§ 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. 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 insertand(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.
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 (Glasgow, Cathcart)
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 (Dorset, West)
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 (Tynemouth)
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.191
§ 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 192 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.
193 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 194 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 (Newcastle-upon-Tyne, North)
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 195 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.