted, but I will not dwell on that point. It is something which could be put right if the Chief Secretary would accept the spirit of the Amendment.
    Mr. Diamond: I appreciate the spirit of this Amendment, which is to limit, in effect, the disallowance under paragraph 9(1) of royalties for intangible property and unreasonable rents for tangible properties in cases where the recipient is both a director and a participant on the same principle as regards loan interest. What the hon. Gentleman has to remember is that loan interest at an excessive rate is disallowed in the case of all companies, and not only close companies.

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    The only thing with which we are dealing here is interest not exceeding the commercial rate, and when we come to rent and royalties we are not concerned only with reasonable amounts, but with any amount. It is unlikely that a company which is not a close company would pay excessive rent or royalties, but there is the possibility that such companies would make such payments to its own shareholders. I do not suppose that anyone would dispute that an excessive rent to a shareholder should be disallowed as an expense, but the hon. Gentleman's Amendment would disallow it only when paid to a director. This would open up an invitation to avoidance.
    Copyright royalties are in a different category. In later Amendments which we shall discuss, these will be treated as tangible properties and will be disallowed only in so far as they are excessive. Without going into a lot more detail, I hope I have said enough to convince the hon. Gentleman why we cannot accept his Amendment.
    Amendment negatived.
    11.30 p.m.
    Mr. Diamond: I beg to move Amendment No. 214, Schedule 10, in page 179, line 14, after "property", to insert:
    "or of copyright in a literary, dramatic, musical or artistic work within the meaning of the Copyright Act 1956 (or any corresponding right under the law of a country to which that Act does not extend),".
    This Amendment and a following one, No. 215, in Schedule 17, page 221, line 34, after "property", to insert:
    "or of copyright in a literary, dramatic, musical or artistic work within the meaning of the Copyright Act 1956 (or any corresponding right under the law of a country to which that Act does not extend),",
    which I hope it will be convenient to discuss at the same time, Mr. Deputy-Speaker, meet a criticism that copyright royalties paid by a close company to a shareholder are treated under the Bill as distributions and, therefore, not allowable as deductions in computing the profits of a close company for Corporation Tax purposes. It will normally be possible to measure a reasonable level of copyright royalties, and it is not necessary, therefore, that a royalty paid by a publishing company which is a close company should be disallowed if the copyright owner has shares in the company. The
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    Amendments, therefore, treat the copyright royalties as though they were tangible and not intangible property.
    Mr. Deputy-Speaker (Sir S. Storey): It will be convenient to discuss at the same time Amendment No. 215, and the Amendments in the name of the right hon. and learned Member for Chertsey (Sir L. Heald) to the proposed Amendments No. 214 and No. 215.
    Question proposed, That those words be there inserted in the Bill.
    Sir Lionel Heald: I beg to move, as an Amendment to the proposed Amendment, at the end to insert:
    "or of a patent, registered design or trade mark."
    The object of the Amendment to the proposed Amendment is to remedy what appears to my hon. Friends and myself to be an obvious point which has been overlooked in the Chancellor's Amendments. As the Chief Secretary has already explained, we are concerned here with the definition of a distribution in the case of a close company. As he indicated, we pointed out that copyright had not been allowed for.
    Briefly, the purpose of my Amendments is to put upon the same basis as copyright, which it is now admitted ought to be taken into account here, other forms of property coming under the heading of industrial and artistic property, sometimes known as incorporeal rights, such as patents, designs and trade marks. The reason why I say that I think there may have been an obvious slip is that, as was made clear in a newspaper the other day, the rights of authors ought to be considered. No doubt they have had the great advantage in this Government of having the support of hon. and right hon. Members of this House who are themselves authors and who, therefore, in the exercise of their proper rights and duties as Members of Parliament took steps to see that those of whose work they had very intimate knowledge and of which they could speak with great skill and experience had proper protection. I am sure that everyone would agree that that was admirable. They have, of course, the advantage that in the present Cabinet there are, I believe, two or three or more authors. Therefore, they had the very best possible advice on the subject.

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    In those circumstances it is perhaps, in the haste of this business of dealing with this vast number of Amendments, quite pardonable that other quite clearly similar rights were omitted. I have heard it suggested that there is some distinction between industrial and artistic property, such as the difference between a patent right and a copyright. It has been suggested, I believe, that one is more difficult in some way or other to evaluate than the other from the point of view of royalties. I have had little experience of these matters, and I am afraid that I cannot follow that at all. It seems to me to be quite fallacious. But, fortunately, I do not have to rely on my own experience in this matter, because we have the best possible authority provided by the Government themselves in another part of the Finance Bill. It is interesting to look at Clause 3—"Valuation for purchase tax of goods containing copyright material." The basis of that Clause is that, in the Purchase Tax Act, 1963, provision was made for the case where the valuation for Purchase Tax could include a charge for a royalty in respect of a patent or design but it did not include copyright. Thereupon, no doubt the authors said, "We think this matter of copyright must be dealt with in order to get everything on the same basis."
    Thus the House has already, in the passage of this Bill, added copyright to trade marks, designs and patent rights in the earlier Purchase Tax provisions because they were considered pari passu in every way. All we ask is that the Chief Secretary, with his incomparable logic, should apply a logical principle and carry it into effect. Surely it would be mere impertinence of me to add any argument to that provided by the Government in their own Bill in amending the Purchase Tax Act, 1963.
    It is a very clear case indeed and I think that we understand how it comes about. Fortunately, there are also people who know about trade marks and patents and things of that kind as well as others and therefore we can, I think, take all of them into account.
    Mr. Patrick Jenkin: I wish to support my right hon. and learned Friend the Member for Chertsey (Sir L. Heald), who has a very great knowledge of these
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    matters of copyright, patent designs and trade marks. I regard the Government Amendment as yet another example of the wrong way in which matters of this sort should proceed. On 22nd June, we were told that it was impossible to value any of these intangible rights so as to allow a reasonable rate to be regarded not as distribution but as a charge.
    Following the item in the Financial Times to which my right hon. and learned Friend has referred, an exception was made for copyright. There is a rumour that the way in which this was achieved was that the Chairman of Butter-worth's, having discovered that participators in publishing companies who were themselves authors and who might receive a royalty from that company were to be penalised by paragraph 9 of Schedule 10. He therefore bought 100 shares in Pergamon Press which, I understand, is a close company—I have, incidentally, given notice to the hon. Member for Buckingham (Mr. Maxwell)—and proceeded to a settlement in favour of all the authors under contract to the Pergamon Press.
    That would have included the hon. Member himself and the situation gave rise to considerable anxiety on his and other fellow-authors' part, whereupon the hon. Member jumped into his Rolls Royce, seized his razor, rushed to the Treasury and made strong representations to the Chancellor. I am told that this settlement has been concluded but, as a result of the Government Amendment, its purpose would be foiled. I fail to see why author-publishers should be in any different position from that of inventors.
    Suppose an inventor has an invention which he licenses to a company in return for a royalty and takes in addition a small share in the company so as to have a share in the equity as well. Why should the royalty paid to him be treated as distribution and no part allowed as a charge, whereas copyrights to authors are allowed to mount to a reasonable rate of royalty? It cannot be suggested that it is impossible to value a patent right in these circumstances so as to allow a reasonable rate in view of the cogent reasons given by my right hon. and learned Friend and because of the effect of the Patent Act itself.

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    When the Crown wishes to take a compulsory licence under patent, as has recently been done in the case of certain drugs by the Minister of Health, it has no compunction whatever in paying a proper rate of royalty on those drugs. When it is a question of the Crown taking something, it is perfectly prepared to make the necessary exercise to value those rights. When it is a question of the Crown making some reasonable relief for people like inventors, and so on, it apparently finds it, in the Chief Secretary's words "impossible to demonstrate that a particular relief was unreasonable".
    I find that a very strange and unconvincing distinction to draw between copyright on the one hand, and other forms of tangible property on the other. I cannot believe that this is seriously intended to be the basis of paragraph 9 of Schedule 10 and I hope very much that the Government will be able to accept the Amendment to the proposed Amendment.
    Mr. Robert Cooke: I should like to support the Amendment proposed by my right hon. and learned Friend the Member for Chertsey (Sir Lionel Heald), and to say that I am just as much concerned with those who have rights under copyright. This may be something we can all understand, while these other rights are perhaps not so easy for some of us to understand, although my right hon. and learned Friend the Member for Chertsey is a most distinguished explainer of the difficulties in this particular field.
    I was taken by some of the remarks made by my hon. Friend the Member for Wanstead and Woodford (Mr. Patrick Jenkin), and I am sorry that the hon. Gentleman the Member for Buckingham (Mr. Maxwell) is not here, with all his complex tax problems. Perhaps my hon. Friend the Member for Wan-stead and Woodford realised that the hon. Gentleman the Member for Buckingham has now taken up foreign affairs in a big way and has not, perhaps, so much time to devote to domestic matters. I hope that he will continue with foreign affairs.
    If my right hon. and learned Friend's Amendment is accepted trade marks and designs will be put on all fours with
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    copyright. I think it is right that it should be so. I see that the hon. Member for Buckingham has entered the Chamber and I might explain to him that I referred to him in his absence, because another hon. Member had referred to him. I merely said, and I am sure he will not dissent from this, that his interest in foreign affairs is greatly appreciated by a number of hon. Members, and that is, perhaps, why he was not able to give voice to the difficulties of the owners of copyright, though perhaps now he will catch your eye, Mr. Deputy-Speaker, at a later stage.
    Creative rights should not be limited to those who are interested in the printed and written word. The inventor must be protected, and surely he is just as much a creative individual as a writer. The industrial designer too, must fall into this category.
    In Bristol we have, ranking alongside the great library founded in the days of Queen Elizabeth, a prodigious patent library, which is evidence enough of the importance which a great commercial city like mine attaches to this subject. I am sure that the House would do well to accept the Amendment of my right hon. and learned Friend the Member for Chertsey. If it is not accepted we might have the position of the designer or the inventor holding back and not giving the community the benefit of his work for fear of being caught by another of the pernicious provisions of this Finance Bill. That would be a bad thing all round.
    I was glad that my right hon. and learned Friend the Member for Chertsey drew the attention of the Treasury Ministers to the fact that the case is given away in Clause 3 of the Bill, where the Purchase Tax and royalty charge matter is dealt with. I hope that they will see the error of their ways when they study that point.
    11.45 p.m.
    Throughout this debate we have the difficulty of unravelling this complex problem, but it is a complex problem not of our creation. The Government might do well to ponder that, even at this late stage of the Bill. Procedurally, I believe that they could still recommit the Bill and take out some

