Clause 80.—(TRANSITIONAL RELIEF FOR COMPANIES PAYING DIVIDENDS OUT OF PRE-1966–67 PROFITS.)

HC Deb 22 June 1965 vol 714 cc1573-610

The Temporary Chairman

Before calling upon the hon. Member for Worthing (Mr. Higgins) to move his Amendment No. 623, I should tell the Committee that it would be convenient to discuss at the same time Amendment No. 570, in page 107, leave out line 36 and insert: in any three consecutive years selected by the company commencing 1956–57 and ending 1965–66 or, in the case of a company whose business consists wholly or mainly in the ownership or operation of ships, six per cent. of the capital employed by that company in the financial year 1965, if that amount be greater". and Amendment No. 569, in page 109, line 27, at end insert: (7) For the purposes of this section the capital employed by a company shall be arrived at by taking the amount by which the value of the company's assets, computed in accordance with the provisions of paragraphs 2 to 9 of the Eighth Schedule to the Finance Act 1952, exceeds the amount of its liabilities so computed and adding the capital value of the company's investments computed by multiplying by twenty the company's franked investment income for the relevant financial year and deducting the cost of such investments. both of them standing in the name of the hon. Member for Dorset, West (Mr. Wingfield Digby) and the names of some of his hon. Friends.

Mr. Terence L. Higgins (Worthing)

I beg to move Amendment No. 623, in page 107, line 32, after "that", to insert: (except in the case of a company whose business consists wholly or mainly in the ownership or operation of ships)". We turn now to the Clause concerned with transitional relief for companies paying dividends after pre-1966–67 profits. The two Amendments we are discussing with my Amendment are rather narrower in scope. The effect of my Amendment is to remove a limit on the notional surplus in the case of shipping companies. My reason for moving the Amendment is that the case of shipping companies in this respect is exceptional, because in the three years which are taken for the purpose of the Clause their profits have been exceptionally low.

For the purpose of my argument, it will be convenient if I go in some detail, although not at great length, into the reasons why profits of shipping companies have been low in recent years, for this supports my case.

One can trace the situation in the shipping industry to a series of radical changes in the structure of the industry since the war. The first is with regard to the capital market for shipping. Before the war, capital for shipping was largely given to particular owners who were working on a day-to-day basis and, taking booms and slumps of the pre-war period, for a long time found they could raise sufficient capital to enable the British shipping industry to maintain a preeminent position in world trade. This was the basis on which capital was normally raised.

In the post-war years there was a radical change in the situation when it became possible for financiers, who were not themselves particularly involved in shipping and who did not themselves have any particular expertise, to raise money on the basis of long-term charter to some third party and thus to finance the creation of ships and the generation of large companies. In the post-war era this had a particular effect in the New York market and there was a great deal of increase in the tonnage of ships in the United States.

8.30 p.m.

I shall deal with the effect of that later, but I want now to deal with the second development which has affected the market for shipping, that of flag discrimination. This may be briefly described as attempts by particular countries to give preference to cargoes being carried in ships sailing under their flags. This has led to a change in the structure of the market to the detriment of British shipping.

The third influence or development was so-called flags of convenience whereby, because of the international nature of their trade, owners found it profitable to go to countries, particularly Panamanian countries, which had lower tax rates than those obtaining in this country. The final development was the radical change in the extent to which governments overseas were prepared to subsidise their own merchant marines in the liner or tramp trade.

These four developments led to what in technical jargon might be called an increase in the elasticity of supply. That is to say, whenever there tended to be a boom, there was much more of a tendency to build ships than there would have been in the pre-war situation when the developments which I have mentioned had not occurred.

The net effect of the boom in world trade immediately after the war, the boom at the time of Korea and the boom at the time of Suez has been an increase in world trade with a sudden demand for tonnage in crisis situations so as to result in a series of building booms of ever-increasing size. After about 1957, we found ourselves in a situation in which an enormous amount of world tonnage had been built, far more than was needed for the normal working of the market, and as a result supply was greater than the demand for the tonnage and freight rates were depressed to unprecedented low levels and the degree of profit in the industry was correspondingly depressed.

The point which now needs to be made is that we have a situation in which the shipping market is gradually emerging from that position. We are gradually getting a state of equilibrium and people are beginning ever more rapidly to build again. The crucial point of the Amendment is that at this time above all others we should do nothing to destroy the basis on which British shipowners can raise money and the basis on which they can build. If we do, nothing is more certain than that our share of the world shipping market, which produces large quantities of export earnings, will be less than it would otherwise be.

If we do not amend the Bill as I suggest, at this crucial moment the basis on which British lines, owners and builders operate will be affected. Confidence will be shaken, because, reverting to the first point I made, people have been tending to build in order to let out ships on a long-term charter basis, and in order to do that they have to be able to offer a sufficient rate of return to those who might invest in their projects in order to make them competitive with alternative investment projects. They have been able to do that in recent years only because of the favourable investment allowances which previous Governments have introduced. Not to amend the Clause as suggested would make it more difficult for recent companies in particular to offer the favourable rates of return which they would otherwise wish to offer.

It is very important to stress one final consideration. I am sure that the people in the shipping industry would be much happier if we could get away from the developments which I have mentioned. However, given the realities of the situation and given this country's vital interest in its merchant marine in order to maintain its export earnings and given the contribution of those export earnings in terms of invisible exports to the country's balance of payments, it is very important to accept the Amendment. As I said, it completely removes the limit for shipping companies.

My hon. Friends, in proposing the Amendments which have been linked with this Amendment, will no doubt put an equally strong case and argue that perhaps the Chief Secretary may feel disposed to impose some limit. I hope that he will not do this. I hope that he will accept this Amendment which will remove the limit completely. In order to give us a basis on which to appraise the answer he gives us perhaps he can indicate how much the wide Amendment which I am now suggesting would be likely to cost the Exchequer as against the situation which would exist if the narrower Amendment were accepted. I think that we should have some idea so as to be able to appraise the situation as far as export earners are concerned in relation to the cost to the Exchequer.

The Chancellor said that he has to strike a balance between the interests of the economy as a whole, and the taxpayer, and the interests of particular firms. I would suggest that in this particular instance it is fairly clear that we should be in a position, if we accept this Amendment, to ensure that the best interests of the firms concerned and the economy as a whole are served. For this reason, I hope that the Chancellor will be able to accept the Amendment.

Mr. Julian Ridsdale (Harwich)

I rise to support the Amendment moved by my hon. Friend the Member for Worthing (Mr. Higgins). He has great knowledge of the shipping industry and it is with that knowledge and authority that he speaks to the Committee. The shipping companies have been through a difficult time within the last few years and are undoubtedly, as my hon. Friend said, large earners of foreign exchange. It is not unreasonable to help them over the difficult time that they have been through. This wide Amendment will enable them to have three more years to recover the tax paid on the past profits and be a partial compensation for the current losses which they have suffered. Such a privilege does not seem unreasonable in view of the substantial capacity of the shipping industry as earners of foreign exchange. It would be helping them in the very competitive circumstances with which they are to be faced. For those reasons I support the Amendment and hope the Chancellor will give way to this Amendment and at the same time say how much it will cost as opposed to the shorter Amendment.

Mr. Stanley R. McMaster (Belfast, East)

I should like to say a few words about Amendment No. 570. This is an alternative to the Amendment which the hon. Member for Worthing (Mr. Higgins) has just been discussing. If the Chief Secretary does not see fit to accept the Amendment which has been so forcefully proposed by my hon. Friend the Member for Worthing I hope he will, as a lesser alternative, accept one of the other Amendments which have been selected. I feel that the greater takes in the lesser and I am sure my other hon. Friends who have put down these two additional Amendments would be more pleased to see the Chief Secretary accept the first Amendment rather than our own less sweeping Amendments.

The object of these Amendments, particularly of Amendment No. 570, is to translate into reality for the shipping industry the benefits which it is intended by the Bill to confer on companies which have failed to achieve during the three years up to 31st March, 1969, a level of profits which would result in a reasonable balance between Corporation Tax at 40 per cent., coupled with a distribution charge of 41.25 per cent., and the taxation liability which they suffer under the present system.

Under Amendment No. 570, the overriding limit to three years' surplus is the Income Tax ultimately borne by the company in the years 1963–64 to 1965–66. Profits in the shipping industry have been falling. This overriding limit to these three years surplus virtually negatives the intended benefits of Clause 80. During the years in question, owing to the depression to which my hon. Friend the Member for Worthing referred, it is unlikely that shipping companies will pay any Income Tax. This point has been discussed on previous Amendments, and I think that it is accepted by the Treasury Bench.

The limitation bears particularly heavily on the progressive company which has continued to build ships in spite of the depression in the industry. In this case, the investment allowance of 40 per cent. and the annual allowance of 15 per cent. make it virtually certain that such a company will not pay tax during 1963–64 to 1965–66.

