Clause 14.—(BUSINESS ENTERTAINING EXPENSES.)

HC Deb 20 May 1965 vol 712 cc1841-913

Mr. William Clark

I beg to move Amendment No. 40, in page 9, line 2, to leave out from "entertainment" to "of" in line 3.

The Deputy-Chairman

With this Amendment it would be in order to discuss Amendment No. 39, in page 8, line 32, at end insert: unless such expenditure is incurred by an employee not being a principal, director, or shareholder and not earning over £2,000 per annum".

Mr. Clark

I am delighted to see here the Chief Secretary to the Treasury, who, no doubt, is to answer the debate. He will know, as I do, that expenses under Schedule D are regulated by Section 137 of the Income Tax Act, 1952. That Act says that the expenses chargeable to tax must be wholly and exclusively for the purposes of trade. When one sends in one's figures to the local inspector of taxes the local inspector, under Section 137, determines whether the expenditure charged against profit is allowable or not. If there are any expenses that he thinks should be disallowed as being not wholly and exclusively for the purpose of the trade, he will disallow them and this will increase the profit as computed for tax purposes.

Schedule E, which relates to salary or wages, is controlled under Section 160 of the same Income Tax Act. There it is laid down that any expenditure for outside expenses, such as travelling and entertaining, should also be rigorously controlled. The Committee will be aware that any director or executive earning over £2,000 a year—he does not have to be earning £2,000 a year if he is a director or a secretary; he can be on a lower rate—is surcharged for every claim that he puts in. If he puts in an entertainment claim for £200 and a travelling claim for £300, the local inspector of taxes immediately raises an assessment on him for that amount of expenditure. Then, of course, it is up to the director or employee to substantiate to the Revenue how he disburses his expenditure.

To do this, the Revenue has been kind enough to supply every such taxpayer with a form called Form P.11D. This form is well-known to anybody who has an expense claim, and I am sure that the Committee would not like me at this late hour to read all that is contained in the form. [HON. MEMBERS: "What does it say?"] For the benefit of some hon. Members, I wonder whether it would be in order for me to circulate the contents of the form in the OFFICIAL REPORT.

That form is extremely comprehensive. I hope that when the Chief Secretary replies to the debate he will agree that the form is comprehensive, with one exception. Grouse moors are not mentioned in the form, although it refers to shooting rights, and so on. We can take it that under Schedule D the inspector has rigid rules and is able to disallow expenditure, and under Schedule E he has precisely the same rules, and, added to the information which is on the form, this represents the position as far as expenses are concerned.

The Radcliffe Committee discussed expenses, particularly entertainment expenses, and I should like to read a few words from page 43 of the Report. After discussing advertising and entertainment expenses, the Committee comes to this conclusion: There is no maintainable line of distinction between expenditure on home sales and expenditure on overseas sales for purposes of this sort"— that is, for entertaining— For these and other reasons we regard the suggestion as impracticable. In this same Report there was a minority Report which did not entirely agree with the majority Report, and the people who put in that minority Report were Mr. Woodcock, Mr. Bullock and Mr. Kaldor.

Taking Clause 14 as it is now, one can be led to only one conclusion. Either the Inland Revenue is incompetent—that is, under Schedule D—and the disallowance is wrong; or the inspector of taxes is incapable—this brings in form P.11D—or all traders are dishonest. These are the only alternatives one can have. Either the Revenue is incompetent, or the inspector is incapable, or there is gross dishonesty. I would not have thought that there is gross dishonesty.

What we have attempted to do in our Amendment is to amend subsection (2), because we find here a new test as to what rules an expense must conform with, for at present it reads: … or by a member of his staff"— referring to expenses— of entertainment for an overseas customer of that person, being entertainment of a kind and on a scale which is reasonable having regard to all the circumstances". I am sure that I am right in saying that this is the first time that a formula of that kind has been written into our Income Tax legislation. Up till now it has been a question of "wholly, exclusively and necessarily" incurred. This is a new test and in our Amendment we are trying to keep this new test, this new regulation, for expenses but cutting out the nonsense of trying to differentiate between a home and overseas customer.