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    of the provisions which should not be in it.
    In conclusion, I feel that I can speak with some feeling—
    Mr. J. T. Price: On a point of order. May we get back to Schedule 10, Mr. Deputy-Speaker? The hon. Member seems to be roaming all round the world. I understood that we were discussing an Amendment to Schedule 10. Can we get back to it, please?
    Mr. Deputy-Speaker: I thought that the hon. Member said that he was getting back to it.
    Mr. Cooke: I am grateful to you, Mr. Deputy-Speaker, for that protection. I feel fully confident that had I strayed outside the Rules of Order, you would have drawn my attention to that in your own good time without the help or intervention of hon. Members opposite.
    I say this in support of the Amendment. I can speak with some feeling as an author-publisher, whose first major work, although it found favour with the community, did not bring much reward to myself, and as an inventor, as a dedicated do-it-yourself—because in this modern world one has to learn to do it yourself; one simply cannot afford to pay other people to do the work—and as a dedicated inventor who has not yet registered his design or process and is somewhat reluctant to do so unless my right hon. and learned Friend's Amendment is accepted.
    I am delighted to support my right hon. and learned Friend, because his Amendment would protect the creators of practical works, the practically creative individual as well as the aesthetically or artistically creative. Surely, they all have their part to play, they should all be put in the same category, and I hope that the Government will see fit to accept my right hon. and learned Friend's Amendment.
    Mr. Diamond: I gather, although the matter has not yet been put to the test, that the Amendment which I have moved, judging by the comments which have been made, is broadly acceptable. When one decided that an Amendment of that kind should be moved, it was anticipated that
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    the door would be attempted to be pushed wider open and that other Amendments would be moved which would extend the principle or what was thought to be the same principle. It was inevitable that when one brought forward a concession, other concessions would be based upon it.
    I am not saying that the difference between copyright and patents is one between black and white. I am saying, however, that there is a difference, and that one falls on one side of the line as far as which we are prepared to go and the other falls on the other side of the line. I am sorry that I am not prepared to recommend to the House that the Amendment which has been moved by the right hon. and learned Member for Chertsey (Sir L. Heald) should be accepted.
    The whole point of a patent is that it is something unique. It simply is not possible for anybody to say with regard to a patent what effect it will have, what the rate should be and what it is really worth. It is worth, by and large, what the trade will carry.
    I can only say from my experience—and I have had some experience in this—that negotiations for fixing a patent royalty are as wide as can be. There is nothing like a market rate, nor can there be, because the essence of a patent is its uniqueness. Therefore, it is not something of which it can be demonstrated easily that a reasonable, an unreasonable or a very unreasonable charge has been made. As between persons who are not at arm's length, it is too easy to fix a figure which, in effect, could scoop the pool. That is not the case with copyright. So many people are writing books the whole time which are similar in so many ways that there is a more-or-less standard market price. It does not alter considerably. It is not very difficult to say whether a royalty for a copyright has been fixed without regard to the market value. It is almost impossible to say that about patents.
    I am sorry, therefore, but I cannot recommend the House to accept the Amendment proposed to my right hon. Friend's Amendment.
    Sir L. Heald: Do I understand the Chief Secretary to say that the difference between copyright and patent is

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    that while there are several authors in the Cabinet, there are no inventors?
    Mr. Diamond: Previously I thought it best to ignore the right hon. and learned Gentleman's remarks. May I ask what evidence of any kind whatever the right hon. and very learned Gentleman has about the pressure which he says was brought by my hon. and right hon. Friends who are authors?
    Sir L. Heald: My answer is "Intelligent anticipation by the right hon. Gentleman".
    Hon. Members: Withdraw.
    Mr. Barber: I am sorry to intervene—if the Patronage Secretary wishes to intervene, I will give way to him.
    The Parliamentary Secretary to the Treasury (Mr. Edward Short): I am here representing an electorate just as much as is the hon. Member for Altrincham and Sale (Mr. Barber) and if I wish to speak I shall certainly do so.
    Mr. Barber: That observation was quite uncalled for. If the Patronage Secretary wishes to get his business through, he should behave himself a little.
    I am sorry to have to intervene, but when I listened to my right hon. and learned Friend the Member for Chertsey (Sir L. Heald) deploying the case in favour of his Amendment I thought that he was making out a convincing case. It was apparent from the fact that the Chief Secretary did not immediately follow my right hon. and learned Friend that he did not intend to accept the Amendment. When I realised that this was the case I assumed that the Chief Secretary would put forward cogent reasons which had not occurred to me why my right hon. and learned Friend's Amendment was unacceptable either in whole or in part.
    I can see that there might be difficulties over registered designs or trade marks, but I thought that it would be possible to do something to cover the case about patents. Most of my hon. and right hon. Friends will agree with me when I say that the argument put forward by the right hon. Gentleman were not at all convincing. I can see that it might be necessary to treat the matter in a somewhat different way from that suggested by my right hon. and learned Friend, and
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    I can see that there are differences between a patent and a copyright, but whether those differences are relevant to present considerations is another matter.
    While, therefore, I do not suggest that my right hon. and learned Friend should press his Amendment, I feel that this is a matter which should be looked into in the course of the coming year, and I hope that the Chief Secretary, with that fairness which he has shown on these matters which have no party political significance, will look into it in the coming year in the light of what my right hon. and learned Friend said.
    Amendment to the proposed Amendment negatived.
    Proposed words there inserted in the Bill.
    Mr. William Clark: I beg to move Amendment No. 302, Schedule 10, in page 179, line 52, at the end to insert:
    10. Where a close company satisfies the Commissioners that any payment made, consideration given, or expense incurred to which this part of this Schedule applies has been made, given or incurred bona fide, at arms length for reasonable commercial consideration so that the main purpose, or one of the main purposes, is not the avoidance of any taxation which but for this paragraph would otherwise be payable, then. notwithstanding anything in this Act contained, the Commissioners may in respect of any such payment consideration or expense as aforesaid or of any part thereof disregard the provisions of paragraph 9 of this Schedule so that such payment consideration or expense or such part thereof as the case may be shall not for the purposes of this Act be treated as a distribution.
    The House will agree that this is an extremely important Amendment, particularly for close companies. It proposes that where one has a close company and where that company pays interest, or whatever it might be, and that interest is bona fide—that is, there is no tax avoidance; and the commissioners will decide whether it is reasonable—we say that in such a case the close company should not be penalised from the distribution point of view. When we were discussing an earlier Amendment the Chief Secretary said that where a charge was disallowed for Corporation Tax purposes, it would mean that extra taxation would be paid by the company.
    I do not wish at this late hour to go into the great many examples which

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    could be given. Suffice to say that there will be many cases of close companies where, because of the operation of the participator Clause, companies will be paying out legitimate charges, but they will not be able to charge them for Corporation Tax purposes. I should have thought that the Chief Secretary or the Chancellor had this in mind when the Clause was first drafted, because it means that if we are to have the Corporation Tax working smoothly—and everyone, I know, wants it to work as smoothly as possible—it is quite wrong to put in this penal effect because of participation.
    This Amendment could be elaborated, but I hope that the Chief Secretary has the point. It is a wholly reasonable Amendment. There is no question of its having been put forward for any other purpose than to give justice. There is no question of tax avoidance, and I hope that the right hon. Gentleman will give it sympathetic consideration.
    12 m.
    Mr. Diamond: I recognise the spirit in which the hon. Gentleman has moved this Amendment. I am grateful to him for what he said about his desire, which we all share, that the Corporation Tax shall have a good start and work smoothly. I would, therefore, have been anxious to accept the Amendment if it were necessary or if it were drawn in an acceptable form, but I am afraid that neither is the case.
    I do not want to delay the House any more than did the hon. Gentleman, but if he will look at the effect of his Amendment on the different kinds of payment he will see that those payments can in almost all cases only arise when there is some question of tax avoidance. Loan interest, for example, to a director or a participator or one of his associates can hardly be said to be an arm's length transaction. To deal with annuities, if a close company pays an annuity to one of its shareholders for a commercial consideration the transaction can hardly be said to be at arm's length. It is almost invariably designed to transform income of the company into income of the shareholder for tax reasons.
    If we think of royalties as intangible assets covering periodic payment for good will, trade marks, designs and patents,
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    apart from patents these are not assets that are normally leased, and periodic payments to the owner by the close company using them, being a company in which he is a participator, are almost certainly aimed at tax avoidance. Rents and royalties for the use of tangible assets are within Part II only to the extent that they exceed a reasonable rate, on which the Amendment would have no effect. If a company provides living accommodation for a shareholder, it is only reasonable that the expenditure should be treated as though an equivalent dividend had been paid.
    It is clearly the case, therefore, that except for a few cases, all the payments to which Part II of Schedule 10 refers are tinged with tax avoidance, and Part II is necessary to stop close companies from attempting tax deduction for what are, in substance, distributions. It is not the case, therefore, that we are unwilling to meet what was in the hon. Gentleman's mind. I think he has provided a remedy for a situation that really does not exist.
    In any event, the present Amendment—which, I imagine, he has modelled on the Government Amendment to Clause 68—is very different from that Government Amendment. There the company has to show that avoidance is not the purpose, or the main purpose; here, what it has to do is to show that certain conditions are satisfied, so that the main purpose, or one of the main purposes, is not avoidance. That suggests that if one of the main purposes is something other than avoidance, that is good enough; if another main purpose is avoidance, that does not seem to matter.
    Therefore, as the Amendment does not meet the point the hon. Gentleman thought that it would meet as a result of the drafting, and as the purpose is not one that can usefully be served in this manner, I am afraid that I cannot recommend acceptance of the Amendment.
    Amendment negatived.

    Schedule 11.—(SUPPLEMENTARY PROVISIONS ABOUT TAX ON DISTRIBUTIONS, ETC.)
    Sir Eric Fletcher: I beg to move Amendment No. 337, Schedule 11, in page 180, line 29, after "amount", to insert "of the excess".