Amendment No. 570 seeks to provide as alternative limitations—either the tax ultimately borne during any three consecutive years from 1956–57 to 1965–66, or in the case of a shipping company, 6 per cent. of the capital employed in the financial year 1965. We believe that it is not unreasonable for this purpose to accept a standard earning of 5 per cent. of the capital employed. The way in which this figure has been arrived at is this: With tax at an average of 8s. in the£ for the three years 1963–64 to 1965–66, the tax liability becomes 2 per cent., and as the provisional arrangements cover the three years 1966–67 to 1968–69, the 2 per cent. is multiplied by three. It is felt by the shipping industry—and Amendment No. 570 has the support of the Chamber of Shipping—that the proposal suggested in the Amendment is a reasonable alternative to Clause 80 for the shipping industry.

I hope that right hon. and hon. Members opposite have been able to follow this complex argument. I have been impressed by the consideration which has been given to the shipping industry and to the case which we have been putting forward, and by the earlier remarks of the Chief Secretary and other occupants of the Treasury Bench to the effect that they intend to assist the shipping industry. For this reason, I trust that they will look favourably on these Amendments.

8.45 p.m.

Mr. Ian Lloyd (Portsmouth, Langstone)

I support briefly all that has been said by my hon. Friends in calling on the Government to show more sympathy to the shipping industry by taking particular note of the Amendments which have been tabled.

May I refer particularly to Amendment No. 569, which is consequential on Amendment No. 570. It refers again to the question of the definition of "capital employed", which is exactly the same as that used in Amendment No. 418 on Clause 78 which was discussed last night. I should like to say a few more words about this, because the Chief Secretary rather implied that one of the Government's difficulties in accepting this definition was the complexity of any process which might be used either by the Inland Revenue or by industry to define "capital employed".

The situation can be exaggerated, for the following simple reasons. Shortly after the war, British industry sent a large number of teams to the United States under the auspices of the Anglo-American Council on Productivity. They produced a series of remarkable and remarkably valuable reports. One thing which was common to practically all those reports—and this was very much endorsed by subsequent reports by the British Productivity Council, which succeeded the original idea of the late Sir Stafford Cripps—was that invariably in American industry the closest attention was paid to the question of resources employed and that, generally speaking, industries or groups of firms would set up organisations.

The example which I should like to quote to the Chief Secretary is that of the printing industry of America, P.I.A. The whole purpose was to make the closest possible comparisons of the efficiency with which resources were used in different firms within an industry.

The Chief Secretary to the Treasury (Mr. John Diamond)

I am more than willing to listen to any arguments that the hon. Gentleman cares to put to me, but if he is concerned to persuade me that the problem of defining capital employed is for these purposes no problem at all, he need not exert himself, because I accept that for these purposes capital employed can be as simple as one wishes to make it.

Mr. Lloyd

I am obliged to the right hon. Gentleman for that indication, as I see it, of, to some extent, his acceptance of our arguments of last night. The fact that the seeds sown by those reports seem to have taken root in this country is shown by the efforts of the Interfirm Comparison of the British Institute of Management, which is doing precisely the same sort of thing for British firms. This, presumably, is something which we want to encourage in every way.

Anything that the Government can do in their general fiscal legislation to encourage directors of companies to examine the resources which they employ and to make comparisons within industries and inside large groups of firms undertaking similar activities should be encouraged by all possible means. This links closely with the recommendations made by the National Economic Development Council concerning the neglected investment allowances. If we want to encourage directors to pay more attention to investment allowances, not only in shipping but throughout industry, surely we can assist in this and provide an incentive by encouraging them to examine the capital which is employed, both for fiscal purposes and for the purpose of their own industrial operations.

Mr. Diamond

The most straightforward way of replying to the Amendments is to remind the Committee of the purpose of the Clause and, secondly, to refresh hon. Members' memories with regard to the shipping industry in particular and its history of profits and dividends. The purpose of the Clause is to deal with a certain problem that arises from the commencement of Corporation Tax. Under Corporation Tax, the system will be, as opposed to the present system, that when a company pays a dividend, it accounts to the Inland Revenue for the tax.

The present system is not that. Under the present system we get circumstances in which dividends are paid to a shareholder who receives in all good faith a certificate from the secretary to the company saying tax has been deducted. The shareholder, in appropriate circumstances, goes along to the Inspector of Taxes, produces the certificate, and says, "See, I have suffered some tax and should not have suffered it. I want it back." The inspector of taxes repays it, but, lo and behold, tax has never been paid in the first place, because the company, which allegedly deducted tax from the dividend paid to the shareholder, itself never paid any tax over to the Inland Revenue. That is a situation we know well: we in this Committee in particular know it well because it has been drawn to our attention by a Select Committee of the House; and the whole problem was commented on adversely by them, the Public Accounts Committee.

That is the background against which a special provision is made in this Clause. This Clause is a helpful Clause, which wants to deal with the situation where a company is about to declare a dividend in the now period, under the new régime, the Corporation Tax system. It has, of course, therefore, to account for the tax, but, on looking at the facts, it sees that the dividend could not possibly have been declared out of the profits of the then current period because the profits were not sufficient. Therefore, it must have been paid out of profits previously earned, and, of course, if those profits had been earned in a period prior to the Corporation Tax period those profits would have borne Income Tax.

Therefore, it is right to say, within limits, where that is the case, that the tax deducted from dividends paid in the Corporation Tax period should be not necessarily handed over in full to the Inland Revenue but there should be taken into account the tax which had already been paid on the body of profits out of which, in effect, the dividend was being declared. Therefore, one has under the Clause a system under which to work out whether for the period of three years after Corporation Tax commences there could possibly have been enough profits to finance the dividend paid, and if there were not enough profits the dividend must have come out of previously earned profits. Therefore, one takes that into account.

But it is not always right to say in the present Income Tax and Profits Tax period that dividends have been paid out of funds which have borne Income Tax. As I have explained, in some cases, because of investment allowances and the like, Income Tax could not in fact have been borne, it is therefore necessary to protect the Revenue by this further test or check of saying, "Yes, we will certainly recognise that the dividends paid in the future must have come out of profits earned in the past, but one cannot jump to the conclusion that those profits bore tax." One has to see that in fact they did bear tax. Therefore, there is a further test. The relief which it is desired to give, the relief which it is equitable to give, can only be given if in fact tax has been paid.

So far as the shipping industry is concerned, in a large number of cases tax was in fact not paid. One has to look at it quite fairly. Therefore, what is in effect being proposed on behalf of the shipping industry by these Amendments is that this restriction would effectively put a bar to the payment of dividends in the future, coupled, as they have to be coupled, by the payment of tax at the same time—or might he a limitation if not a complete bar. What is being proposed in the Amendment is that we should remove this test and therefore get back for the future period to the situation which the Public Accounts Committee criticised roundly, namely, the situation in which the individual shareholder in a shipping company could receive dividends and claim back, in appropriate cases, tax alleged to have been suffered although, in fact, no tax was suffered at all.

I am bound to tell the Committee, therefore, that the Chancellor accepts the view of the all-party Public Accounts Committee, and is not willing, under any circumstances, to permit a situation under which we continue what was rather politely called an anomaly, but what was in effect taking tax that had never paid—one taxpayer taking tax that had been paid by another taxpayer; reclaiming tax that had been paid by another taxpayer; robbing Peter to pay Paul. That is a situation which cannot continue, and, therefore, to the extent that these Amendments rely on that situation, they are unacceptable.

It is, unfortunately, the fact that they do reply on that situation; and the reason why I wanted to save the hon. Member for Portsmouth, Langstone (Mr. Ian Lloyd) the trouble of demonstrating his point about capital employed is that, with the greatest deference, it is, I shall not say irrelevant, but an illusory concept for this purpose. What one is concerned with is not the amount of dividend which capital might earn. What one is concerned with in this check is a simple test: has tax been paid or not? If it has been paid, it is right that that should be set-off against tax to be paid, but if tax has not been paid, it is wholly wrong to set off an imaginary figure, X per cent. of the capital employed, against a tax bill.

Therefore, I am bound to say that these Amendments are completely unacceptable because of that essential defect in them, namely, that they continue a procedure which has been anomalous in the past, which arose out of our present system of taxation, and which has been roundly and wholly condemned by the P.A.C.

Having said that, I repeat what I have said on many other occasions on behalf of my right hon. Friend. The Government are most anxious that there should be a prosperous shipping industry. My right hon. Friend is anxious to help it, and to see in what ways it can be helped, but the way to help it is not to drive a coach and horses through Corporation Tax, to continue a procedure which has been roundly condemned by a Select Committee of the House. I hope, there- fore, that I have made it clear why, with the greatest good will towards the shipping industry, these Amendments are not acceptable at all.

Mr. Higgins

I shall not detain the Committee for more than a few moments, but I think that it is, to say the least, a slight exaggeration for the Chief Secretary in his peroration to say that these Amendments drive a coach and horses through Corporation Tax. We are not proposing that the change should continue indefinitely. What we are suggesting is that, during the period of the transitional arrangements with which the Clause is concerned, the original basis on which people raised capital should be continued, particularly at this crucial moment when the shipping industry is beginning to pick up again.