I assure the Committee that the subsection would be extremely difficult from an administrative point of view. The Chief Secretary is an accountant and I am sure that, with his great experience of these matters, he will agree that if the Clause goes through unamended it will inflict an intolerable burden on accountants throughout the country. For example, if an accountant gets an entertainment expense chit how is he to decide whether the persons entertained were from home or overseas? Even the professional accountancy bodies agree that this provision would place an intolerable burden on accountants. I am sure that hon. Gentlemen opposite will, when they really consider this matter, agree that if the Clause is unamended great difficulty will arise.

Who will the proposal hit? First, it will hit the commercial traveller, who was mentioned in our discussion of the last Amendment. If he has an inclusive salary out of which he must entertain——

Mr. Ivor Richard (Barons Court)

Before the hon. Gentleman proceeds, is he saying that the Revenue already possesses sufficient powers to deal with the taxation of this sort of expenditure? If one considers the Opposition Amendment it seems that hon. Gentlemen opposite are now adopting, at least in part, the very test which is laid down in subsection (2), namely, the "reasonable" test as opposed to the "wholly, exclusively incurred", and so on, test. Does he consider that subsection (2), if amended in the way the Amendment suggests, would give the Revenue more power than it has at present, less power or keep it at the same power? Whichever way he answers, he must explain the reason.

Mr. Clark

The hon. Gentleman did not follow my argument. I apologise if I did not put it with sufficient clarity. I am sure that the Chief Secretary followed it. I referred to the words in subsection (2), … of a kind and on a scale which is reasonable having regard to all the circumstances and said that they represented a new test for this sort of expenditure. I went on to point out that we wanted to know whether the Revenue considered that there was an abuse of entertaining—[Interruption.] I do not want to go all all over my argument about Schedule D, which was controlled by one provision, and Schedule E, which was controlled by another. I pointed out that there existed the "wholly, exclusively, necessarily" phrase and that our Amendment would cut out all the nonsense about overseas customers.

Mr. Richard rose——

Hon. Members

Sit down.

Mr. Clark

I think it is fair that at this hour, having intervened once, the hon. Gentleman should allow me to repeat my argument. I do not want to have to repeat it a third time.

Mr. Richard

The hon. Gentleman has not answered my question.

Mr. Clark

I was asking, before the hon. Member for Barons Court (Mr. Richard) intervened earlier, who the Clause would hit if it went through un-amended. It will hit the commercial traveller who has an inclusive salary out of which he must do all the entertaining that is necessary. Nobody will suggest that he rushes about having slap-up luncheons. He does not go into slap-up restaurants. He carries on his normal trade, and probably incurs expenditure entertaining. Under this Clause as it stands, he will be surcharged some part of his entertaining expenses if he gets an allowance from his employer.

1.0 a.m.

The anomalies that will be thrown up by this Clause are quite out of proportion to any benefit that the Government will get from it. What about theatreland? What will be the position in regard to the first night at the theatre? [Laughter.] Hon. Members opposite laugh, but I would remind them that the theatre industry is a very good dollar earner for this country. On the normal first night very many free tickets are issued in order to get the critics there. What will be the position? Will there be a surcharge there? This may seem funny to hon. Members opposite, but it is a serious point. What about journalists, who have to entertain in the ordinary course of getting information? [Laughter.] It is all very well hon. Members opposite trying to laugh away their own mistakes, but let me assure them that these mistakes are realised in the country.

One of the most flagrant anomalies that will be thrown up by this Clause if it is unamended is connected with the small professional firms—estate agents, surveyors, or the like—[Laughter.] It is regrettable that when one is trying to put a serious point of view, so many hon. Members opposite have to laugh at it. I can understand people laughing after they have heard an argument, but I cannot understand their laughing before they have heard it.