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    This is a drafting Amendment to improve the language.
    Mr. Patrick Jenkin: In Committee I raised a point on the question of dividends or interest paid under deduction of tax and the right of set-off allowed. I think that the Chief Secretary said that he would look at the point. On rereading my speech I realise that I did not make the point clear. Can the Minister without Portfolio say whether if one receives interest under deduction of tax one may set that tax off against tax due in respect of dividends or, vice versa, can one set off tax on dividends against tax on interest? Are the two interchangeable or must they be kept quite separate, interest against interest and dividends against dividends?
    Sir Eric Fletcher: I do not think that point arises on this Amendment, but I will look into it and write to the hon. Member.
    Amendment agreed to.
    Sir Eric Fletcher: I beg to move Amendment No. 172, Schedule 11, in page 180, line 45, at the end to insert:
    ", and shall in any such return specify any amount of dividends included therein which has been paid under deduction of tax notwithstanding that an election under Section 44 (3) of this Act was in force in relaton thereto,".
    This Amendment is consequential on Amendment No. 169 to Clause 44 which has been accepted by the House.
    Amendment agreed to.
    Sir Eric Fletcher: I beg to move Amendment No. 173, Schedule 11, in page 182, line 49, after "paid", to insert:
    "less than three months after the giving of the notice and".
    Perhaps it would be convenient to discuss this Amendment with Amendment No. 174. These two Amendments deal with the same point. They are designed to meet the procedure for bringing into effect an election to have dividends and annual payments paid without deduction of Income Tax. They are liberalising Amendments for the benefit of the taxpayer and I hope that they will be acceptable to the House.
    Amendment agreed to.
    Further Amendment made: Schedule 11, page 183, line 1, leave out from "but" to end of line 3 and insert:
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    "shall be of no effect if within those three months the inspector notifies the companies concerned that the validity of the election is not established to his satisfaction:
    Provided that the companies shall have the like right of appeal against any decision that the validity of the election is not established as the company paying the dividends would have if it were an assessment made on that company under Schedule D, and the enactments relating to an appeal against such an assessment (including any enactment relating to the statement of a case for the opinion of the High Court) shall apply accordingly "—[Sir Eric Fletcher.]
    Sir Eric Fletcher: I beg to move Amendment No. 175, Schedule 11, in page 183, to leave out lines 9 to 11 and to insert:
    "and any such notice shall have effect from the time it is given".
    This Amendment relates to the revocation of an election. The effect is that the revocation of an election shall take effect straight away.
    Amendment agreed to.
    Sir Eric Fletcher: I beg to move Amendment 176, Schedule 11, in page 183, line 47, at the end to insert:
    11. This Part of this Schedule shall apply for purposes of section 44 (6A) of this Act, with the necessary adaptations of references to dividends, as it applies for purposes of section 44 (3).
    This is consequential on Amendment No. 107.
    Amendment agreed to.

    Schedule 12.—(CHARGEABLE GAINS OF COMPANIES.)
    Sir Eric Fletcher: I beg to move Amendment No. 183, Schedule 12, in page 184, line 10, at the end to insert:
    "and to a registered industrial and provident society within the meaning of section 442 of the Income Tax Act 1952".
    Perhaps it will be convenient to take this Amendment with the next. Both Amendments are consequential on Amendments already accepted.
    Amendment agreed to.
    Further Amendment made: Schedule 12, page 184, line 17, after "1938", insert:
    "except that in the application of that section any share capital of a registered industrial and provident society shall be treated as within the definition of ordinary share capital,".—[Sir Eric Fletcher.]

    Schedule 14.—(MISCELLANEOUS ADAPTATIONS OF INCOME TAX ACTS FOR CORPORATION TAX.)
    Amendment made: In Schedule 14, page 203, line 19, leave out "that Act" and insert "the Income Tax Act 1952".—[Mr. MacDermot.]
    Mr. William Clark: I beg to move Amendment No. 261, Schedule 14, in page 204, line 48, at end to insert:
    (2) Where in any previous chargeable accounting period a company has sustained a loss as computed for the purposes of the Profits Tax and this loss has not been allowed against subsequent profits as computed for the purposes of profits tax, an amount computed as below of such loss shall be deducted from or set off, against any profits arising in the year 1966–67 and up to the amount of the deduction or set off, those profits shall be excluded accordingly from any assessment to Corporation Tax (the relief in any year of assessment being given as far as may be against profits of an earlier rather than profits of a later accounting period). The amount to be deducted under the subsection will be arrived at by aggregating—

    (i) 4125/5625 of the loss as computed for Income Tax purposes; and

    (ii) 1500/5625 of the loss as computed for Profits Tax purposes.

    I should have thought that the Amendment was self-explanatory, and I am sure that hon. Members on both sides understand it clearly. The matter was raised in Committee, but I do not think, with the greatest respect, that the point got home to the Treasury Bench.
    The object of the Amendment is to allow the carry-forward of Profits Tax losses against Corporation Tax. As the Bill stands, one can carry forward an Income Tax loss but not a Profits Tax loss, and, as the Financial Secretary will agree, it is quite possible to have an Income Tax loss and a Profits Tax loss which is higher than the Income Tax loss. It arises where one has investment income, and it arises if one get a Section 341 or a Section 342 claim under the 1952 Act.
    I am sure that the Financial Secretary is seized of the point. In the year of assessment 1963–64, one might, get a profit of, shall we say, £100. That gives one the basis of assessment for 1964–65 on which one pays tax on £100. But, if in 1964–65, he company makes a loss, under Section 341 or Section 342 of the 1952 Act the loss can be set off against the assessment for 1964–65 and, consequently,
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    the position can arise where one has a Profits Tax loss, in the example I have given, of £100 not able to be utilised for future Profits Tax losses.
    I am encouraged hat the hon. Gentleman the Member for Heywood and Royton (Mr. Barnett) at least has the point. Although I have only dealt in very small figures, I and many other hon. Gentlemen know of companies where there are huge Profits Tax losses which are carried forward.
    Profits Tax was only at the rate of 15 per cent., and the reason for the simple calculation in the Amendment is so that the aggregation of the two, comparing the Income Tax loss with the Profits Tax loss, will allow a larger Income Tax loss to be carried forward if in fact the Profits Tax loss is in excess of the Income Tax loss.
    I do not think it is necessary for me to say very much more, because I am certain that everyone in the House understands what I am talking about.
    Mr. MacDermot: I take it that the speech of the hon. Member for Nottingham, South (Mr. William Clark) was intended to be what my right hon. Friend the Chief Secretary calls "clarificatory".
    I confess that I found the hon. Gentleman's point difficult to follow when he raised it in Committee, but I have had a wet towel round my head since then and I have an answer for him. Whether it will give him satisfaction is another matter.
    Cases can occur where the Profits Tax losses differ from the Income Tax losses. In particular, they arise because, for Profits Tax purposes, a trader can only set the loss against investment income, other than dividends from United Kingdom companies. The reason is that these dividends are not charged to Profits Tax at all, being franked investment income.
    The proposal which is being made is that, in such cases, not only should the Income Tax loss be able to be carried forward and set against the liability to Corporation Tax, but also the additional Profits Tax loss, if loss there be.
    12.15 a.m.
    We can see nothing to justify this proposal, because the most that a trading company in this position can say is that if it had continued to hear tax on its

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    income at a total of 56¼ per cent. it would expect to get relief for its losses at 56¼ per cent. It has, in fact, had relief at the Income Tax rate of 41¼ per cent. and would expect at some time to get relief at the 15 per cent. Profits Tax rate. The answer is that in future it will not bear the 15 per cent. Profits Tax, and the point, therefore, disappears. In other words, it loses the relief because it loses the liability to tax against which the relief is claimed.
    In Committee the hon. Gentleman claimed that the formula which he propounded, and which is now contained in the Amendment, had the advantage that it produced an extra relief only where the Profits Tax loss exceeded the Income Tax loss. But even if that is accepted, it does not provide a case for the Amendment because it is still necessary to ask why the Profits Tax loss exceeds the Income Tax loss and, as I have stated, the answer is that the Profits Tax loss is outstanding only because there have not been any subsequent receipts within the scope of the tax. I must therefore advise the House that the Amendment in principle is wrong.
    Amendment negatived.

    Schedule 15.—(DOUBLE TAXATION RELIEF, AND OVERSEAS TRADE CORPORATIONS.)
    Mr. MacDermot: I beg to move, Amendment No. 116, Schedule 15, in page 208, line 48, at the end to insert:
    4A.—(1) Subject to sub-paragraph (2) below, where a company resident in the United Kingdom is charged to tax under Case I of Schedule D in respect of any insurance business carried on by it, and that business or any part of it is carried on through a branch or agency in a territory outside the United Kingdom, then in respect of dividends referable to that business which are paid to the company by companies resident in that territory any tax payable by those companies in respect of their profits under the law of that or any other territory outside the United Kingdom and any United Kingdom tax so payable (whether income tax or corporation tax) shall, in considering whether any, and if so what, credit is to be allowed under Schedule 16 or 17 to the Income Tax Act 1952, be taken into account as tax so payable under the law of the first-mentioned territory is taken into account in a case falling within paragraph 9 of Schedule 16.
    (2) Credit shall not be allowed to a company by virtue of this paragraph for any financial year in respect of a greater amount of dividends paid by companies resident in any overseas territory than is equal to any excess of the relevant fraction of the company's total income in that year from investments (including franked
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    investment income and group income) so far as referable to the said business over the amount of the dividends so referable which are paid to it in the year by companies resident in that territory and in respect of which credit may apart from this paragraph he allowed to it for tax not chargeable directly or by deduction.
    (3) For purposes of sub-paragraph (2) above "the relevant fraction" is, in relation to any overseas territory, the fraction of which the numerator is the company's local, and the denominator the company's total, premium income in the financial year so far as referable to the said business, and premium income shall be deemed to be local premium income in so far as it consists of premiums under contracts entered into at or through a branch or agency in that territory by persons not resident in the United Kingdom.
    This is an Amendment which we undertook to bring forward, if we could, on Report to meet a point which was raised by the hon. Member for the City of Chester (Mr. Temple) in Committee. I am glad to say that we have been able to resolve the difficulties and bring forward an Amendment which I hope will be acceptable.
    The effect of the Amendment is that it will enable an insurance company to get a measure of relief for underlying tax on dividends that it receives from any overseas country. The relief will be limited to a proportion of its world income from investments determined by reference to the proportion of its business which the company does in the overseas country concerned. This will ensure that the competitive position of the United Kingdom insurance companies is not damaged by the general withdrawal of relief for underlying tax on portfolio investment overseas.
    Hon. Members will remember that this problem arises particularly because insurance companies carrying on business abroad are required, sometimes by law and sometimes by practice, to hold a substantial portfolio investment in the country abroad, and it is argued, and I think with reason, that this cannot strictly be regarded as pure portfolio investment in the ordinary sense. It is a form of trading investment which these companies have to make. Provided that is the purpose of the investment, it would be right to grant this relief.
    The difficulty was to find the right kind of formula to limit the scope of the relief. We did not think it right to try to limit it to the legal requirement of the country