I cannot help feeling that the whole argument that at all costs we must stop people from receiving a tax rebate if tax has not been paid is a narrow way of looking at it. The function of taxation policy is surely to implement Government policy, not the other way round, and it appears that the right hon. Gentleman, in his obsession with this whole idea, which comes up time and again in his speeches and in those of the Chancellor of the Exchequer, is overlooking the broader picture, and once again they are on a much narrower front than is normally the case, with the Government destroying business confidence at the precise moment when they should be trying to restore it. I therefore suggest that it is not an adequate answer merely to say, "We will do everything we can. We want a prosperous shipping industry", while, at the same time, doing nothing practicable to ensure it.

Will he tell us what would be the cost of this Amendment to the Exchequer? If we knew that we could appraise our proposals, and if we were convinced that the cost would be too great in terms of our national economy we would accept the fact. If we were told what the cost would be we would have some basis for appraising the quantitative value of the right hon. Gentleman's argument. We should also be able to judge the matter in relation to subsidies for export-earning industries or import-saving industries, such as the coal industry. The right hon. Gentleman should give us this set of figures. It would show that he has given some thought to the matter.

9.0 p.m.

Mr. Edward M. Taylor (Glasgow, Cathcart)

The Chief Secretary's arguments were relevant to only one of the propositions put forward in the Amendments which are being considered with this one. The first of those Amendments concerns the question of capital employed and the other establishes a 10-year basis—three consecutive years in the previous 10-year period. This will involve tax actually paid. The Chief Secretary said that he was not prepared to go beyond the principle that tax is not recoverable unless it has been paid. His argument is not directly relevant to all the Amendments, and in those circumstances I hope that he will agree to reconsider the question.

I also draw attention to the fact that the Clause refers to "transitional relief". I emphasise the word "relief". The right hon. Gentleman has made it clear that he is most anxious to help the shipping industry. On more than one occasion he has said that he would go out of his way to help it. All that we are trying to do is to establish a position in which the industry can obtain the same relief as that which is afforded to industry generally. What we are seeking is not special relief but simply the acceptance of an Amendment which will enable the shipping industry to benefit from the relief provided for in the Clause.

Mr. William Clark (Nottingham, South)

It is difficult to foresee snags when one recasts the whole tax system. In my opinion, the right hon. Gentleman has not fully answered my hon. Friend's excellent résumé of our shipping problems. My hon. Friend pointed out with great brevity and clarity the situation that had arisen as a result of flag discrimination and subsidies by our competitors, and then referred to the importance of this country as a maritime nation. I am sure that the Chief Secretary agrees that the shipping industry generally has contributed a great deal to our invisible ex ports.

The Clause deals with the question of transitional relief. The Chief Secretary pays lip-service to the importance of the shipping industry and agrees that it should be helped, and says that the Government will do all they can and then, before sitting down, he informs the Committee that in this case nothing is to be done. The Chief Secretary has not answered the point raised by my hon. Friend the Member for Belfast, East (Mr. McMaster). His Amendment, which we are discussing with the Amendment that has been moved, extends the three-year period to 10 years. The shipping industry has been in the doldrums in the last few years but has recently been gearing itself up, and looks as if it is going to improve its position, if the trend that we have seen in the past few months is continued.

The Chief Secretary ignored altogether Amendment No. 570. He gave no reason why it was wrong to take the 10-year period instead of the three-year period. As my hon. Friend the Member for Worthing (Mr. Higgins) said, it is tremendously important to the shipping industry because, if the shipping industry is to grow—bearing in mind the fact that many of our competitors give huge subsidies to shipping in one way or another—obviously, it has to be a good investment, and competition between investments in this country is extremely important. Let us accept the fact that this Amendment—whether we take the wide one or the narrow one, No. 570—will cost the Exchequer money. The Chief Secretary has been asked twice by my hon. Friend the Member for Worthing whether he will declare the cost of the wide Amendment. I do not know whether the Chief Secretary would now like to say what that cost would be.

Mr. Diamond

I would do so at any time convenient to the Committee. The hon. Gentleman showed signs of wishing to address the Committee and I was most anxious to listen to him. I did not want to delay that pleasurable occasion. I cannot—nor can any one—give any idea of the cost of either of the Amendments, because it depends on decisions of boards of directors, which have not yet been made, as to what dividends they will declare.

Mr. Clark

There it is. We are arguing about something which the Chancellor or the Chief Secretary says will lead to a loophole in our tax law or will continue one. It will, presumably, cost the taxpayer some money. When he is asked how much money, the Chief Secretary is unable to say because, he says, somebody else has to make the decision. This is a false argument. One cannot say that it will cost the Exchequer a certain amount of money and then not say how much money it will cost.

In connection with Amendment No. 570, the Chief Secretary went on to talk about capital employed. I do not want to develop the argument on capital employed, because we had a splendid debate about the subject early this morning. Last night, the Chief Secretary, questioned about capital employed, said that this was full of complexities, that he wanted to protect the directors of companies from the complexities of working out the capital employed in their firms. A few moments ago, and I wrote his words down carefully, in answer to my hon. Friend the Member for Worthing, he said about capital employed, "Of course, this is simple to work out". How was it very complex last night and yet so simple this evening?

Mr. Diamond

The hon. Gentleman did not write down my words very carefully. I knew exactly what he would say when I got up and I was careful to use the phrase, "for these purposes", meaning—but not saying so, because it might have been a little discourteous—that, as it was totally irrelevant to the Amendment, I was prepared to accept that argument for the purposes of this Amendment. There was no need to prove that it was simple. I was prepared to accept it.

Mr. Clark

There it is. The more I listen to Treasury Ministers, the more confused I become. I do not think that I am alone in that. I think that some of my hon. Friends are more confused after listening to a speech from the other side than before they hear it. This is one of the tricky things about the whole Bill. One reads a Clause, as one has read Clause 80, and reads the Amendments and thinks that one understands them. Up till the moment the Government explain them, one does understand them. It is at that moment that confusion sets in, not only on these benches, but, even more, on the benches opposite.

I think that my hon. Friend the Member for Worthing would accept that his Amendment, No. 623, is extremely wide. No. 570 and the other Amendment, which is consequential upon it, are extremely narrow. I think that my hon. Friend will agree that the Chief Secretary has given a disappointing reply—a sort of "brush-off" reply—with no facts to substantiate his accusation that shipping companies in this country are allowing their shareholders to claim repayment of tax which has never been paid. There are many shipping and other companies which have paid tax for which shareholders are entitled to a repayment.

It was wrong of the Chief Secretary to suggest that shipping companies come under the umbrella of the Public Accounts Committee's criticism of repayment of tax being made without the tax having been paid originally. Amendment No. 623 is extremely wide. No one would say that the Chief Secretary's answer was anything but disappointing, but we will study it in HANSARD tomorrow, if we are not too tired, and we will then return to it on Report.

Mr. Higgins

The Chief Secretary said that he cannot give any figures because it would depend on what dividends the companies concerned paid. Would he agree that the upper limit of those dividends over a period is set by the forestalling provisions? Could he give some indication of what the maximum cost would be in those circumstances?

Mr. Diamond

I would not agree with the first proposition, and therefore the second one does not arise.

Mr. Ian Lloyd

The Chief Secretary seems to have hinged his case on the anomaly which has arisen from the Government's decision some years ago to give general assistance to the shipping and shipbuilding industries. This involved a massive subvention by way of investment allowances, applied originally to the shipowners and, by other means, applied directly to the shipbuilding industry, but principally by the first means. This policy has undoubtedly achieved its effect.

One of the results has been the anomaly referred to by the Public Accounts Committee. The Chief Secretary himself declared this to be so. He said that this position had been criticised by the Public Accounts Committee and that therefore the Government could not allow it to continue. I recollect that when the Public Accounts Committee made these recommendations its conclusions were by no means uncritically accepted in the general financial Press. Although I do not recall the arguments deployed at that time, the Chief Secretary might refer to some of those before he makes a sweeping condemnation of a major scheme simply because of the anomaly.

What is at stake here is more fundamental. The Government desire to help this industry. They do so by a major scheme applied, in the first instance, through the shipowners, broadening out to the whole British shipbuilding industry. We need not discuss now the parlous conditions through which the industry has passed and through which to some extent it may still be passing.

Private capital must be attracted to the ship owning and shipbuilding industries. If these industries do not achieve a situation in which private capital flows to them, they will have failed and ultimately they may have to turn increasingly and continually to State subsidy for their survival. If any measure or device employed by the State is to succeed, it must attract private capital. It has succeeded in doing so in a very special set of circumstances and conditions, in that investors have been prepared to invest in ship owning particularly, in a series of rather specialised types of bulk carrying operations, of which the methane tanker is an outstanding example, but by no means the only one. Investors have done this knowing that with the existing tax structure a certain rate of return on capital not generally achievable in shipping under present conditions will be achievable, provided that these tax arrangements are not fundamentally changed. If they are fundamentally changed, whatever the anomaly may be and what ever the cost of the anomaly may be, it will be a breach of faith on the part of the Government in those who have followed this lead.

What would the cost of the anomaly be if the general level of dividends paid by the whole of the shipping industry was the same as that over the average of the last three years, because it is most improbable that this average level will be exceeded in the next year?

9.15 p.m.