I should like the Chief Secretary to take this point. Where a principal—it might be an estate agent—employs travellers or salesmen and reimburses their entertainment expenses he will not be allowed to charge that in his expenses, so that the amount of entertainment he pays for his staff will have to be paid by him at his top rate of Income Tax and Surtax. Do the Government want that? The Government may be trying by this means to catch the so-called tycoon who spends half his time on the grouse moors and in penthouses, but the man they will be catching will be the small man.

The only difference between us and the Government is that we think that this stupid differential between overseas and home customers is quite impracticable. If the Inland Revenue think that "wholly, exclusively and necessarily" is not sufficiently strong, let us have it in the new form … of a kind and on a scale which is reasonable having regard to all the circumstances. If that will give the Revenue a little more strength in applying Form P.11D, we accept it, but it has nothing to do with home and overseas customers.

The Chancellor said in his Budget statement that the reason for introducing this provision is that the Government are sick of heavily subsidising these luncheons, and he made jocular and rather silly remarks about grouse moors and penthouses. His main argument was that the Revenue was heavily subsidising these expenses. That is all very well, if he is right, but I think that it is incumbent on the Government to show what they will do about Government hospitality, and what they will do about the nationalised industries.

We cannot have two laws. The law in the private section must also apply to the public section. There is no party issue in this.—[HON. MEMBERS: "Oh."] It should apply to both, but I do not see that it can for the reason that the Chancellor said that if business expenses were incurred on entertaining, with the advent of Clause 14 the taxpayer would know that they were being paid for out of the coffers of the company concerned. If entertaining goes on in a nationalised industry, who pays for it? The taxpayer pays for it. I cannot see how hon. Members opposite can argue about that; it is factual. The Government should accept that there is one law for private enterprise and another for public enterprise.

I earnestly urge the Chief Secretary to look at this matter again. There is no question of my trying to be ingratiating, or to wheedle something out of him. He is an accountant with great professional experience and he knows that this Clause as it stands is impracticable. He knows it, the outside public know it and the Government know it. I am sure that many hon. Members opposite know it. Why should they be partisan about it? We have had the Radcliffe Committee. Why set up committees of eminent men and then throw majority reports aside and take no notice of what they say?

The Amendment would strengthen the control the Inland Revenue has over traders' individual expense claims. It would be quite impracticable and stupid to try to get a differential between home and overseas entertaining. For these reasons, I hope that the Government will look sympathetically at the Amendment and give a clear undertaking.

Sir D. Glover

It is not very often that a Member of Parliament can speak on a particular problem from personal experience. Many of us speak for certain sections of the public in debates because we have received a brief from an organisation. [HON. MEMBERS: "Oh."] Hon. Members opposite have done that for 12 years. There are very few cases in which an hon. Member speaks from actual personal experience, but I support this Amendment because I can speak from personal experience.

My life has been spent in commercial activities. [Interruption.] It is no use hon. Members opposite, who have not a clue to what we are talking about, making these interruptions. If they did understand, they are so ideologically hidebound that they would not want to listen. We are dealing with a very tricky problem which will affect a great number of people. The Chief Secretary is a man of wide experience and a great deal of sympathy. He knows that what I am about to say is a serious argument against this Clause.

The general concept in the country, and argument put from the other side of the Committee is about penthouses and yachts, and so on. When I first came into the House the great argument on a Finance Bill was the bachelor with an income of £100,000 a year. It made very good argument in our political speeches. Now we have got rid of the bachelor with £100,000 and we have the tax-free tycoon with a grouse moor in Scotland a yacht in the Mediterranean and the Inland Revenue allowing him to charge the whole of it on his expenses, quite justifiably.

Nobody has ever said who this mysterious person is. He is one of those myths created over the years, depending upon which party is in power. What we are dealing with tonight in this Clause is a very minor point of taxation. The Government are using a sledge-hammer to crack somebody who is already covered by the law and all that has to be done is to be more stringent in applying the regulations.