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    concerned because that often falls short of what is needed in practice. We thought, therefore, that it was right to relate it as a proportion of the company's total world investment income to the premium income from that particular country. This relates it directly to the business that the company is doing in that country. I hope this will be found to be a workable and acceptable formula. If the House wishes me to go into any further detail I shall be glad to do so, but I hope I have said enough to commend the Amendment to the House.
    Mr. Temple: I am glad to congratulate the Government on appreciating the fundamental point with regard to insurance that there is a difference between a trade investment and a portfolio investment. Equally, I am glad that the Government have been able to bring forward this Amendment on the Report stage. It shows what an extraordinarily good thing it is that we have such an alert Opposition in order to bring to the attention of the Government the fact that their Bill as originally drawn would have done such great damage to British worldwide insurance. Having said that, I should like to congratulate the Financial Secretary upon the extreme courtesy with which he has been able to deal with a number of Amendments which I have put forward, and indeed his colleagues as well. Perhaps it will not be inappropriate to mention, because it has shortened our proceedings considerably, that the head of the Board of Inland Revenue has been extraordinarily helpful behind the scenes in giving certain clarifications and assurances in regard to the very complex matters surrounding this particular Amendment and other Amendments as well.
    The Financial Secretary has referred to the formula which underlies this particular Amendment. I am glad to confirm that the formula is straightforward, fair and extremely comprehensible, which will be an advantage to all concerned. I believe that, thanks to this Amendment being brought forward at this stage, British insurance overseas will at least be able to hold its position in bad times and I hope that in better times it will be able to expand its worldwide business.
    Mr. J. T. Price: I intervene only to ask whether the Treasury has made any effort to estimate what this concession has cost.
    Mr. MacDermot: Yes. I think the immediate cost of the Amendment, it is anticipated, will be of the order of £1 million a year. It is possible that later when the relief for underlying tax on portfolio investment in the Commonwealth and elsewhere is withdrawn, the cost may be several times greater than that.
    Amendment agreed to.
    Mr. Peter Emery: I beg to move, Schedule 15, in page 209, line 7, at end insert:
    6. A company resident in the United Kingdom which has more than one source of foreign income may elect that in computing the credit for foreign tax to be allowed to it for any financial year all the foreign taxes payable in respect of such sources of foreign income shall be aggregated and the credit shall be allowed against the due proportion of the corporation tax chargeable on the profits of the company attributable to the aggregate foreign income of the company from such sources.
    The occupants of the Treasury Bench will realise that during the Committee stage they did say that they had received many representations on this matter of aggregation. The Financial Secretary said in column 1663 of the Official Report of 22nd June, that there was some considerable force in some of these arguments, and he then went on to say:
    "I want to make clear that I am not giving an undertaking that I will bring forward Amendments, but I shall be glad to consider the matter further."—[OFFICIAL REPORT, 22nd June, 1965; Vol. 714, c. 1664.]
    We are sorry that he has not been able to bring forward any Amendments. This Amendment is here because it is a definite advance on the Amendment which we had down on the Committee stage. It meets two of the points put by the Treasury bench during the Committee stage, and I think it states clearly that a United Kingdom company with more than one source of foreign income may elect to be assessed by the method most favourable to it so that in computing the credit for foreign tax for any year all the foreign tax paid from any source may be aggregated and credit may be allowed against the proportion of Corporation Tax on the profits attributable to the aggregate foreign income.

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    I realise that there are certain companies who would not wish to use aggregation, and I know that the Treasury is aware of this. There are companies trading where the loss, if aggregation were compulsory, would be such as to show that none of the operations was profitable. Obviously it would be wrong to have aggregation in those instances. There are examples which were given during the Committee stage and which I do not intend to go over again, but about which the Treasury Bench will know. We therefore tabled the Amendment to see whether the Treasury considered that there is any way in which aggregation could be elected and which would help a certain number of companies trading in a number of different foreign countries which are finding that their degree of foreign tax varies considerably.
    Mr. MacDermot: We do not rule out on principle legislating on this subject. As the hon. Member for Reading (Mr. Peter Emery) has said, I indicated in Committee that if we could find a satisfactory way of dealing with what appear to be at least the more meritorious parts of this problem we should be glad to do so on Report, but I made clear that I could not give any undertaking and that it might prove impossible to do that. On looking further into it we do not feel it right to try to bring forward an Amendment at this time. The problem is complex and it would not appear to be right in principle to single out a class. In any event, there are many difficulties to be overcome. There is no doubt that pooling provisions could not only offer scope for avoidance in the strict tax sense but might have undesirable economic consequences in serving as an inducement to companies in certain situations to invest abroad rather than in this country when for other reasons it might be better for them to invest here.
    I am sure that the House would not want me to go into detail at this stage but I ask hon. and right hon. Members to accept that there are problems here. The Amendment seeks to meet the problem of losses by making the concession optional. This is done under United States law but it is a moot question whether that solution would not be overgenerous. But apart from the general question of principle, awkward technical
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    problems are involved and the Government have decided not to legislate on this matter this year but to look carefully into all the implications during the coming year.
    Sir E. Boyle: In view of what the Financial Secretary has said and the fact that the Government do not rule out legislation—and indeed we hope it might be another Government which will have to take the decision—I am sure that my hon. Friends would wish to withdraw the Amendment rather than it should be settled by the voice of the House.
    Mr. Peter Emery: I beg to ask leave to withdraw the Amendment.
    Amendment, by leave, withdrawn.

    Schedule 16.—(SUPPLEMENTARY PROVISIONS ABOUT DIVIDEND STRIPPING.)
    Amendment proposed: Amendment No. 217, Schedule 16, in page 211, line 38, leave out "that other" and insert "the third".—[Mr. MacDermot.]
    Mr. Heath: Are we to have any explanation of this Amendment?
    Mr. Callaghan: It would probably be more convenient to refer to it when we discuss Amendment No. 218.
    Amendment agreed to.
    Farther Amendment made: Schedule 16, in page 213, line 4, after "districts)", insert:
    "or under section (Annual allowances for new ships) of this Act".—[Mr. Diamond.]
    12.30 a.m.
    Mr. Diamond: I beg to move Amendment No. 218, Schedule 16, page 214, line 19, at the end to insert:
    8.—(1) As respects dividends paid before the year 1966–67 section 4 of the Finance (No. 2) Act 1955 shall have effect for corporation tax notwithstanding the exclusion from the charge to corporation tax of distributions received from companies resident in the United Kingdom; and any other enactment operating by reference to the said section 4 shall apply accordingly.
    (2) Where—

    (a) a company carries on a trade other than such a trade as is mentioned in subsection (1) of section 4 of the Finance (No. 2) Act 1955; or

    (b) the business of a company consists wholly or mainly in the making of investments;

    and in the year 1965–66 the company receives a dividend the net amount of which would,

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    if the company carried on such a trade as is mentioned in the said subsection (1), be required to any extent to be brought into account for tax purposes as a trading receipt which has not borne tax, then so much of the said net amount as would have been required to be brought into account as aforesaid shall for the purpose of corporation tax in respect of chargeable gains be treated as if it were a capital distribution (within the meaning of Part III of this Act) received in respect of the stock or shares on which the dividend is paid, and to that extent paragraph 2(1) of Schedule 6 to this Act shall not apply thereto.
    This Amendment clarifies the transitional arrangements under Schedule 16 connected with dividend stripping in two respects. The first concerns the position of companies the trade of which consists of dealing in shares or other investments, that is, dealing companies. Under the present law in Section 4 of the Finance (No. 2) Act, 1955, such companies must bring the net amount of the stripping dividends into account as a trading receipt. The new paragraph makes it clear that Section 4 of that Act shall apply for Corporation Tax purposes in respect of dividends received before 1966–67.
    The second paragraph of the Amendment makes parallel provision in respect of stripping dividends received in 1965–66 by companies which are not for Income Tax purposes treated as dealers. The Amendment in page 211, line 38, which we have just passed, was purely for clarification and led up to this Amendment.
    Amendment agreed to.

    Schedule 17.—(SUPPLEMENTARY PROVISIONS ABOUT CLOSE COMPANIES.)
    Mr. Diamond: I beg to move Amendment No. 219, Schedule 17, in page 214, line 33, at the end to insert:
    "or
    (bb) to a company controlled by or on behalf of the Crown and not otherwise a close company; or".
    If convenient, Mr. Speaker, I suggest that the House might also discuss at the same time Amendment No. 220, Schedule 17, in page 215, line 9, at the end to insert:
    (4) For the purposes of this paragraph a company is to be treated as controlled by or on behalf of the Crown if, but only if, it is under the control of the Crown or of persons acting on behalf of the Crown, independently of any other
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    person; and where a company is so controlled, it shall not be treated as being otherwise a close company, unless it can be treated as a close company as being under the control of persons acting independently of the Crown.
    Mr. Speaker: If the House so pleases, and I suggest that we ought to discuss also at the same time Amendment No. 140, Schedule 17, in page 215, line 14, at the end to insert:
    3. For purposes of the provisions of this Act relating to close companies, the Crown and any department of the Crown and any person holding shares on behalf of the Crown or any department of the Crown shall not be treated as a participator.
    Mr. Diamond: The two Government Amendments, Nos. 219 and 220, remove companies controlled by the Crown from the category of close companies. I promised to consider this point when the hon. Member for Yeovil (Mr. Peyton) moved an Amendment on the subject in Committee. The first Amendment excludes a company which is controlled by the Crown from being a close company unless it is a close company apart from Crown control. The second Amendment defines in more detail what is meant by control by the Crown. I do not know whether the hon. Member for Yeovil proposes to speak to his Amendment No. 140. I take it that, as that Amendment has broadly the same objects as the Amendments which we are proposing, he will be satisfied not to pursue his own.
    Amendment agreed to.
    Mr. Speaker: The next Amendment selected is Government Amendment No. 338, and I propose that we discuss with it the following two Amendments: Amendment No. 264, Schedule 17, in page 215, line 14, at the end to insert:
    3. 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, whether with or without a further right to participate in profits) carrying not less than 25 per cent. of the voting power have been allotted unconditionally to, or acquired unconditionally by, and are at the end of the relevant accounting period beneficially held by the public and any such shares have in the course of such year or other period been the subject of dealings on a stock exchange in the United Kingdom and the shares have been quoted in the official list of such a stock exchange.

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    Amendment No. 336, Schedule 17, in page 216, line 5, at the end to 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:

    (a) carry not less than 30 per cent. of the voting power of the Company, and

    (b) would, if the whole income of the company were in fact distributed to the members, entitle the holders thereof to receive not less than 30 per cent. of the amount so distributed, and

    (c) would, on a winding up entitle the holders thereof to receive not less than 30 per cent. of the assets of the company

    are 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.
    Mr. John Diamond: I beg to move Amendment No. 338, Schedule 17, in page, 214, line 42, at the end to insert:
    (2A) A company is not to be treated as being at any time a close company if shares in the company carrying not less than thirty-five per cent. of the voting power in the company (and not being shares entitled to a fixed rate of dividend, whether with or without a further right to participate in profits) have been allotted unconditionally to, or acquired unconditionally by and are at that time beneficially held by, the public, and any such shares have within the preceding twelve months been the subject of dealings on a recognised stock exchange, and the shares have within those twelve months been quoted in the official list of a recognised stock exchange; but for this purpose shares shall not be deemed to be allotted to, or acquired or held by, the public if they are allotted to, or acquired or held by—

    (a) any director or associate of a director of the company; or

    (b) any company which is under the control of any such director or associate or of two or more persons each of whom is such a director or associate; or

    (c) any associated company of the company.