Mr. William Clark

Will the Chief Secretary answer some of the questions? One of the questions which I asked, reinforced by my hon. Friend, concerned the fact that under the Clause the transitional period is for three years. In Amendment No. 570 my hon. Friends are suggesting 10 years. There is no question that anybody wants to set off tax which has not been paid, but provided that the tax has been paid, why cannot the right hon. Gentleman accept the fact that instead of taking three years of taxed profits, if he really wants to help the shipping industry, this sum should be taken out of 10 years of taxed profits? Why cannot he make it three years out of the last 10 years rather than the last three years?

Mr. Diamond

I did not deal with that point in so many words. I dealt with it in principle but I repeat the argument which the hon. Member has now admitted. I am grateful to him because he has said that there is no suggestion of a desire to help companies by reference to taxed profits where the profits have not in fact borne the tax but are alleged or deemed to have done so. The period of 10 years was provided for because 10 years ago was the peak period of the shipping industry when profits were made and tax was paid but that tax in most cases has been long repaid and it has been used up. What is being said in the Amendment is that companies—and they are almost exclusively shipping companies—are seeking a method of getting relief without subjecting themselves to the test to which every other company is subjected, namely that the profits against which the measurement has been made are profits which have borne tax. In this case they have not borne tax.

I repeat what I have said previously. The investment allowances are not helping the shipping industry to the extent to which the hon. Member for Portsmouth, Langstone (Mr. Ian Lloyd) suggested. They are merely accumulating. A sum of£150 million of investment allowances, by the shipping companies' own evidence, has accumulated and is not yet used. This is not a way of helping the shipping industry but, as I have said on a previous occasion, a method of giving credit notes whereby shipping companies can paper their offices. We want to help shipping companies in a real and not a fanciful way.

Mr. Simon Wingfield Digby (Dorset, West)

The Chief Secretary makes great play of this sum of£150 million but he is not being quite fair—

Mr. Diamond

May I make one point perfectly clear? There is no intention of discourtesy on my part but, having responded repeatedly to requests for answers, if every time I get up further hon. Members get up and address questions to me it will be understood that at a certain point of time I will have to come to the conclusion that I have said all that I can usefully say although I will listen with great care and patience to what every hon. Member says.

Mr. Wingfield Digby

The right hon. Gentleman makes great play of the£150 million. It is not evenly spread throughout the industry. When it is borne in mind that the total cost of replacing our merchant fleet is£3,600 million, a sum of£150 million is not such a great figure. The right hon. Gentleman says that he is anxious to help the shipping industry but he always finds some reason for rejecting Amendments and thereby does not appear to be really anxious to help. He has now used this specious argument about unused investment allowances.

Mr. Anthony Barber (Altrincham and Sale)

I agree with the Chief Secretary that the time has come to bring this debate to a conclusion. Whether we shall divide the Committee on the first Amendment as being, so to speak, symbolic of the proposals considered generally in the debate will depend on the answer to a simple question which I now put to the right hon. Gentleman, a question which has not been put to him before.

If we were to put down an Amendment on Report to propose relief in respect of three consecutive years selected by the company in the previous 10 years but couched in terms which would ensure that the relief was in respect only of profits which had actually borne tax, is there any chance at all that the Government would at least consider it, assuming that it were selected?

If there is any chance at all that the Government will seriously consider such an Amendment, we shall not divide the Committee. On the other hand, if we receive no such assurance on this proposal which, on the face of it, is at least worthy of careful consideration, we shall divide the Committee.

Mr. Diamond

The right hon. Gentleman has asked me something of a hypothetical question, but I shall deal with it as candidly as I can. I have explained the problem in relation to the 10-year spread which concerns the Government. It is not that there was never a period during these 10 years in which tax was not paid. It is that there is no certainty that the tax so paid has not been repaid in this period prior to the commencement of Corporation Tax. The right hon. Gentleman did not include any words in his, as he said, roughly explained proposed Amendment for Report which would refer to that point. Therefore, I can say straight away what the Government's answer would be to an Amendment on those lines.

In general terms, of course, the Government are always happy to consider any Amendment put down on Report. But I emphasise again that the way to help the shipping industry is not to provide a short-term relief of the kind which has been discussed, which would single out the shipping industry from all others. It is particularly the shipping industry which has paid dividends out of investment allowances, in effect, and has not, therefore, accounted to the Revenue for the tax. We are not prepared to accept an Amendment which would single out the shipping industry in that way, and which would drive a coach and horses through the Corporation Tax by setting up a system under which dividends would be paid and the tax not handed over to the Inland Revenue.

Mr. Barber

I think that I must, in the interests of time, advise my hon. Friends to hold their horses on this Amendment. We shall see whether we have any better satisfaction on later Amendments to the Clause.

The Chairman

In view of what has been said, does the hon. Member for Worthing (Mr. Higgins) wish to withdraw the Amendment?

Mr. Higgins

In that case, Dr. King, I beg to ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Mr. William Clark

I beg to move Amendment No. 665, in page 107, line 41, to leave out from "rate" to "deducted" in line 42.

I assume, Dr. King, that it would be for the convenience of the Committee to discuss at the same time Amendment No. 766, in page 110, line 2, to leave out from "applies" to the second "the" in line 6.

The Chairman

Yes, if the Committee so wishes.

Mr. Clark

Also, although they are not selected, I think that Amendments Nos. 666, 667 and 668 all go together with Amendment No. 665 and can be related thereto.

The Minister without Portfolio (Sir Eric Fletcher)

Surely, if an Amendment is not selected it is not possible to discuss it with an Amendment which has been selected.

Mr. Clark

Perhaps I did not make myself clear. I was not suggesting that these Amendments should be selected. In the circumstances, I think that it would be better to deal with Amendment No. 665, discussing with it No. 766.

This is an extremely technical Amendment. The effect of sub-paragraph (2,a) of Clause 80 is to accelerate by one year the restrictions imposed where a company is assessed to Income Tax on its actual income for the year 1965–66. There is in the Clause what might be termed a net United Kingdom rate restriction. This restriction affects many companies with investment incomes. Such companies as investment trusts, for example, are covered. Such well known companies as Courtaulds, I.C.I., and Imperial Tobacco are affected.

The present position is that in the case of a company which in the year ended 5th April, 1966, had franked income of£100, the assessment will be for£100, and a gross dividend of£100 can be paid. Less tax, which is£41, that gives a net dividend of£59. If we assume that there is a net United Kingdom rate of 4s. in the£100 income, the net United Kingdom rate multiplied by 100 gives£20. As the Clause stands, the position will be that out of the net dividend of£58 15s.—it is essential to work backwards, and it means that the gross dividend is£78 15s., and tax at 8s. 3d. in the£ is£32 9s. 7d.—there will be a net dividend of£46 5s. 5d. In addition to that, one has to pay the Inland Revenue the tax deducted-£32 9s. 7d.—and the relief under the Clause on£100 at 4s. in the£ is£20. Consequently there is extra tax of£12 9s. 7d.

If we take unfranked income of the same figure,£100—it may be debenture interest—with tax at the rate of 8s. 3d. in the£, that will be£41 5s., and there is£15 in Profits Tax., and we are left with a net amount of£43 15s., and the dividend that could be paid at the moment is£74 9s., which with tax at the standard rate of 8s. 3d. deducted, gives a net amount of£43 15s.

With the same income under Corporation Tax,£100–I take for convenience Corporation Tax at 40 per cent., because it gives a net figure of£60—Income Tax at 8s. 3d. must be deducted from it, and that amounts to£24 15s., and that gives a net amount of£35 5s. There is a surplus credit here of£16 5s., which means an additional payment to the Inland Revenue, instead of£24 15s., of£8 10s.

I am sorry to give all these figures, but it is essential in order to come to the conclusion with which I am sure the Chief Secretary will agree. It is like computing profits and trying to explain to a client how his profit on paper, which is£100, really works out at about£348.

The summary for a company with£100 of franked income, assuming a 4s. net United Kingdom rate, is that there will be additional tax of£12 9s. 7d., and with unfranked income there will be additional tax of£8 10s. paid., making the total amount of extra tax paid£20 19s. 7d. Thus, the application of the Clause means that the Income Tax on£200 of dividend is increased by 10½per cent.

9.30 p.m.

The idea of this Amendment is to obviate the anomaly. I am sure that the Government when deciding on Corporation Tax and the transitional relief period did not foresee the difficulty that would occur. I do not intend to go through all the arguments about people with money in investment trusts, charities and the rest—all small people with money in these various organisations of savings—but it is fair to say that the transitional relief in the Bill, with the United Kingdom rate restricted, will mean a 10½per cent. increase in the Income Tax on£100.

I could give other figures, but I will not weary the Committee with the computations. However, if we take the example of£10,000 franked income and£4,000 unfranked income, the extra tax payable is£1,948. I can assure the Minister without Portfolio that these figures have been extremely carefully worked out. If he would like the computations, I will give them to him. The Chief Secretary was here when I gave the simple figure for working up to the others and he did not refute it.

If we go higher up in the scale with an investment company or a company with investment income of£10 million,£5 million of which is franked and£5 million is unfranked, we get the position with net United Kingdom relief of three to two-and-a-half, in which£1,262,500 more is paid in tax.

