HC Deb 16 June 1965 vol 714 cc840-8

11.15 a.m.

Mr. Diamond

I beg to move Amendment No. 699, in page 91, line 22, at the end to insert: (and if it is due from him as personal representative within the meaning of Part XIX of the Income Tax Act 1952, the amount treated as received by him shall accordingly be, as regards surtax, included for purposes of the said Part XIX in the aggregate income of the estate)". The purpose of this Amendment is to ensure that if a close company makes a loan to a participator who repays it after his death—which is a practice which does exist—while the estate is still under administration the grossed up equivalent of the amount will be treated for Surtax purposes as income of the estate, and attract Surtax as may be appropriate. The only relative part of the Amendment is that this applies while the estate is still under administration. The Clause already takes care of the situation in other circumstances, but not this particular circumstance, and the purpose of the Amendment is to stop up an opportunity which would otherwise have been an opportunity of avoidance. I hope that the Committee will feel disposed to accept the Amendment.

Mr. Geoffrey Lloyd

May I ask the Chief Secretary for a little elucidation? I wanted to raise a question, but it seems to me that it is possible that his Amendment deals with it. It is a question of allowing, so to speak, outside the mischief of this Clause, a certain type of loan. It is exactly this type of loan to a participator in the company where all the family's funds are so much locked up in small funds there is really no other source of funds to pay the death duties.

Mr. Diamond

The right hon. Gentleman is raising a very real problem, but it is not the problem of this Amendment.

Mr. Geoffrey Lloyd

I will raise it on the Question, That the Clause stand part of the Bill.

Mr. Diamond

The Amendment does not deal with that circumstance.

Amendment agreed to.

Mr. Diamond

I beg to move, Amendment No. 700, in page 91, line 29, at the beginning to insert "Subsection (3) of".

It may be convenient, also to take Amendment No. 705 now.

The Chairman

We could take Amendment No. 701 with Amendment No. 700.

Mr. Diamond

I am obliged, Dr. King. My papers were not quite in order.

This and the other Amendment that we can discuss with it are to improve the drafting of subsection (5), which seeks to prevent a double charge of tax where a loan by a close company to a participator would be caught both by this Clause and by Section 408 of the Income Tax Act, 1952. Under that Section, avoidance by means of a settlement combined with a loan to the settlor is dealt with, and it would be wrong if by any mischance that avoidance Section 408 had the same effect, or rather duplicated the effect, of this Clause.

Therefore, this Amendment corrects that situation, and at the same time corrects a flaw whereby relief would be given for Income Tax as well as Surtax although it is only Surtax which would otherwise be payable twice on the same income. I hope that that is a sufficient explanation.

Amendment agreed to.

Further Amendment made: In page 91 line 33, leave out from beginning to end of line 37 and insert: release or written off exceeds the sums previously falling to be so included (without the addition for income tax provided for by section 408 (4)); and where any amount is included in a person's income by virtue of subsection (3) above in respect of any loan or advance, there shall be a corresponding reduction in the amount (if any) afterwards falling to be so included in respect of it by virtue of the said section 408."—[Mr. Diamond.]

The Chairman

With Amendment No. 702 we can also take Amendment No. 703, in page 91, line 43, to leave out "some other person" and insert: some person other than the close company and Amendment No. 705, in page 92, to leave out lines 7 and 8 and insert: loan or advance had been made to him. (7) In subsections (1) and (6) (b) above the references to an individual shall apply also to a company receiving the loan or advance in a fiduciary or representative capacity and to a company not resident in the United Kingdom.

Mr. Diamond

I beg to move Amendment No. 702, in page 91, line 40, to leave out "individual" and to insert "person".

The effect of this Amendment and of Amendment No. 705 is to deal with the case where a close company makes a loan to a participator, but does not do so directly. This is where we deal with avoidance by one remove, by making a loan to an intermediary equivalent to a payment to a participator. As the Clause is drafted it applies only to the intermediary as an individual. That is not sufficient, because an intermediary could be a company.

Therefore, again, one wants to bridge a gap, in which there could be avoidance by payment being made to an individual. By the intermediary, either an individual or a company, being caught we have filled the gap, which I think the Committee wishes to fill.

Mr. Barber

There is one point that I should like to raise on subsection (6) with which these Amendments are concerned. It may be that the Chief Secretary will not wish to commit himself this morning on what I say, but perhaps he will consider it.

I appreciate that the purpose of the Clause is to prevent the avoidance of taxation, but it seems to me that subsection (6) as the right hon. Gentleman has amended it will cover the case where a close company makes a loan to a person who is not a participator in accordance with paragraph (a) as amended, and where a person other than the close company makes a payment to an individual who is a participator under paragraph (b) as amended. It seems to me that these two transactions might well be quite disconnected, that each individual or person has no knowledge whatever of what is being done by the other, and there is no intention to avoid tax.