    In this sub-paragraph "share" includes "stock".
    Hon. Members: Hear, hear.
    Mr. Diamond: I think that if discussion on this Bill lasted long enough we should all be extremely popular with the other side of the House.
    This Amendment will exclude from being a close company any company in which, although the control is in the hands of five or more directors, 35 per cent. of the voting power is held by the public through ordinary shares in that company. It is modelled on the existing law affecting Surtax companies, with two important changes. The first is that voting power of the public is raised from 25 per cent. to 35 per cent., and that the possibility that any of the directors or their associates can be treated as part of the public is excluded. The second change is related to the Amendment by the hon. Gentleman the Member for Crosby (Mr. Graham Page), Amendment No. 336, and I am glad to think that we are on the same lines in this respect.
    In explaining this Amendment, I ought to remind the House of a letter which, no doubt, many hon. Members saw in the Financial Times on 19th May last, and which was headed "'Close' Companies." It read,
    "The article on the Finance Bill in Monday's Financial Times makes clear the worries which controlling directors may have to face but a great many small, hitherto completely defenceless minority shareholders, will surely welcome the larger part of the provisions relating to 'close' companies.
    The minority shareholder will now have a certain amount of protection and be truly a participator instead of being completely at the mercy of the 70 per cent. director-controlled company, so many of which have become 'Public'(?)"
    —there is a question mark after that word,
    "… in recent years.
    I wonder how many of the subscribers to some of the new issues have truly realised their hopeless and (in practice) voteless position?
    Credit wherever and whenever it is due, please".
    That letter was signed Guy Nicholson, who gave an address at Holmbush Farm House, Haywards Heath.
    Mr. Nicholson may be a Labour voter, although I should not have thought it the most likely place to find him. However, I read that letter to make it clear that, even in the present situation of 25 per cent. control, a number of shareholders in the so-called public

    227
    should recognise that they have no control whatever over the affairs of their company, and to demonstrate that one can have a closer controlled company, notwithstanding that 25 per cent. of control is in the hands of the public.
    Ever since 1927, people have been learning to accommodate themselves to the requirement of having a 25 per cent. holding and it has become a method of tax avoidance, because, once one can show that there is a 25 per cent. holding by the public, and that there is dealing on the Stock Exchange—and I hope that hon. Gentlemen will forgive me saying this—one can do precisely what one likes so far as tax avoidance is concerned. I do not know if there is a Stock Exchange at Nottingham, but once one is in that position, that is what can happen.
    My first point is that this is a situation which has obtained for a very long time. That is why we are not anxious to imperil the position by having any kind of situation where the very fact of public ownership of part of the shares can open the doors completely. Nevertheless, we are anxious to demonstrate that, in our belief—which I think is confirmed by what the right hon. Gentleman the Member for Bexley (Mr. Heath) said on the last occasion when this was discussed—the real difficulty about the introduction of a new tax is that a lot of people feel they are being subjected for the first time to a kind of restraint which we do not want them to feel they are subjected to. It is the same kind of constraint that a company feels when an auditor is first appointed. Those concerned feel as if somebody is looking over their shoulder and inquiring. But after a time they get used to it and realise the valuable services of the auditor and regard him as a friend.
    It is similar with the Surtax provisions. I do not know, but I imagine that when they were first introduced the business community accepted them with very considerable irritation. But now the remarkable thing is that in speech after speech from both sides of the House, and from very knowledgeable practitioners on both sides, hon. Members have paid tribute to the Revenue for the working of the Surtax provisions. I have no doubt that in the course of time the business community
    228
    will accept similarly that the working of the close company provisions is sensible and intended to help production, retention, plough back and investment, and that there is no other purpose at all.
    But I recognise that when one has changed circumstances one has to do something to meet the change and ease it from a phychological point of view. I accept broadly the essential content of what the right hon. Gentleman said when he wound up the debate the other day on this topic. We have had a number of speeches. I hope the House will forgive me if I say that I noticed that each hon. Member who spoke from the back benches gave a different reason for objecting, showing that none of them had the right reason. [Interruption.] Hon. Members will find that I am being perfectly serious and not at all partisan in this. When one finds a lot of intelligent people all providing a different analysis of a given situation, the probability is that not one of them is right, that there is something which has escaped everybody. I think that what was escaping everybody was that what we were really dealing with was change, purely the problems of change. Each person drew attention to one particular aspect which was not the cause but the occasion of the objection.
    I hope that I have explained why the Government have felt it right, though not going as far as 25 per cent. because that has already been overtaken by existing tax avoidance cases, to recommend to the House that we should have a 35 per cent. test, which is a much more substantial test and which I hope will ease in the introduction of Corporation Tax, and, particularly, the close company arrangements.
    I am bound to add that I hope this will be the case. I hope that, as the right hon. Member for Bexley indicated in his speech, a provision of this kind will not lead to tax avoidance and that people would not be irritated at the thought of the Inland Revenue breathing down their necks, not because they were proposing to avoid tax but just because they wanted to be free citizens carrying on their work in their own way using their own judgment. I recognise that essential spirit of private enterprise. We are trying hard to meet it. We hope that it will not be abused. In that spirit I put forward this Amendment.
    Mr. Heath: As the Chief Secretary has said, at the end of our debate on this matter on 6th July I very strongly urged that, for a number of reasons, and, particularly, in the national interest as a whole, he should reconsider the matter. I say straight away that I am very glad that he has done so. I believe that the decision which he has reached is the right decision, and I believe that it has already done good.
    The right hon. Gentleman, in introducing the Amendment, first of all tended to argue that perhaps it was not a very good thing. The right hon. Gentleman then moved on, towards the end of his speech, to say that he was making it in order to meet the different points of views expressed on both sides of the House.
    12.45 a.m.
    I agree with him very much in what he has said. It is true that we have had two debates in order to achieve this result, but it has been well worth the time of the Committee and of the House. Looking back—and perhaps the right hon. Gentleman will agree—if he was going to do this it would have been very helpful to industry and to finance if it had been one of the original proposals. He has repeatedly explained why he did not find this possible and we are fully prepared to say that we are delighted that he has moved the Amendment. We do not in any way underestimate its importance. Although it has come late, we are glad that it has come.
    Mr. Graham Page: As the right hon. Gentleman generously referred to my Amendment No. 336, I should like to express my gratitude for the introduction of the Government's Amendment at this stage in wording much similar to that which I put on the Order Paper. However, I would also express my amazement that it comes at this very late hour after pressure from this side of the House which was resisted in two debates.
    It was, of course, fairly evident that, if one wished to relieve a company which had a substantial public interest from the restrictions of the close company provisions, one would have to move a little further than 25 per cent. In my Amendment I inserted 30 per cent. It would have been better to have 30 per cent. with the rather tighter definition in my Amendment, but I do not think there is
    230
    a great difference between that and the 35 per cent. and rather looser definition proposed in this Amendment. I therefore express my gratitude to the Government for their Amendment.
    Amendment agreed to.
    Mr. Patrick Jenkin: I beg to move Amendment No. 346, Schedule 17, in page 215, line 2, to leave out "and" and to insert "or".
    This is a drafting Amendment—or at least I hope that it is. If it is not, then we shall require considerable explanation from the Chief Secretary. Paragraph 1(3,a) takes out of the definition of a close company a company, broadly, that is controlled by a public company, a non-close company.
    I think that this provision must be in the alternative if a company
    "… could only be treated as a close company as being under the control of five or fewer participators …"
    This must include director-controlled companies which, in the circumstances, are clearly not relevant. The company could not
    "… be so treated except by taking as one of the participators a company which is not a close company."
    It seems to me that paragraph 1(3,a) and (b) must be in the alternative and cannot be cumulative because they apply to different circumstances. Indeed, if any attempt were made to apply both of them there must be a very limited number of circumstances where that could be so. It occurred to me that, because it is intended to take different close company provisions—companies either controlled by public companies or where one of the five participators is a public company—these two must be alternative and the word "or" and not the word "and" is the correct one to use here.
    Mr. Diamond: I am sorry that I could not possibly accept the Amendment. It may be that the hon. Member moved it under a misapprehension, thinking that it is purely a matter of drafting, but, in practice, it is nothing of the sort. It would considerably widen the circumstances in which a company could escape from being a close company by reason of the participation of non-close companies in its control.

    231
    The provisions of the company Surtax legislation which are reproduced, in effect, in paragraph 1(3,b) go back to 1937, when they were introduced to defeat highly artificial arrangements for exploiting the then existing conditions for the exemption of a company from "company Surtax" provisions on the ground that it was the subsidiary of a company which was not itself a Surtax company.
    This Amendment would permit avoidance to be revived. I can go into further detail if the hon. Gentleman the Member for Wanstead and Woodford (Mr. Patrick Jenkin) wishes, but at this hour I think that I am probably right in assuming that he did not intend to open the door so widely, or to open a door which had already been open and closed by a previous Administration many years ago. I am sorry that I cannot recommend acceptance of this Amendment.
    Amendment negatived.
    Amendment made: Schedule 17, in page 215, line 9, at end insert:
    (4) For the purposes of this paragraph a company is to be treated as controlled by or on behalf of the Crown if, but only if, it is under the control of the Crown or of persons acting on behalf of the Crown, independently of any other person; and where a company is so controlled, it shall not be treated as being otherwise a close company, unless it can be treated as a close company as being under the control of persons acting independently of the Crown.—[Mr. Diamond.]
    Mr. John Harvey: I beg to move Amendment No. 298, Schedule 17, in page 215, line 22, at the end to insert
    "excluding preference share capital entitled only to a fixed rate of dividend".
    Mr. Speaker: With this Amendment we can also discuss Amendment No. 299, Schedule 17, in page 215, line 25, after "capital" insert
    "excluding preference share capital entitled only to a fixed rate of dividend".
    Mr. Harvey: The anomaly to which these Amendments draw attention relates to companies whose share capital consists of a small amount of ordinary capital, fairly widely held, and a large amount of preference share capital, which carries no voting rights and which is concentrated in the hands of very few holders. I am advised that there are a good number of such companies.
    232
    In such a company five or fewer preference share holders could well hold more than 50 per cent. in value of the total share capital, while having no effective control over the company's affairs, including the disposal of its profits. Even though it does not, therefore, follow, that the company's affairs could be controlled by five or fewer people, the Bill as drawn, would, nevertheless, deem such a company to be a closed company. These Amendments would exclude a case of this type from the provisions affecting close companies.
    While I realise that the definition of control in Schedule 17(3,1a) and (3,1b) follows very closely the wording to be found in section 256(2,a) and (2,b) of the Income Tax Act of 1952, dealing with the surtaxing of companies, a reform in the whole basis on which this type of company has been taxed has long been overdue. Although a trading company making a reasonable distribution of income has not hitherto been too seriously affected where preference shareholding has brought it into the definition of a controlled company, such a company will now have to prove to the Inland Revenue that a 60 per cent. distribution of its trading income would be prejudicial to its business.
    My Amendments are designed to deal with the fact that there are companies in which the effective control is more widely held than by perhaps four or five people, who may have a large preference holding and who could, without these Amendments, leave such companies to fall under the close companies regulation.
    Mr. Diamond: The effect of Amendments of the hon. Gentleman, the Member for Walthamstow, East (Mr. John Harvey), are, I think, considerably greater than he imagines. He is quite right in saying that the language of the Bill reproduces almost exactly the corresponding provisions of the existing company Surtax legislation, but I can say that we have no knowledge of a single case in which it could be said that those provisions have operated unreasonably, through taking account of fixed rate preference shares.
    The hon. Gentleman is, in effect, proposing that fixed rate preference shares should be ignored in determining the question of control throughout paragraph 3 of Schedule 17. His Amendment would