The Chancellor told us a few days ago that many figures had been worked out and that he knew the cost of these concessions. This Amendment was on the Order Paper some weeks ago and I am sure that the Inland Revenue has now worked out what it would cost to get rid of the anomaly. I hope that the Minister without Portfolio is seized of the point that there is an anomaly. I am sure that the Government did not intend to create such an anomaly.

To make a company suffer net United Kingdom rate restriction would be a complete reversal of Section 350 of the Income Tax Act, 1952, under which the net United Kingdom rate affects the shareholder. If one is the owner of shares which have net United Kingdom rate, repayment—if one's allowance enables repayment—is restricted to net United Kingdom rate. Under Section 350 there was a restriction of the net United Kingdom rate on the shareholder. Here, the Government—I think unwittingly—have applied that restriction to the company. I hope that the hon. Gentleman will promise to look at this again in the light of the figures I have given. It is an important though an extremely technical point. If he agrees that the figures prove that there will be diminution of income I hope that he will do something on the Report stage.

Mr. Geoffrey Lloyd

I want briefly to support the Amendment, without following my hon. Friend the Member for Nottingham, South (Mr. William Clark) into the virtuosities of his financial argument. Frankly, I am not competent to do so, but I have taken careful advice and I hope that the Committee will bear with me if I now read out what I believe to be the purpose of the Clause and of the Amendment.

We feel that an investment trust should not be penalised for paying a dividend after 6th April, 1966, out of income received before that date which has already suffered Income Tax and Profits Tax. I understand that the Clause recognises that there is a grievance but that the relief afforded is inadequate. The reason is that the rules of the Corporation Tax are being applied to the company before it is liable to that tax. I merely ask the hon. Gentleman to consider the matter, and I should like to support the Amendment.

Sir Eric Fletcher

The hon. Member for Nottingham, South (Mr. William Clark) has argued his Amendment with great lucidity and I accept at once the figures he quoted. It seemed to me as I followed what he said that his arithmetic was impeccable; and I do not think that any hon. Member would wish to quarrel with his calculations of the effect of the Amendment in certain cases.

However, I must quarrel with the assumptions which underlay his argument. We have considered the implications of this matter and do not regard this as an anomaly. We think that the Clause is precisely right as drafted and that it would be illogical and inconsistent with the whole purpose of the Clause if the Amendment were accepted.

I am not sure that the hon. Gentleman listened attentively to what my right hon. Friend said in reply to the previous Amendment; but I am sure that he will appreciate that this is a relieving Clause. It is difficult to say of any relieving Clause that it creates an injustice. It is intended to relieve companies in certain circumstances and in certain circumstances only. As my right hon. Friend made perfectly clear a few moments ago, the whole intention behind this Clause is to give relief in those cases where companies have suffered United Kingdom tax, and not otherwise.

The ground on which we cannot accept this Amendment is precisely that on which we reisted the shipping Amendment. Real tax had not been paid by the shipping company and in this instance the restriction to the United Kingdom rate is deliberate, because we want to give relief to companies which have paid United Kingdom tax. It is not relevant that they might have paid tax elsewhere.

It is part of the whole concept of the changeover to Corporation Tax and the overseas relief and so on which we have been considering that there is now a new system. The Clauses deals with transitional payments and the Chancellor has said that there are certain special cases arising out of the calculation of profit in which some relief is proper to avoid the double payment of United Kingdom tax. It would be going far beyond the whole concept of this relieving Clause if the relief were to be extended not only to United Kingdom tax, but overseas tax as well.

That would obviously involve a burden on the Revenue which cannot be justified. I was asked if I could give the precise figure. I cannot give a precise figure because, as before, it would depend upon the dividends paid and we do not know what they will be. But the amount would no doubt be substantial and in fairness to other taxpayers it is a burden that ought not to be thrown upon the Revenue.

Mr. William Clark

The Minister without Portfolio says that this is a relief and consequently a relief cannot be penal. What he did not say, and I am sure I said it in my opening remarks, was that this applies where a company is not assessed tilt: following year. It is assessed on its actual income and it consequently means that for the year 1965–66 this relief is going to be inadequate for companies assessed on an actual basis for that year. This is a very serious point and I do not agree that the cost of the relief would be considerable because it refers only to the companies whose assessment is based on their actual income.

I hope that the Minister without Portfolio will have second thoughts, because we attach a tremendous amount of importance to this. There is a lot of time between now and Report for the Minister without Portfolio to put down an Amendment. There is no question of any tax avoidance. All we want to do is to obviate this obvious anomaly, which applies only to companies where they are assessed on their actual income.

Amendment negatived.

Mr. Ian Lloyd

I beg to move Amendment No. 572, in page 108, line 38, to leave out paragraph (b) and insert: (b) the distributable profits for the three financial years shall he arrived at by taking—

1. (i) the profits on which corporation tax is charged for those years (after adjustment for losses sustained in any of those years computed in accordance with the provisions of this Part of this Act) and adding thereto the amount of any deductions made in assessing that tax for losses, allowances or expenses of management of any period falling outside those years or for investment allowances or scientific research allowances;
2. (ii) deducting from the profits as computed in sub-paragraph (i) above the corporation tax which would have been chargeable on those profits after adjustment for any credit for foreign tax; and
3. (iii) deducting from the profits as computed in sub-paragraph (ii) above an amount equivalent to the director's remuneration not deductible in computing the profits for the three financial years and adding thereto franked investment income and group income received in those years:

Provided that the company may elect that the distributable profits, as arrived at under this paragraph, shall be reduced by the amount of any additions made under sub-paragraph (i) above to the extent that the company has available in the three financial years unabsorbed losses or unabsorbed capital allowances and to the extent that the company elects to apply such losses or allowances in reducing distributable profits; and, when such losses or allowances are used in this manner, they shall be deemed to have been granted effectively for all purposes of taxation and any carry forward of such losses or allowances shall be correspondingly reduced. Insofar as the three years surplus is increased by the utilisation of such unabsorbed losses or unabsorbed capital allowances, the limitation contained in subsection 2(b) relating to income tax ultimately borne by the company shall not apply. I am sure hon. Members on both sides of the Committee who have the interests of the maritime industry at heart will be glad to hear the assurances which the Chief Secretary gave some moments ago of the willingness of the Government to consider the special position of these industries which, for reasons the Committee well knows, find it extremely difficult to pay a reasonable return on their capital. This is simply because they compete in a particularly hostile environment in which economic and national considerations dictate to the Governments of other countries that they should create special conditions for their shipping industries which make it very difficult for our shipping industry to compete, on a free-enterprise basis.

The Chief Secretary has suggested that fears of being able to do so depend to some extent on his argument that we would be driving a coach and horses through the Finance Bill if certain of our Amendments were accepted. I am sure it is not the case because there is no question of driving a large stagecoach and six horses but perhaps a most decorous phaeton which is far more preferable than what the Government are doing, which is to drive a Stalin tank through the confidence of the business community—a far more damaging thing in my submission.

This Amendment rearranges subsection (5,b) and makes two changes in substance. First, by including the words in brackets, it seeks to make it clear that …the profits on which Corporation tax is charged for those years shall be the algebraic sum of any profits and losses in those years computed on Corporation Tax lines. Secondly, it seeks to relate the deduction for Corporation Tax to the adjusted distributable income. It is anomalous if a company pays Corporation Tax on the full amount of its profits and carries forward to later years any losses applicable to earlier years or investment allowances, it would obtain greater relief under this Section than if it used such losses and allowances. Hence, the Amendment seeks to change the deduction for the Corporation Tax so charged—page 108, lines 40 and 41—to the tax which would have been chargeable after the adjustments had been made.

9.45 p.m.

This Amendment, in the proviso, gives not only shipping companies but any company with unabsorbed losses or unabsorbed capital allowances—and it is probably right to emphasise both—an option to apply such losses or allowances to reducing the distributable profits. Two conditions which are necessary are, first, that losses or allowances so utilised shall be deemed to be effectively used for tax purposes, and, secondly, that the distributable profits should have been increased by the addition of losses relating to earlier years and/or investment or research allowances. In so far as the three-year surplus is increased by using losses or capital allowances, the overriding limit in subsection (2,b) would not apply.

This brings us back to the question of investment allowances. I do not want to go over the arguments which have been adduced in the debate except to say this. As the figure of£150 million has been mentioned, and as my hon. Friend the Member for Dorset, West (Mr. Wingfield Digby) has pointed out that there are other aspects of this, I should like to enlarge the point by emphasising that in 1958 all the unused allowances in the shipping industry were absorbed. Of the£150 million outstanding, half represents capital allowances and half investment allowances. Perhaps the Chief Secretary would comment on this point.

More generally, if we consider the position of an industry such as the shipping industry, we find that the total investment allowances employed in the years 1954 to 1963 amounted to£487 million and that the total capital allowances used amounted to£762 million. As has been pointed out, these are very substantial figures, and we cannot allow the case to go by default by making comparisons with what is, in fact, a very much smaller sum.

Mr. Diamond

I have listened very carefully to what the hon. Member for Portsmouth, Langstone (Mr. Ian Lloyd) has said. I think that he will recognise that essentially we are back on the same point. The effect of the Amendment is to remove the test that the relief is given by reference to profits which have borne tax.