That conclusion is possible because the opening words of subsection (6) are. Where under arrangements made by any person … As, on the normal canons of interpretation, the singular includes the plural, the arrangement could be made by two persons. It therefore seems likely that the Clause could cover a case which was really quite innocent, and I was wondering whether what was required was the insertion of some such words as "acting in concert", such as appear in Schedule 10 in another context.

It may be said that it will be difficult for the Revenue to prove that people are acting in concert, but in this case I would not object if the onus was put on the individual. The right hon. Gentleman may not have the answer now, and I shall understand if he wants to consider what I have said.

Mr. van Straubenzee

In contrast to what my right hon. Friend has said, and as we are coming towards the end of our labours and the Chief Secretary has maintained his equilibrium remarkably well throughout the long night and morning, perhaps he will allow me a gentle leg-pull. If he looks at subsection (6,a), he will see that in its amended form it will read: a close company makes a loan or advance to an person … The right hon. Gentleman will realise that this is a very serious defect in the Bill. If he gives a firm undertaking to deal with the matter, I shall not call on my hon. Friends to divide against the Amendment.

Mr. Maxwell-Hyslop

I would be grateful if the right hon. Gentleman could clear up one doubt in my mind. Will these provisions cover the case where a close company deposits money with an insurance company—this is something which companies often do—and a director of that company, quite independently, borrows money against the security of an insurance policy from that insurance company? This is something which individuals often do if they want to raise money, particularly if a credit squeeze is in operation. They borrow on their policies from the company with which they have the policy. These two events may be dissociated, but would they neverthe- less be brought within the provisions of this subsection?

Mr. Diamond

I do not think that there is any problem there. Subsection (6) refers to arrangements made otherwise than in the ordinary course of a business … If it is in the ordinary course of business, it is excluded immediately, and I do not think that there is a problem there.

I am concerned about what was said by the hon. Member for Wokingham (Mr. van Straubenzee), and I recognise the great generosity with which he has brought the matter to my attention. I can only say that I am grateful to him beyond description.

I answer the right hon. Member for Altrincham and Sale (Mr. Barber) with some trepidation. I am informed that notwithstanding the right hon. Gentleman's great legal knowledge, "any person" cannot be the plural, and can only be the singular. If it can only be the singular, his problem is at an end. I am informed by the draftsman that that is the case.

Amendment agreed to.

Further Amendment made: In page 91, line 43, to leave out "some other person" and insert: some person other than the close company".—[Mr. Diamond.]

Mr. Diamond

I beg to move Amendment No. 704, in page 92, line 6, to leave out "that" and to insert "the grossed up equivalent".

The purpose of the Amendment is to correct a drafting error. It was intended to put in these words, and the purpose of the Amendment is to put the matter right.

Amendment agreed to.

Further Amendment made: In page 92, leave out lines 7 and 8 and insert: loan or advance had been made to him. (7) In subsections (1) and (6)(b) above the references to an individual shall apply also to a company receiving the loan or advance in a fiduciary or representative capacity and to a company not resident in the United Kingdom".—[Mr. Diamond.]

Question proposed, That the Clause, as amended, stand part of the Bill.

Mr. Geoffrey Lloyd

I can be brief, because the right hon. Gentleman was kind enough to grasp the point that I was ma king in the course of correcting me when I tried to intervene on an inapplicable Amendment.

The point that I wish to raise concerns the loan to a participator when it is for the purpose of paying death duties to keep the family business together. I understand that this practice is permissible under the present law, and I would be grateful if the right hon. Gentleman could say whether it will still be allowed under the Clause.

I ask that because on my rather inexpert reading of it it appears that it will not be. If it will not be allowed, I should like the right hon. Gentleman to consider it as something which it might be wise to permit, subject, of course, to every safeguard, because we appreciate that the main purpose of the Clause is the prevention of abuse.

Mr. Diamond

I undertake to look ir to the matter. The right hon. Gentleman is not expecting any undertaking at the moment, but beyond that I shall consider the point carefully.

Question put and agreed to.

Clause, as amended, ordered to stand part of the Bill.

Clause 71 ordered to stand part of the Bil1.

Mr. Diamond

Dr. King, notwithstanding the fact that you may find this Motion most unacceptable, I beg to move, That the Chairman do report Progress and ask leave to sit again. I hope that you will forgive me for saying that one of the reasons why, on the whole, we have had a very happy debate and made great progress is that you have excelled even yourself in the way in which you and your deputies have presided over our gatherings. Those who have any experience of this sort of thing know that during the course of an all-night sitting human beings tend from time to time to be more or less human. We all recognise this, and we are, therefore, very grateful to you for the way in which you have enabled us to make progress.