    233
    enable an avoider to drive a coach and horses straight through the close company provisions. I could give several examples, the most obvious one is that of a man who would fix a very high rate of preference dividend that would pretty well scoop the pool of the company's profits.
    Another example would be the issue of shares on condition that they were redeemable at an enormous premium; a man would hold the shares and would issue a few ordinary shares to a number of individuals in such a way that no five or fewer of them held a majority of those shares. Therefore, I could not possibly recommend the House to accept the Amendment.
    Amendment negatived.
    Mr. van Straubenzee: I beg to move Amendment No. 332, Schedule 17, in page 217, line 15 after "trust", to insert:
    "(other than a trust for the benefit of all or a substantial number of the employees of the company)".
    We are dealing here with the definition of an associate in relation to a participator, and paragraph 5 of the Schedule lists a number of people, persons and situations which fall within the definition. One of them is where the participator is interested in any shares or obligations of the company which are subject to a trust, for example. I quite follow that it is necessary to have broadly a provision of this kind—[Interruption.] I wonder whether I might have your assistance, Mr. Speaker. It is difficult to make the argument when there is noise. I am grateful to the Chief Secretary for helping me—[Interruption.]
    Sir D. Glover: Order.
    Mr. van Straubenzee: I repeat, I am grateful to the Chief Secretary for his assistance. It is understood that there must be provisions of this kind. A number of hon. Members feel, I think, that paragraph 5(c) of the Schedule goes very widely. A number of other Amendments have not been selected, and we discussed the matter generally in Committee.
    The Amendment is designed to exclude a trust which is for the benefit of a substantial number of employees. To put the point briefly, it would not be at all an unusual circumstance that particularly in a family company, a member of the
    234
    family, perhaps two generations previously, had created a trust for this purpose, which is a desirable and laudable one. Because, however, one of his descendants is a trustee, he comes within the provisions of paragraph 5. The argument is that such a trustee would have no say whatever in the operations of the company.
    Indeed, the Chief Secretary himself, in Committee on 22nd June, said:
    "In practice, it is unlikely that the trustee of an employees' trust will have any real influence over the policy of that company".—[OFFICIAL REPORT, 22nd June. 1965; Vol. 714. c. 1701]
    The right hon. Gentleman was quite right. I hope he will feel that if I am able to quote his arguments in favour of my Amendment, this gives added strength to the case which I put before him. It is precisely for that reason that I commend the Amendment to the House.
    1.0 a.m.
    Mr. Diamond: I am grateful to the hon. Member for Wokingham (Mr. van Straubenzee). I agree that we had a similar debate—
    Sir D. Glover: On a point of order. It may be that the Government side of the House have lost interest in the Bill, but many of my hon. Friends are still interested in it and would like to be able to hear the debate.
    Hon. Members: Where are they?
    Mr. Diamond: This is a technical stage of a slightly technical portion of the Bill, and the argument which the hon. Member for Wokingham (Mr. van Straubenzee) advanced is necessarily technical and perhaps does not command the fullest possible interest. I am sure that some of my hon. Friends do not realise the essential drama of the situation, but I will address myself to the argument.
    I am grateful to the hon. Member for what he said. After a discussion in Committee I undertook to consider the matter very carefully. I have done so. My position is that, having considered it very carefully, I still think that there is no real hardship involved. If the hon. Member, who has great knowledge of these matters, feels that there is a particular case which he would like to draw to my attention either now or later, and if he

    235
    will be good enough to write to me, I will go into it, and if there is any real hardship I am sure that if on consideration it is found appropriate an Amendment could be introduced or the appropriate alteration could be made in a year's time. I will not deal with other points in the Amendment which are somewhat defective in drafting because that is not the essential point.
    In those circumstances, I hope that the hon. Member will be good enough to withdraw the Amendment.
    Mr. van Straubenzee: With your leave, Mr. Deputy-Speaker, and that of the House, in view of the very helpful way in which the Chief Secretary has addressed himself to the argument, and in spite of the lengthy discussion we have had, supported by hon. Members opposite, I beg to ask leave to withdraw the Amendment.
    Amendment, by leave, withdrawn.
    Mr. Diamond: I beg to move Amendment No. 221, Schedule 17, page 217, line 17, at the end to insert:
    "and has a corresponding meaning in relation to a person other than a participator."
    Mr. Deputy-Speaker (Dr. Horace King): Order. I hope that hon. Members who have just come into the debate will listen quietly.
    Mr. Diamond: This is a small but not unimportant Amendment. It ensures that the definition of associate will apply to a person who is not a participator but for instance, a whole-time service director whose wife may hold a majority of the shares.
    Amendment agreed to.
    Mr. Peter Bessell: I beg to move Amendment No. 295, Schedule 17, in page 217, line 41, to leave out subparagraph (3) and to insert:
    (3) "Whole-time service director" means a director who is required to and does devote substantially the whole of his time to the service of the company in a managerial or technical capacity and whose terms of service are reasonable having regard to the nature and scope of the company's trade or business and his qualifications and the services rendered by him.
    Mr. Deputy-Speaker: It is proposed that, at the same time, we should take
    236
    Amendment No. 335, Schedule 17, page 217, line 46, to leave out "five" and to insert "ten".
    Mr. Bessell: The Bill as it stands imposes a most curious penalty upon a whole-time service director, as that is defined in subparagraph 6(3) of Schedule 17, because the effect would be to prevent a managing director or a service director of a close company from possessing more than 5 per cent. of the ordinary share capital. I think that hon. Members on both sides of the House will agree that this is likely to have a stifling effect on small businesses. I am sure that it is the Chancellor's wish to encourage small business enterprises, and yet we have this extraordinary anomaly in the Bill. I do not believe that he will allow it to stand as drafted.
    For example, a managing director of a company which is earning a profit of £20,000 a year is in the position that if he were drawing a salary or remuneration in excess of £3,500 a year he would deprive the company of their right to set the excess of salary off against tax. This will discourage the growth of many small business enterprises on which the health of the national economy is very largely dependent. More than that, it will discourage many people from joining companies who could lend valuable services to those companies in technical or similar capacities. A man who joins a small company and who intends to devote his life and service to that company is obviously not undesirous of obtaining a capital holding—
    Mr. Deputy-Speaker: Order. I hope that hon. Gentlemen who have just come into the Chamber will not spoil the debate, which has been orderly throughout.
    Mr. Bessell: I am grateful for your help, Mr. Deputy-Speaker.
    As I was saying, as the provision is drafted it will discourage people from joining small companies in which they might hope to acquire a substantial share-holding, and thereby enjoy the benefits of profits as well as salaries as the years go by as a reward for their effort and service to those companies. For that reason my hon. Friends and I suggest that the extraordinary definition which at present appears in the Schedule should be deleted and the Amendment inserted

    237
    I could speak at some length on this matter, but the hour is late and the Amendment is abundantly clear. There is no need for me to speak on it at length. That does not mean that it does not need careful attention by hon. Gentlemen opposite, whose constituents will be affected by the Bill, in many cases by this part of the Measure. We on this Bench believe that it is imperative to do everything we can to encourage the future of small companies which wish to have the best possible service directors. We fear that if the Bill is not amended in the way we suggest people will be encouraged to leave the small, progressive companies and join the large enterprises, where they may obtain higher salaries but perhaps no great share in those companies.
    The provision as drafted could have a serious long-term effect on business in Britain. I think that it was Napoleon who said that Britain was a nation of shopkeepers. If he were alive today he might well say that we are a nation of directors of small companies. [Laughter.] Yes, this is largely true. The small business enterprise today is often a family business; a small family concern which has been formed into a small company. There is nothing wrong with that and we are anxious to protect the future of these enterprises and ensure that they have the best managements.
    Mr. Diamond: The hon. Member for Bodmin (Mr. Bessell) made a moving speech in which he claimed that Napoleon might have said that we were a nation of directors of small companies. But Napoleon would have been wrong, would he not? After all, have not representations been made to us throughout our debates on the Bill that there are a large number of directors not of small but of moderate-sized companies who draw moderate remunerations from time to time?
    We have had evidence of some directors drawing modest amounts—£¼ million in areas not very far from the hon. Gentleman's constituency in the West country.
    I should have thought that that was in his mind also when he said that this Amendment would interest constituents in so many divisions who might be affected by it. That is absolutely right. This is an Amendment that would open
    238
    the doors widely to further tax avoidance, and would put on taxpayers galore in every constituency the further liability of the Income Tax that would be avoided in this way. It is right that we should say now that all the speeches that have been made time and time again and all the objections made by right hon. and hon. Gentlemen opposite when we have put forward the perfectly proper case for preventing tax avoidance, wholly neglect the simple proposition that every time anybody ceases to pay his fair share of tax a large number of small people who have no opportunity to avoid paying at all have to pay.
    Some of the speeches that we have heard from time to time may sound perfectly well in certain establishments where right hon. Gentlemen opposite move—right hon. Gentlemen who say that we are obsessed, that the Treasury and the Revenue are obsessed, with tax avoidance—but I would invite them to come to a factory in my constituency, make that same speech in the canteen, and then see what the workers—who have had every proper pennyworth of tax deducted from their wages day in and day out, year in and year out—think of the propriety of allowing a certain amount of tax avoidance, as has been said from time to time.
    That is the net effect of this proposal to increase from 5 per cent. to 10 per cent. the shareholding of an individual whose salary could escape the Corporation Tax and who could escape Income Tax which would not otherwise be paid if we did not treat is as a distribution. That is the effect of the two Amendments—[HON. MEMBERS: "One."]—which, under your guidance, Mr. Deputy-Speaker, we are considering. The hon. Member for Bodmin moved one, and no Conservative Member spoke to the other, but I thought that in courtesy to the House, as it had not been mentioned before, Mr. Deputy-Speaker, you would wish me to deal with it.
    The effect of the Amendment moved by the hon. Member for Bodmin would be to remove the 5 per cent. shareholding limit in the definition of whole-time service directors, to introduce a vague element of what is a reasonable term of service, to produce uncertainty where there is clarity, and difficulty where there