We are not prepared to recommend the Committee to adopt that. It would, once more, be opening the door for a continuation of the practice which I previously described, and have no wish to detain the Committee by describing again, of creating a method under which individuals could claim repayment of tax which had never been paid to the Inland Revenue.

Mr. Barber

We have dealt with a series of Amendments to what I think the Chief Secretary would agree is in many ways a highly complicated Clause, although its purpose is clear to us all. What is in issue is whether the Clause, as drafted, achieves the avowed objects of the Chancellor of the Exchequer, and, in particular, whether it is apt for the shipping industry to which the Chief Secretary, I think, will agree special considerations apply.

My hon. Friend the Member for Portsmouth, Langstone (Mr. Ian Lloyd) has explained the purpose of the Amendment with admirable clarity. I have with me a number of notes also explaining the technicalities, because I was not clear what the intention was when I first saw the Amendment. As to the substance of the matter, however, I think that the Amendment is clear to all of us in view of my hon. Friend's explanation. Unlike the first Amendment which we discussed on the Clause, No. 623, this one is couched in general terms, although I would be less than frank with the Committee if I did not say that at least one of the objects is to be of particular assistance to the shipping industry. I hope that the Chief Secretary will agree at least that the Amendment is none the worse because one of the main beneficiaries would the shipping industry.

At this stage of our proceedings, I certainly do not propose to go over the ground again as to the various reasons why we, and, probably, also the Government, consider the shipping industry to be unique. My hon. Friend the Member for Worthing (Mr. Higgins) dealt with this aspect admirably on a previous Amendment. I add only that the shipping industry has for many years had special taxation treatment. There was the 40 per cent. investment allowance and there was the undertaking which was given by one of my right hon. Friends when Chancellor of the Exchequer that the investment allowance would not be altered during the lifetime of the last Parliament, and, of course, it was not altered. I have always understood that it was the philosophy of the Labour Party to be in favour of deliberate tax discrimination in company taxation, although they have rather shied against it in matters of individual taxation.

In answer to a previous Amendment, the Chief Secretary said that he was anxious to help the shipping industry but that that Amendment was not the way to do it. He has said more or less the same about the present Amendment. What worries me is that we have heard this argument before on a number of occasions when we have discussed Amendments which either specifically referred to the shipping industry or which were couched in general terms but had the shipping industry in mind. We have had absolutely nothing from the Chief Secretary or his right hon. Friend to give us any hope that before we reach Third Reading anything will be done for the shipping industry.

The Chief Secretary said of a previous Amendment to the Clause that it was driving a coach and horses through the Corporation Tax. Even though the terms of this Amendment involve the delicate issue of the treatment of capital allowances, it cannot be said in all honesty that an Amendment to a Clause which is concerned with transitional relief for companies paying dividends out of pre-1966–67 profits is driving a coach and horses through the Corporation Tax.

I am disappointed, as my hon. Friends will be, with the reply which we have had. I do not think that my hon. Friend the Member for Langstone is wedded to this method of helping the shipping industry. I recognise the force of some of the Chief Secretary's arguments, but the stage must come when we on this side must express in the Division Lobby our dissatisfaction with the attitude of the Chancellor to the shipping industry. Having listened patiently to what was said on the earlier Amendments, we must do so on this occasion.

Had we been given a glimmer of hope by the Chief Secretary that on Report something might be done to alleviate the difficulties of the shipping industry to show that the Government were prepared to treat it as a unique industry, as it was treated for tax purposes by the previous Government, I certainly would not have advised by hon. Friends to press the Amendment. On these general grounds, however, rather than in relation to the specific proposals contained in the Amendment, I must on this occasion advise my hon. Friends to divide the Committee.

Question put, That the words proposed to be left out stand part:—

The Committee divided: Ayes 288, Noes 282.