My right hon. Friend would wish me to express to the Opposition our gratitude for the way in which they have moved Amendments, many of which have improved the Bill, and we have been glad to accept them. On the whole, we have made good progress. It is now half-past eleven, and getting near the time at which we normally finish our business and start thinking about going to bed. I hope that the Motion will be acceptable to both sides of the Committee.

11.30 a.m.

Mr. Heath

I can well understand that the Chief Secretary wishes to move to report Progress; indeed, he is following the very proposal which was put forward by the Chancellor several hours ago. There are many reasons why this should be done, but before I mention some of them I want to join with him in the tribute that he has paid to you, Dr. King, and to your colleagues who have occupied the Chair, and to thank the right hon. Member for the kind remarks that he has made about Her Majesty's Opposition. The Committee has now been sitting for 19 hours 48 minutes. This is the longest sitting of a Committee in this Parliament, and is a marathon sitting by any modern standards.

We have been forced to do this by the Chancellor of the Exchequer and the Patronage Secretary. We have been forced to do it because the Government cannot provide time at a proper hour of the day to debate the Bill. The reason is that their whole programme in this Parliament is in a state of complete chaos. This is the longest and most complex Finance Bill for 50 years, and it is fantastically irresponsible to make Parliament discuss it in these circumstances. It is generally acknowledged, both inside and outside the House, to be a half-baked Bill—and to force this Committee to cook it through the afternoon, the evening, the night, and the following morning is most unsatisfactory.

Hon. Members opposite think that they have an argument for morning and afternoon sittings, and we believe that there is an argument for afternoon and evening sittings. What I fail to see is any argument for afternoon, evening, all-night and morning sittings consecutively. I hope that I carry the Committee with me in that.

I agree with the right hon. Member that we have made progress today. He was very complimentary about the progress that has been made. For one awful moment I thought that he was about to say that we were "rounding the corner." That would have been rather ominous for the future work of the Committee. We have gone through about a dozen Clauses, and I am glad to know that the Chief Secretary is pleased at this. I agree that the Treasury Bench has been greatly helped by the mass of information which has been provided by hon. Members on both sides of the Committee, gained from a wealth of practical experience, and my own sincere wish is that the Chief Secretary and his colleagues should benefit from it.

We are half way through the Clauses which deal with the close companies, and whenever it may be announced this afternoon that we shall resume our business on the Bill we shall be faced with further important debates on close companies, in respect of the transitional provisions for Corporation Tax, and the new Clauses. We are looking forward to a resumption of our debates on these very important matters.

There is one other reason why we should report Progress. It will enable those hon. Members who wish to do so to raise with Mr. Speaker the position, of which the Committee is aware, which has caused chaos in two Committees upstairs, namely, the Committees considering the Race Relations Bill and the Registration of Births, Deaths and Marriages (Scotland) Bill, neither of which Committee can function properly because reporters are not available. This is the condition of Parliamentary business to which the Patronage Secretary has reduced Parliament. It may well be that if this Committee decides to accept the Chief Secretary's Motion the reporters could become available, or Mr. Speaker or Mr. Deputy-Speaker might be able to give a Ruling on the matter. At the moment, there is confusion and chaos, and the Committees will probably have to adjourn.

During this sitting hon. Members on this side of the Committee have been fighting long, fierce battles to protect British trade, visible and invisible, from the effects of the Corporation Tax and, having fought, we feel that there is now a good reason for reporting Progress. We have fought to protect the interests of the Commonwealth and the developing countries, as well as British interests. We have been fighting for the interests of millions of savers in life insurance. We have been fighting for the interests of all the hundreds of thousands of people who invest in unit trusts and investment trusts. All this has been worth while, because we have helped to improve the Bill. Therefore, having fought this good fight, we look forward to resuming certain matters in connection with which undertakings have been given in respect of the Report stage.

You may have gathered, Dr. King, that I agree with the Chief Secretary, and support the Motion. We look at them, bemused and weary on the Treasury Bench—whereas in the Opposition we are buoyant and alive—and we send them off for the weekend to try to refresh themselves and face the battles which lie ahead.

Mr. George Y. Mackie

I, too, join in the congratulations which have been extended to the Chair on its conduct of our proceedings. I want to say something as a Liberal, speaking in my first Finance Bill. There is a great deal of club atmosphere and good humour about. All those who have sat up all night are rather proud of it. There is a great deal of gentle banter going on, but in my opinion we should be thoroughly ashamed of ourselves for conducting this important business right through the night. Before I catch the club atmosphere myself, I would point out that it is high time that the House reformed its method of doing business.

Question put and agreed to.

Committee report Progress; to sit again this day.