    239
    is simplicity. For those reasons, and because the 5 per cent. which it is proposed to remove has been in the legislation since 1937, I am not able to propose that we should accept the Amendment.
    Amendment negatived.
    Hon. Members: Oh.
    Mr. Deputy-Speaker (Dr. Horace King): There are only two voices one hears when a Question is put, "Aye" and "No." "Oh" is not in order.
    Amendment made: Schedule 17, in page 221, line 34, after "property", insert:

    New Schedule.—(CAPITAL GAINS: GOVERNMENT SECURITIES ISSUED AT A DISCOUNT.)
    Description of Government securities

    Exempt price range (for £100 nominal of Stock)

    from

    to

    5½% Exchequer Stock 1966

    …

    …

    …

    …

    99½

    100

    5% Exchequer Stock 1967

    …

    …

    …

    …

    96½

    100

    4% Exchequer Stock 1968

    …

    …

    …

    …

    98

    100

    3% Conversion Stock 1969

    …

    …

    …

    …

    99

    100

    3% Funding Stock 1959/69

    …

    …

    …

    …

    98

    100

    British Electricity 4½% Guaranteed Stock 1967/69

    …

    …

    …

    …

    98½

    100

    5% Conversion Stock 1971

    …

    …

    …

    …

    98½

    100

    British Gas 3½% Guaranteed Stock 1969/71

    …

    …

    …

    …

    98

    100

    6% Conversion Stock 1972

    …

    …

    …

    …

    97½

    100

    British Gas 4% Guaranteed Stock 1969/72

    …

    …

    …

    …

    98

    100

    British Transport 3% Stock 1968/73

    …

    …

    …

    …

    73⅛

    100

    5¼% Conversion Stock 1974

    …

    …

    …

    …

    97½

    100

    4% Victory Bonds

    …

    …

    …

    …

    85

    100

    British Electricity 3% Guaranteed Stock 1974/77

    …

    …

    …

    …

    99½

    100

    British Transport 4% Stock 1972/77

    …

    …

    …

    …

    95½

    100

    5% Exchequer Stock 1976/78

    …

    …

    …

    …

    96

    100

    British Electricity 4¼ % Guaranteed Stock 1974/79

    …

    …

    …

    …

    99

    100

    British Electricity 3½% Guaranteed Stock 1976/79

    …

    …

    …

    …

    99

    100

    5¼% Funding Stock 1978/80

    …

    …

    …

    …

    96½

    100

    3½% Treasury Stock 1977/80

    …

    …

    …

    …

    75⅛

    100

    3½% Treasury Stock 1979/81

    …

    …

    …

    …

    81

    100

    5½% Funding Stock 1982/84

    …

    …

    …

    …

    £90 18s. 2d.

    100

    5% Treasury Stock 1986/89

    …

    …

    …

    …

    84½

    100

    4% Funding Stock 1960/90

    …

    …

    …

    …

    80

    100

    5¾% Funding Stock 1987/91

    …

    …

    …

    …

    97

    100

    3½% Funding Stock 1999/2004

    …

    …

    …

    …

    80

    100

    5½% Treasury Stock 2008/12

    …

    …

    …

    …

    95

    100

    North of Scotland Hydro Electricity 4% Guaranteed Stock 1973/78

    …

    96

    100

    Nyasaland Government 3% Guaranteed Stock 1954/74

    …

    …

    …

    98½

    100

    Sudan Government 4% Guaranteed Stock 1974

    …

    …

    …

    86

    100

    Sudan Government 4½% Guaranteed Stock 1939/73

    …

    …

    …

    93

    100

    Tanganyika Government 4% Guaranteed Stock 1952/72

    …

    …

    …

    98

    100

    —[Mr. MacDermot.

    Brought up, and read the First tune.
    Mr. MacDermot: I beg to move, That the Schedule be read a Second time.
    I am very happy to say, "I beg to move" for the last time.
    "or of copyright in a literary, dramatic, musical or artistic work within the meaning of the Copyright Act, 1956 (or any corresponding right under the law of a country to which that Act does not extend),".—[Mr. MacDermot

    Schedule 21.—(REPEALS.)
    Mr. MacDermot: I beg to move Amendment No. 117, Schedule 21, in page 233, line 22, column 3, after "and'", insert "paragraph 4 (2) and".
    This is consequential to the Amendments we have made to Clause 5.
    Amendment agreed to.
    Question put and agreed to.
    Schedule read a Second time and added to the Bill.
    Bill to be read the Third time this day.

  THE BROADS (NATIONAL PARK)
  Motion made, and Question proposed, That this House do now adjourn.—[Mr. Lawson.]
  Mr. Deputy-Speaker (Dr. Horace King): Order. I shall be grateful if hon. Members will leave the Chamber quietly and allow the hon. Member for Dagen-ham (Mr. Parker) to address the House.
  1.18 a.m.
  Mr. John Parker; Ten years ago I raised on the Adjournment the need for a national park to be created in the Broads. On that occasion I did not get very much support from the Government spokesman, Mr. Hugh Molson. Since 1955, I have taken a number of family holidays on the Broads and East Anglian rivers, including one last year. When the Hobhouse Report on National Parks was produced it recommended that 12 areas in the country should be made into national parks. Most of these have been set up, but there is not one for the Broads.
  On 29th June, 1954, I put a Question to the Minister responsible asking what steps he proposed to take to prevent further deterioration of the Broads. The Answer was that it was a matter for the Minister only if the Broads were designated as a national park. It went on to say that the cost of clearing weeds and silt was very heavy and that it would not be right to contemplate so major an undertaking. I estimated 10 years ago that the cost of reasonable clearance of the Broads would be about £1 million. Mr. Molson suggested that it might be £¾ million, possibly £890,000, over 20 years, but neither he nor the Government were prepared to recommend that anything should be done. I now wish to reopen the matter.
  We recently had an excellent Report by the Nature Conservancy on the whole question of the Broads. It is of great interest to learn that the Broads, it is now agreed, were originally established in the Middle Ages by people who wanted to dig turf and peat for burning because in that part of East Anglia there was very little timber which could be used as fuel.
  The various diggings subsequently became flooded, and became known as
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  the Broads. Most of them have been linked up by rivers or by dykes, and, as a result, there is a whole network of waterways through that part of the world which, although tidal, are only really affected by the tide near the sea, with very few locks or sluices. It is, therefore, an admirable area for people to negotiate with small craft.
  Adjoining the actual waterways, some of the marsh has been reclaimed and is now used for cattle grazing. There is also a considerable amount of fen left which, in the past, was used for the cutting of sedge and rush for thatching, and so on. However, over the last 100 years, there has been a continual silting up of the waterways, many of which were never very deep, and there is very little cargo traffic now, save up to Norwich.
  The drainage of the surrounding land has improved, and as a result, the fens have grown up with woodland, and so on, and the stopping of the cutting of sedge and reeds has also led to the seeding of woodland. So there is now a large amount of scrub among many of the fens. There has been a revival of the use of reed thatching, but, unfortunately, very often supplies cannot be obtained locally and some of them are imported from Holland.
  Since the war, there has been an enormous increase of holiday traffic in the area. According to figures given by "Country Life", 80,000 holidaymakers were in the area in 1947, and last year the figure was a quarter of a million, which is a really enormous increase. The number of boats for which licences have been issued by the Great Yarmouth Port and Haven Commissioners has also enormously increased.
  The total number licensed in 1947 was 3,400; in 1957 it was 6,318; and in 1964 it rose to 9,247. There has been an enormous increase in the number of motor cruisers particularly, from 1,250 in 1947 to 5,116 last year. Many of these are auxiliary sailing boats, but, in the main, one can now say that the motor cruiser is the dominant form of craft on the Broads. There are boats which are registered as sailing boats, but many of them are small dinghies which are really used in association with motor cruisers.
  The enormous growth in holiday traffic in the Broads has produced a number of very serious problems. There

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  are the problems of sewerage and of water shortage in local towns, and it is also the fact that large quantities of water are drawn out for spraying crops in parts of the area. Another problem is that of overcrowding by boats, especially in the upper part of the river on the River Bure.
  Then there is the problem of undesirable riverside development. Anyone who has seen the shacks at Potter Heigham would be horrified to think that they might spread. Further, on the Broads, we even have a form of shack on the water, known as the "flat-afloat". Both these and the shacks along the riverside are becoming quite a serious problem, in that they are ugly in appearance and their sewage goes into the water.
  There is a real need for a positive policy with regard to the whole question of the Broads, in the interests both of holiday makers and of residents in the area. Most of the suggestions made in the Nature Conservancy Report are admirable, and I hope that it will be possible to get the new East Anglian University interested in the problems of the area, to help in research, and so on. We already have some nature reserves, and more are proposed.
  Many suggestions are made from time to time about pollution, particularly by sewage. It is suggested there should be an increase in reed cutting both by a conservation corps, and by mechanised cutting, the difficulty being the shortage of labour. Certainly, the reed could be used if it could be cut. Then there is the carr, which is the scrub growing over the fens. Most of it could be cleared with advantage by a conservation corps.
  However, I would like to make one suggestion which is not made in the report. In some parts of the Broads, woods are a great advantage. Around some of the smaller Broads, like South Walsham Broad, they add to the charm of the scenery. In other parts, some of the woodland already established could be thinned out, adding to the scenery and making possible other forms of natural life. One does not want too much woodland, because it shuts out the winds and makes sailing difficult.
  I also suggest that there are some areas where trees could with advantage be
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  planted as an amenity, not immediately along the waterways but away from them, in the middle distance, where they would improve the scenery, certainly on the seaward area, around Yarmouth and along the A.47 road where the traffic is visible from the River Bure. Certainly, there are some areas where this would be an advantage from the agricultural point of view and also would help to obscure caravan sites.
  Other problems mentioned in the Report which need dealing with are limiting speed on the waterways, adding better moorings and undertaking further dredging. Useful dredging has already been done during the last few years. Two small Broads, South Walsham and Malt-house, have been dredged and are now open for use. In addition, the main channels of the rivers have been opened up. But this is only a beginning. There is still an enormous amount which requires to be done if the area is to take full advantage of it.
  Of the suggestions made in the Report, I welcome the proposed reopening of the North Walsham Canal, the opening of the River Waveney between Bungay and Geldeston lock, and the new cut between the Bure and the Yare which would enable boats to by-pass Bredon Water. It would make for easier navigation; it would make a round tour possible, and would open up the southern part of the Broads. I feel that the implementation of these suggestions would go a long way towards developing the area.
  One of the most spectacular suggestions is the idea of constructing a number of new broads either in the marshland or in the fens. This would be a practicable proposition and well worth while. A case could sometimes be made out for digging peat for horticultural use, where the land is not particularly good and where it could easily be dug out and the area flooded, the spoil could be used for reclamation work along the river banks, and so on.
  If we are to have these big improvements which are suggested in the Report, where is the money to come from? The increased number of boats licensed has increased licence fee receipts substantially, and this would be a big help in carrying out some of the improvements which I have already mentioned. But there is need for Government help from