Division No. 197.]	AYES	[9.54 p.m.
Abse, Leo	Fletcher, Ted (Darlington)	McCann, J.
Albu, Austen	Fletcher, Raymond (Ilkeston)	MacColl, James
Al[...]aun, Frank (Salford, E.)	Floud, Bernard	MacDermot, Niall
Alldritt, Walter	Foley, Maurice	McGuire, Milchael
Allen, Scholefield (Crewe)	Foot, Michael (Ebbw Vale)	McInnes, James
Armstrong, Ernest	Ford, Ben	McKay, Mrs. Margaret
Atkinson, Norman	Fraser, Rt. Hn. Tom (Hamilton)	Mackenzie, Gregor (Rutherglen)
Bacon, Miss Alice	Freeson, Reginald	Mackie, John (Enfield, E.)
Bagier, Gordon A. T.	Galpern, Sir Myer	McLeavy, Frank
Barnett, Joel	Garrett, W. E.	MacMillan, Malcolm
Baxter, William	Garrow, A.	Mahon, Peter (Preston, S.)
Beaney, Alan	George, Lady Megan Lloyd	Mahon, Simon (Bootle)
Bellenger, Rt. Hn. F. J.	Ginsburg, David	Mallalieu,J.P.W.(Huddersfield,E.)
Bence, Cyril	Gourlay, Harry	Manuel, Archie
Benn, Rt. Hn. Anthony Wedgwood	Greenwood, Rt. Hn. Anthony	Mapp, Charles
Bennett, J. (Glasgow, Bridgeton)	Gregory, Arnold	Marsh, Richard
Binns, John	Grey, Charles	Mason, Roy
Bishop, E. S.	Griffiths, David (Rother Valley)	Maxwell, Robert
Blackburn, F.	Griffiths, Rt. Hn. James (Llanelly)	Mayhew, Christopher
Blenkinsop, Arthur	Griffiths, Will (M'chester, Exchange)	Mellish, Robert
Boardman, H.	Gunter, Rt. Hn. R. J.	Mikardo, Ian
Boston, T. G.	Hale, Leslie	Millan, Bruce
Bowden, Rt. Hn. W. (Leics S. W.)	Hamilton, James (Bothwell)	Miller, Dr. M. S.
Boyden, James	Hamilton, William (West Fife)	Milne, Edward (Blyth)
Braddock, Mrs. E. M.	Hamling, William (Woolwich, W.)	Molloy, William
Bradley, Tom	Hannan, William	Morris, Alfred (Wythenshawe)
Bray, Dr. Jeremy	Harrison, Walter (Wakefield)	Morris, Charles (Openshaw)
Brown, Rt. Hn. George (Belper)	Hart, Mrs. Judith	Morris, John (Aberavon)
Brown, Hugh D. (Glasgow, Provan)	Hattersley, Roy	Murray, Albert
Brown, R. W. (Shoreditch & Fbury)	Hazell, Bert	Neal, Harold
Buchan, Norman (Renfrewshire, w.)	Heffer, Eric S.	Newens, Stan
Buchanan, Richard	Henderson, Rt. Hn. Arthur	Noel-Baker, Francis (Swindon)
Butler, Herbert (Hackney, C.)	Herbison, Rt. Hn. Margaret	Noel-Baker,Rt.Hn.Philip(Derby,S.)
Butler, Mrs. Joyce (Wood Green)	Hill, J. (Midlothian)	Norwood, Christopher
Callaghan, Rt. Hn. James	Hobden, Dennis (Brighton, K'town.)	Oakes, Gordon
Car[...]ichael, Neil	Holman, Percy	Ogden, Eric
Carter-Jones, Lewis	Horner, John	Oram, Albert E. (E. Ham, S.)
Castle, Rt. Hn. Barbara	Houghton, Rt. Hn. Douglas	Orbach, Maurice
Chapman, Donald	Howarth, Harry (Weilingborough)	Orme, Stanley
Coleman, Donald	Howarth, Robert L. (Bolton, E.)	Oswald, Thomas
Conlan, Bernard	Howell, Denis (Small Heath)	Owen, Will
Corbet, Mrs. Freda	Howie, W.	Padley, Walter
Cousins, Rt. Hn. Frank	Hoy, James	Page, Derek (King's Lynn)
Craddock, George (Bradford, S.)	Hughes, Emrys (S. Ayrshire)	Paget, R. T.
Crawshaw, Richard	Hughes, Hector (Aberdeen, N.)	Palmer, Arthur
Cronin, John	Hunter, Adam (Dunfermline)	Pannell, Rt. Hn. Charles
Crosland, Rt. Hn. Anthony	Hunter, A. E. (Feltham)	Park, Trevor (Derbyshire, S.E.)
Crossman, Rt. Hn. R. H. S.	Hynd, H. (Accrington)	Parker, John
Cullen, Mrs. Alice	Irvine, A. J. (Edge Hill)	Parkin, B. T.
Dalyell, Tam	Irving, Sydney (Dartford)	Pavitt, Laurence
Darling, George	Jackson, Colin	Pearson, Arthur (Pontypridd)
Davies, G. Elfed (Rhondda, E.)	Janner, Sir Barnett	Peart, Rt. Hn. Fred
Davies, Harold (Leek)	Jeger, George (Goole)	Pentland, Norman
Davies, Ifor (Gower)	Jeger,Mrs.Lena(H'b'n&St.P'cras,S.)	Perry, Ernest G.
Davies, S. O. (Merthyr)	Jenkins, Hugh (Putney)	Popplewell, Ernest
de Freitas, Sir Geoffrey	Jenkins, Rt. Hn. Roy (Stetchford)	Prentice, R. E.
Delargy, Hugh	Johnson, Carol (Lewisham, S.)	Price, J. T. (Westhoughton)
Dell, Edmund	Jones, Dan (Burnley)	Probert, Arthur
Dempsey, James	Jones,Rt.Hn.Sir Elwyn(W.Ham,S.)	Pursey, Cmdr. Harry
Diamond, John	Jones, J. Idwal (Wrexham)	Randall, Harry
Dodds, Norman	Jones, T. W. (Merion[...]th)	Rankin, John
Doig, Peter	Kelley, Richard	Redhead, Edward
Donnelly, Desmond	Kenyon, Clifford	Rees, Merlyn
Driberg, Tom	Kerr, Mrs. Anne (R'ter & Chatham)	Reynolds, G. W.
Duffy, Dr. A. E. P.	Kerr, Dr. David (W'worth, Central)	Rhodes, Geoffrey
Dunn, James A.	Lawson, George	Richard, Ivor
Dunnett, Jack	Leadbitter, Ted	Roberts, Albert (Normanton)
Edelman, Maurice	Ledger, Ron	Roberts, Goronwy (Caernarvon)
Edwards, Rt. Hn. Ness (Caerphilly)	Lee, Rt. Hn. Frederick (Newton)	Robertson, John (Paisley)
English, Michael	Lee, Miss Jennie (Cannock)	Robinson, Rt. Hn.K.(St. Pancras, N.)
Ennals, David	Lever, Harold (Cheetham)	Rodgers, William (Stockton)
Ensor, David	Lewis, Arthur (West Ham, N.)	Rogers, George (Kensington, N.)
Evans, Albert (Islington, S.W.)	Lewis, Ron (Carlisle)	Rose, Paul B.
Evans, Ioan (Birmingham, Yardley)	Lipton, Marcus	Ross, Rt. Hn. William
Fernyhough, E.	Lomas, Kenneth	Sheldon, Robert
Finch, Harold (Bedwellty)	Loughlin, Charles	Shinwell, Rt. Hn. E.
Fitch, Alan (Wigan)	Mabon, Dr. J. Dickson	Shore, Peter (Stepney)
Fletcher, Sir Eric (Islington, E.)	McBride, Neil	Short,Rt.Hn.E.(N'c'tle-on-Tyne,C.)
Short, Mrs. Renée (W'hampton,N.E.)	Swingler, Stephen	Weitzman, David
Silkin, John (Deptford)	Symonds, J. B.	Wells, William (Walsall, N.)
Silkin, S. C. (Camberwell, Dulwich)	Taverne, Dick	White, Mrs. Eirene
Silverman, Julius (Aston)	Taylor, Bernard (Mansfield)	Whitlock, William
Silverman, Sydney (Nelson)	Thomas, George (Cardiff, W.)	Wigg, Rt. Hn. George
Skeffington, Arthur	Thomas, Iorwerth (Rhondda, W.)	Wilkins, W. A.
Slater, Mrs. Harriet (Stoke, N.)	Thomson, George (Dundee, E.)	Willey, Rt. Hn. Frederick
Slater, Joseph (Sedgefield)	Thornton, Ernest	Williams, Alan (Swansea, W.)
Small, William	Tinn, James	Williams, Clifford (Abertillery)
Smith, Ellis (Stoke, S.)	Tomney, [...]rank	Williams, W. T. (Warrington)
Snow, Julian	Tuck, Raphael	Willis, George (Edinburgh, E.)
Soskice, Rt. Hn. Sir Frank	Urwin, T. W.	Wilson, William (Coventry, S.)
Spriggs, Leslie	Varley, Eric G.	Winterbottom, R. E.
Storehouse, John	Wainwright, Edwin	Wyatt, Woodrow
Mores, William	Walden, Brian (All Saints)	Yates, Victor (Ladywood)
Strauss, Rt. Hn. G. R. (Vauxhall)	Walker, Harold (Doncaster)	Zilliacus, K.
Stross,SirBarnett(Stoke-on-Trent,C.)	Wallace, George
Summerskill, Hn. Dr. Shirley	Warbey, William	TELLERS FOR THE NOES:
Swain, Thomas	Watkins, Tudor	Mr. O'Malley and Mr. Harper.
NOES
Agnew, Commander Sir Peter	Crosthwaite-Eyre, Col. Sir Oliver	Hendry, Forbes
Alison, Michael (Barkston Ash)	Crowder, F. P.	Higgins, Terence L.
Allan, Robert (Paddington, S.)	Cunningham, Sir Knox	Hill, J. E. B. (S. Norfolk)
Allason, James (Hemel Hempstead)	Curran, Charles	Hirst, Geoffrey
Amery, Rt. Hn. Julian	Currie, G. B. H.	Hobson, Rt. Hn. Sir John
Anstruther-Gray, Rt. Hn. Sir W.	Dalkeith, Earl of	Hogg, Rt. Hn. Quintin
Astor, John	Dance, James	Hooson, H. E.
Atkins, Humphrey	Davies, Dr. Wyndham (Perry Barr)	Hopkins, Alan
Awdry, Daniel	d'Avigdor-Goldsmid, Sir Henry	Hordern, Peter
Baker, W. H. K.	Dean, Paul	Hornsby-Smith, Rt. Hn. Dame P.
Balniel, Lord	Deedes, Rt. Hn. W. F.	Howard, Hn. G. R. (St. Ives)
Barber, Rt. Hn. Anthony	Digby, Simon Wingfield	Hunt, John (Bromley)
Barlow, Sir John	Dodds-Parker, Douglas	Hutchison, Michael Clark
Batsford, Brian	Doughty, Charles	Irvine, Bryant Godman (Rye)
Beamish, Col. Sir Tufton	Drayson, G. B.	Jenkin, Patrick (Woodford)
Bell, Ronald	du Cann, Rt. Hn. Edward	Jennings, J. C.
Bennett, Sir Frederic (Torquay)	Eden, Sir John	Johnson Smith, G. (East Grinstead)
Bennett, Dr. Reginald (Gos & Fhm)	Elliot, Capt. Walter (Carshalton)	Johnston, Russell (Inverness)
Berkeley, Humphry	Elliott, R. W.(N'c'tle-upon-Tyne,N.)	Jones, Arthur (Northants, S.)
Berry, Hn. Anthony	Emery, Peter	Joseph, Rt. Hn. Sir Keith
Bessell, Peter	Errington, Sir Eric	Kaberry, Sir Donald
Biffen, John	Eyre, Reginald	Kerr, Sir Hamilton (Cambridge)
Biggs-Davison, John	Farr, John	Kershaw, Anthony
Bingham, R. M.	Fell, Anthony	Kilfedder, James A.
Birch, Rt. Hn. Nigel	Fisher, Nigel	Kimball, Marcus
Black, Sir Cyril	Fletcher-Cooke, Charles (Darwen)	King, Evelyn (Dorset, S.)
Blaker, Peter	Fletcher-Cooke, Sir John (S'pton)	Kirk, Peter
Bossom, Hn. Clive	Foster, Sir John	Lagden, Godfrey
Bowen, Roderic (Cardigan)	Fraser,Rt.Hn.Hugh(St'fford & Stone)	Lancaster, Col. C. G.
Box, Donald	Galbraith, Hn. T. G. D.	Langford-Holt, Sir John
Boyd-Carpenter, Rt. Hn. J.	Gammans, Lady	Legge-Bourke, Sir Harry
Boyle, Rt. Hn. Sir Edward	Gardner, Edward	Lewis, Kenneth (Rutland)
Braine, Bernard	Gibson-Watt, David	Litchfield, Capt. John
Brewis, John	Giles, Rear-Admiral Morgan	Lloyd,Rt.Hn. Geoffrey (Sut'nC'dfield)
Brinton, Sir Tatton	Gilmour, Ian (Norfolk, Central)	Lloyd, Ian (P'tsm'th, Langstone)
Brooke, Rt. Hn. Henry	Gilmour, Sir John (East Fife)	Lloyd, Rt. Hn. Selwyn (Wirral)
Brown, Sir Edward (Bath)	Glover, Sir Douglas	Longden, Gilbert
Bruce-Gardyne, J.	Godber, Rt. Hn. J. B.	Loveys, Walter H.
Bryan, Paul	Goodhart, Philip	Lubbock, Eric
Buck, Antony	Goodhew, Victor	Lucas, Sir Jocelyn
Bullus, Sir Eric	Gower, Raymond	McAdden, Sir Stephen
Burden, F. A.	Grant, Anthony	Mackenzie, Alasdair (Ross&Crom'ty)
Butcher, Sir Herbert	Gresham Cooke, R.	Mackie, George Y. (C'ness & S'land)
Buxton, Ronald	Grieve, Percy	McLaren, Martin
Campbell, Gordon	Griffiths, Eldon (Bury St. Edmunds)	Maclean, Sir Fitzroy
Carlisle, Mark	Griffiths, Peter (Smethwick)	Macleod, Rt. Hn. Iain
Cary, Sir Robert	Gurden, Harold	McMaster, Stanley
Channon, H. P. G.	Hall, John (Wycombe)	McNair-Wilson, Patrick
Chataway, Christopher	Hall-Davis, A. G. F.	Maginnis, John E.
Chichester-Clark, R.	Hamilton, Marquess of (Fermanagh)	Maitland, Sir John
Clark, Henry (Antrim, N.)	Hamilton, M. (Salisbury)	Marples, Rt. Hn. Ernest
Clark, William (Nottingham, S.)	Harris, Frederic (Croydon, N.W.)	Marten, Neil
Clarke, Brig. Terence (Portsmth, W.)	Harris, Reader (Heston)	Mathew, Robert
Cole, Norman	Harrison, Brian (Maldon)	Maude, Angus
Cooke, Robert	Harrison, Col. Sir Harwood (Eye)	Mawby, Ray
Cooper-Key, Sir Neill	Harvey, John (Walthamstow, E.)	Maxwell-Hyslop, R. J.
Curdle, John	Harvie Anderson, Miss	Maydon, Lt.-Cmdr. S. L. C.
Corfield, F. V.	Hastings, Stephen	Meyer, Sir Anthony
Costain, A. P.	Hawkins, Paul	Mills, Peter (Torrington)
Courtney, Cdr. Anthony	Hay, John	Mills, Stratton (Belfast, N.)
Craddock, Sir Beresford (Spelthorn[...]e)	Heald, Rt. Hn. Sir Lionel	Miscampbell, Norman
Crawley, A[...]idan	Heath, Rt. Hn. Edward	Mitchell, David

