HC Deb 12 July 1965 vol 716 cc97-105
Mr. William Clark (Nottingham. South)

I beg to move Amendment No. 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 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 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 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
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)
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.