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  the centre, and not only from local resources. I estimate that 10 years ago a radical reconstruction scheme would have cost £1 million and that it would probably cost £1¼ million now.
  One of the most interesting points in the Report is the practical suggestions from a costing point of view. There is a very strong case for making better use of the Broads, and some body should be made responsible for co-ordinating the various activities in connection with carrying out the improvements. That is why I suggest that there should be a National Park. A number of bodies are trying to deal with these various problems, such as development planning and public health. There is the Broads Joint Advisory Planning Committee and also the Oulton Broads Joint Committee. The navigation authority is the Great Yarmouth Port and Haven Commission. Then there is the River Board for Norfolk and East Suffolk.
  I would have thought that to have proper co-ordination we ought to have a national park. It is also desirable that the authority that looks after this area should not only be staffed by local people, but should have people appointed from a national point of view to represent the holidaymakers as well as residents. Therefore, I would suggest that if we are to get a scheme of this kind carried through, the Government needs to come in and set up a national park committee and provide the necessary finance over a twenty years period to enable these various excellent proposals to be carried out.
  1.31 a.m.
  Mr. Bert Hazell: I have read with great interest the report in HANSARD of 10 years ago when my hon. Friend for Dagenham (Mr. Parker) raised this issue in debate. I noticed that one of the Members who spoke was that hon. Member for that old constituency of East Norfolk. That constituency has disappeared under redistribution and much of the Broadland area to which he made reference at that time is embodied in my constituency of North Norfolk. Therefore, I have a great and intimate knowledge of the area of the Broads, particularly that which borders and is actually in my constituency.
  This debate is timely, as is also the report to which my hon. Friend made
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  reference. With him, I hope that the plea which is being made today will not fall on deaf ears, but that there will be a response from the Government to the plea that has already been put forward.
  During the last decade the growth of business on the Broads has been phenomenal. More and more people find in the Broads and the various facilities offered an opportunity for a holiday in the fresh air. It is interesting to note that the season on the Broads extends at both ends and that during the height of the summer season there are parts of the Broads that are distinctly overcrowded. The Report put forward various suggestions whereby it might be possible to spread the holiday population attracted to the Broads over a much larger area. My hon. Friend has referred to the points raised in the course of the Report.
  I should like to draw attention to one particular phrase on page 55 of the Report where there is stress on the need for a "Strategic Plan for Broadland". The Report adds:
  "Such a plan must contain both short and long-term features. It has to deal with the unsatisfactory elements in the immediate situation, and it must provide for the expansion the realisation of Broadland's potential to meet the likely demands of the year 2,000 A.D."
  My hon. Friend has referred to the Hobhouse Report, which recommended that there should be a national park for the Broadland area. If this was true when the Report was prepared, how much more true is the position at present? There are many problems in the Broad-land district, not the least of which is the need for substantially improved mooring facilities, not just mooring facilities along the riverside but mooring facilities provided off the main rivers so that the danger of collision between traffic moving up and down the river and those moored by the side of the river might not become too severe.
  There is need for greater provision of shore-based toilets. At present, in the small hamlets one finds that the rural district councils have made some provision, but this is completely inadequate in relation to the traffic that uses the rivers and Broads of Norfolk. Properly constructed toilet provision, well screened, would do much to help to mitigate the pollution that already exists as a result

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  of the increase in traffic along the rivers and the Broads.
  There is also need for proper screening provision for tents and caravan camps. At present, these are scattered haphazard over the Broadland district. There is need also for new broads and a new cut. My hon. Friend referred to the reopening of the North Walsham and Dilham Canal. In view of the fact that there is likely to be a big holiday centre development at North Walsham the reopening of the canal would be an asset to the town and to Broadland traffic as a whole. The increasing interest in the broads over recent years has created within the area a substantial boat-building industry and we should not overlook the fact that such an industry provides alternative employment in a rural area.
  The "Report on Broadland" states, in paragraph 194, that
  "East Anglia pioneered the agricultural revolution. There is now an opportunity for Broadland to be a pioneer in Great Britain in the multipurpose use of land and water on a large scale."
  I warmly support the case which my hon. Friend has put before the House tonight.
  1.36 a.m.
  The Joint Parliamentary Secretary to the Ministry of Land and Natural Resources (Mr. Arthur Skeffington): It gives me great pleasure to reply to this short debate, first, because I have known my hon. Friend the Member for Dagenham (Mr. Parker) for many years and have been associated with him at various times in a number of projects. I know his keen interest and concern for the countryside. I have walked a good deal of it with him from time to time in the past. Secondly, my hon. Friend has raised the question of this unique and important area about which he has cared for a long time, and he has been most persistent in trying to get something constructive done for it.
  I congratulate my hon. Friend on timing this Adjournment debate to occur almost simultaneously with the publication of the "Report on Broadland". I take this opportunity of saying that in the Ministry we regard the Report as most stimulating, knowledgeable and imaginative and that we are studying it with great interest. I also noted the points
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  raised by my hon. Friend the Member for Norfolk, North (Mr. Hazell).
  It is absolutely necessary for the nation to look afresh at the whole future of the countryside and the future of this very area in the light of a rapidly-changing situation which is fraught with massive problems. There is a population increase of quite dramatic significance. It is estimated that the population, which now numbers about 52 million, will reach 60 million by mid-1981 and 70 million by the year 2000, which is only 35 years away.
  At the same time, this population is becoming much more mobile. Motor cars now number about 7 million. It is estimated that they will number about 24 million in 1981 and possibly 30 million in the year 2000. The estimate may be wrong, but it would be unwise for us to assume that it will prove to be in any sense an underestimate. Consequently, the task of maintaining a balance between the use of land in the countryside and land in the towns is becoming more complex and difficult and the "Report on Broadland" points out that in the last two decades the demands on the area for all purposes have increased by about three times.
  This is significant of the sort of problem which we shall face in this kind of area. Even at the present time, while the population explosion is still going on, we have in England and Wales only about three-quarters of an acre left for every man, woman and child. So the position at the end of the century will be very difficult indeed unless we plan carefully now for the various uses to which land can be put.
  My right hon. Friend the Minister of Land and Natural Resources who is responsible for the strategic availability of resources, including land, is making a thorough and comprehensive review of all the problems associated with the countryside. It is long overdue. During the last decade, virtually nothing was done to follow up the great advance made in the National Parks and Access to the Countryside Act, 1949. This was a remarkable Act which blazed the way, opening up the country and giving us quite new concepts. Over the last 10 years—I am not trying to make a party political point here—very little was done. There has been no new initiative, and the

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  last Administration, no doubt for very good reasons, did not have a great deal of interest in this subject.
  This can be seen in the level of expenditure on national parks. In 1963–64, all the expenditure, that is, expenditure by the National Parks Commission and under the Act itself, was only £43,000 for the 10 national parks. True, this was better than the £11,000 in 1959, but even £43,000 is quite derisory. The attitude of the country and of this House must change. It will have to vote the resources if we are to maintain what we have, let alone extend to other parks or areas of recreation.
  As regards the Broadland area, there are some limitations in the Act as at present drawn. Section 5 provides that a national park is an extensive tract of country in England and Wales as to which
  "it appears to the Commission that by reason of … natural beauty, and the opportunity … for open-air recreation, having regard to … character and to … position in relation to centres of population"
  certain measures should be taken.
  For the reasons which my hon. Friend gave, the National Parks Commission declined to take action when suggestions were made regarding the Broadland area. Technically, it might have been right, but its attitude was very different from the attitude of the Hobhouse Report, which waxed quite lyrical about this quite unique area in certain passages, for instance, in paragraph 38 and on page 114.
  In the review to which I have referred, my right hon. Friend is considering not only what can be done for the, so to call them, old style national parks, but also what should be done with reference to new style national parks which may, perhaps, be termed, as the Hobhouse Report suggests, areas of recreation—areas, that is, which may have greater accessibility or will certainly cater for greater accessibility than has always been the case in the national parks hitherto. One would have to recognise that people will go there in large numbers, and ought to be encouraged to do so, by motor car, so that there must be provision for them to leave their cars and go off for relaxation and enjoyment without, at the same time, damaging the natural beauties of the areas themselves.
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  In such a concept of a recreation area, the Broads would figure very largely indeed. This is the most remarkable inland sailing area in England, and, when one remembers that it is only about 3½ hours journey by train from London, one realises its unique character and true significance.
  My right hon. Friend is now conducting his comprehensive review of all the matters relating to the national parks and the countryside and the wider questions of preserving a balance betwen town and country, the maintenance of amenity, and how to provide in this period of growing population and more motor cars for the preservation of natural features while, at the same time, making proper provision for recreation.
  My right hon. Friend hopes to reach his conclusions very shortly. In fact, the review is substantially completed in the Department. He hopes that the public will have his schemes for the new countryside policy before it soon.
  Mr. Parker: Will there be a White Paper setting out the proposals?
  Mr. Skeffington: That is one of the ways in which the matter could be put before the public, but this is a matter for Cabinet decision and policy. However, I can here give the undertaking that in this review, the claim of the Broads will be very fully considered. Future countryside policy is of the greatest importance because the decisions we make about land use will certainly determine general living conditions and whether they will be tolerable and will also have an effect upon the very quality of living itself.
  We realise this, and hope to present a scheme which will have a great attraction for the public and maintain the right balance. I think that my hon. Friend will find that paragraph 193, on page 60 of the Report, states that:
  "Time is not on the side of Broadland. To do nothing is to abandon the region to erosion, conflict, and decay."
  What is said of the Broads is true of other areas, and I hope that we can look forward to an enthusiastic response to my right hon. Friend's plans in due course.
  Question put and agreed to.
  Adjourned accordingly at fourteen minutes to Two o'clock.