Monro, Hector	Redmayne, Rt. Hn. Sir Martin	Thompson, Sir Richard (Croydon, S.)
More, Jasper	Rees-Davies, W. R.	Thorneycroft, Rt. Hn. Peter
Morrison, Charles (Devizes)	Renton, Rt. Hn. Sir David	Tiley, Arthur (Bradford, W.)
Mott-Radclyffe, Sir Charles	Ridley, Hn. Nicholas	Tilney, John (Wavertree)
Munro-Lucas-Tooth, Sir Hugh	Ridsdale, Julian	Turton, Rt. Hn. R. H.
Murton, Oscar	Roberts, Sir Peter (Heeley)	Tweedsmuir, Lady
Neave, Airey	Robson Brown, Sir William	van Straubenzee, W. R.
Nicholls, Sir Harmar	Rodgers, Sir John (Sevenoaks)	Vaughan-Morgan, Rt. Hn. Sir John
Nicholson, Sir Godfrey	Roots, William	Vickers, Dame Joan
Noble, Rt. Hn. Michael	Royle, Anthony	Walder, David (High Peak)
Nugent, Rt. Hn. Sir Richard	St. John-Stevas, Norman	Walker, Peter (Worcester)
Onslow, Cranley	Scott-Hopkins, James	Walker-Smith, Rt. Hn. Sir Derek
Orr, Capt. L. P. S.	Sharples, Richard	Wall, Patrick
Orr-Ewing, Sir Ian	Sinclair, Sir George	Walters, Dennis
Osborn, John (Hallam)	Smith, Dudley (Br'ntf'd & Chiswick)	Ward, Dame Irene
Osborne, Sir Cyril (Louth)	Smyth, Rt. Hn. Brig. Sir John	Weatherill, Bernard
Page, John (Harrow, W.)	Spearman, Sir Alexander	Webster, David
Page, R. Graham (Crosby)	Speir, Sir Rupert	Wells, John (Maidstone)
Pearson, Sir Frank (Clitheroe)	Stainton, Keith	Whitelaw, William
Peel, John	Stanley, Hn. Richard	Williams, Sir Rolf Dudley (Exeter)
Percival, Ian	Steel, David (Roxburgh)	Wills, Sir Gerald (Bridgwater)
Peyton, John	Stodart, Anthony	Wilson, Geoffrey (Truro)
Pickthorn, Rt. Hn. Sir Kenneth	Stoddart-Scott, Col. Sir Malcolm	Wise, A. R.
Pike, Miss Mervyn	Studholme, Sir Henry	Wolrige-Gordon, Patrick
Pitt, Dame Edith	Talbot, John E.	Wood, Rt. Hn. Richard
Pounder, Rafton	Taylor, Sir Charles (Eastbourne)	Woodhouse, Hn. Christopher
Powell, Rt. Hn. J. Enoch	Taylor, Edward M. (G'gow,Cathcart)	Woodnutt, Mark
Price, David (Eastleigh)	Taylor, Frank (Moss Side)	Wylie, N. R.
Prior, J. M. L.	Teeling, Sir William	Yates, William (The Wrekin)
Pym, Francis	Temple, John M.	Younger, Hn. George
Quennell, Miss J. M.	Thatcher, Mrs. Margaret
Ramsden, Rt. Hn. James	Thomas, Sir Leslie (Canterbury)	TELLERS FOR THE NOES:
Rawlinson, Rt. Hn. Sir Peter	Thomas, Rt. Hn. Peter (Conway)	Mr. MacArthur and
		Mr. Ian Fraser.

Mr. Diamond

I beg to move Amendment No. 612, in page 109, line 30, after the second "the", to insert "financial".

This is a drafting Amendment—[Interruption.]

The Chairman

Order. I shall be grateful if hon. Members will leave the Chamber quietly. It is almost impossible even for hon. Members to hear the Chairman calling them to order.

Mr. Diamond

Subsection (7) of the Clause refers to the amount of Corporation Tax to which a company is chargeable for the year 1965. In view of the language used it is reasonably clear that this is intended to have reference to the financial year 1965—that is to say, the 12 months from 1st April, 1965, to 31st March, 1966, but the insertion of the missing word will save any argument.

Amendment agreed to.

Mr. Edward M. Taylor

I beg to move Amendment No. 673, in page 110, line 10, at the end to add: (11) In computing distributable profits or losses for the purposes of this section, deductions for writing-down allowances shall be deemed to have been made before deductions are made for investment allowances. As you will appreciate, Dr. King, in the Division on the last Amendment we were expressing our disappointment at the fact that the Government have made no concession of any value to the shipping industry. The Amendment does not deal with the problems of the shipping industry, but we felt that if it were accepted it would help to clarify a situation which will affect shipping firms more than any other firms. The Amendment does not ask for any kind of special concession; it merely endeavours to clarify a situation which certainly needs to be clarified.

I would point out to the Minister without Portfolio that even if he accepts the Amendment we will not regard it as in any way absolving him from the responsibility of making some real concessions to the industry.

The object of the Amendment is to make clear, particularly in cases where profits are insufficient to absorb the whole of capital allowances due in the same period, the order in which the write-down allowances and the investment allowances are deemed to be made—in other words, whether the first deduction will be writedown allowances or investment allowances. This will arise, in particular, in cases where the profits are insufficient to absorb the whole of the capital allowances and, clearly, will arise particularly in cases where there is a good deal of capital employed and a good deal of investment allowance to be claimed. In subsection (5,b) of Clause 80, the rules are explained for calculating distributable profits for the purpose of that Clause. In that subsection an attempt has been made to calculate what might be described as profits computed on a commercial scale. We have all the details in subsection (5,b).

The calculation, of course, begins with profits for Corporation Tax purposes. Then there are several adjustments to be made for exceptional items which may figure in profits computed for Corporation Tax. For example, deductions can be made and are allowed for losses and allowances brought forward from the previous period. These are disallowed under this Clause, as are deductions for investment allowances and for scientific research allowances. The principle, so far as I can see, appears to be that these are considered to be special allowances not relating to the general normal position of the company. On the other hand, no adjustment is made for write-down allowances. These are regarded as a normal annual expense. The general division seems to be that if it is a normal annual expense an adjustment is not made, but if it is something special an adjustment is made. A difficulty or doubt could arise if the aggregate of the write-down allowance and the investment allowance was more than sufficient to extinguish the profit for Corporation Tax purposes. We want to clarify what deduction is made first—what is given priority. If the investment allowance is deemed to be given priority over the write-down allowance, then the larger amount arrived at is the distributable profit. The other situation would be the case if the write-down allowance came first.

What we have in the Amendment is, I am sure, what the Government intended, but I would suggest that, in the Clause, it is not clear. I hope that we can get this clarification and I hope that the Government will accept the Amendment. If the aggregate of the two allowances exceeded the profit and this was treated as a loss, clearly no problem would arise. However, as far as I can see, there is no reference in this Clause to a loss of this sort. All that we want is clarification. I accept that with such a difficult Clause as Clause 80, which has 10 subsections all of which are extremely complicated, it might be considered that to add one more does not help the position, but the whole purpose of the Amendment is simply to clarify. I hope that the Government can accept it.

Sir Eric Fletcher

The hon. Member for Glasgow, Cathcart (Mr. Edward M. Taylor) has made his point. He has stated what are the intentions of the Government. I agree with him that the language of this Clause could be improved and the position clarified by the addition of an eleventh subsection as he suggests. Therefore, if he will withdraw his Amendment, I will undertake that an Amendment giving effect to the substance of what he proposes will be put down on Report by my right hon. Friend.

Mr. Edward M. Taylor

I am greatly obliged to the hon. Member. I beg to ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

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