In the process of trying to do this the people who will be hit—and this is my criticism of the Budget—will be the small men. [Interruption.] No, I I am not talking about widows, except that in this modern age there are many widows who become commercial travellers.[Laughter.]

The Chairman

Order. May I remind hon. Members that even at one o'clock in the morning hon. Gentlemen ought to hear opinions of which they do not approve.

Sir D. Glover

I am coming to my main argument, but if hon. Members opposite keep interrupting I shall go on till three o'clock. If hon. Members think that they will get any political kudos out of this, when I am trying to make a case for a great many responsible people who will be adversely affected under this Clause, if they think it funny, let them go and tell the electorate afterwards.

Speaking with a great deal of experience, I will tell the Chief Secretary how this Clause will act very unfairly on a great many worthy citizens whose job is to go round the country selling merchandise. Under the traffic conditions of today travelling by car is difficult. When I first travelled I could park outside a shop and with a judicious half-crown to the policeman I could get away with a long time outside the premises. Today, that cannot be done. Any traveller who goes to a town and who wishes to park his car outside commercial premises——

1.15 a.m.

The Chairman

Order. I must ask the hon. Gentleman to come to the Amendment, which is not about parking.

Sir D. Glover

I am speaking to the Amendment, because it is part of the same problem. The subject is entertainment. If, Dr. King, you will allow me to develop my argument, I will show you that I am within the bounds of the Amendment. It is all part of the problem arising on entertainment. I must try to explain how it comes under the Amendment.

The Chairman

I am sorry, but I must ask the hon. Gentleman to come quickly from the parking of cars by commercial travellers in the past to the Amendment.

Sir D. Glover

I will do so. In the old days, commercial travellers could park their cars. Today, they cannot. Today, a commercial traveller does not park his car. He takes a showroom in an hotel. He invites his customers there. Customers go to the showroom because the traveller can do his business in no other way. Customers arrive at 11.30 to look at his merchandise. They have finished inspecting his samples by 12.45. The only decent thing he can do is to say, "Will you have lunch with me?" [Interruption.] I am sorry that the hon. Member for Manchester, Cheetham (Mr. Harold Lever) is so stupid.

Mr. Harold Lever rose——

Sir D. Glover

Sit down. I will give way to an honest intervention, but not to a stupid one.

Mr. Lever

I want to ask a serious question.

The Chairman

If the hon. Gentleman who has the Floor does not give way, the hon. Member for Manchester, Cheetham (Mr. Harold Lever) must sit; but the hon. Gentleman who does not give way must not ask him to sit down.

Sir D. Glover

I bow to your Ruling, Dr. King. I am sure that the hon. Member for Cheetham will allow me now to make my speech. I would find it easier if hon. Members opposite were interested in the problem which the Clause will pose for many people.

To go a stage further, we are now at lunchtime in the showroom. A customer is in the showroom at 12.45. The only decent, courteous thing for the traveller to do is to say, "Mr. Jones, will you stay and have lunch?" He is almost forced to do that. [Interruption.] Hon. Members opposite are showing that they are very stupid. If this debate is reported by the Press and they think that they will get more votes from it, they are showing how stupid they are, because this is how the commercial activity of a great part of our economy on the consumer side works. The Chief Secretary is not very pleased with his hon. Friends, because I am presenting a serious argument.

That is what happens during the day. [Interruption.] If hon. Members do not know how our country runs, it is about time they listened. If a commercial traveller goes to an ordinary retailer, he is almost certain to be told, "Certainly, Mr. Glover. I will come and look at your collection, but as an independent trader I cannot come before six o'clock tonight when I close my shop". This is true. It happens every day. Hon. Members opposite need not think that the commercial traveller will think that they are very clever. The retailer will almost invariably say, "I want to look at your collection, but I cannot come during shop hours because my wife and I must look after the shop. We will come to look at your collection as soon as we close the shop." [Interruption.]

The Chairman

Order. I must ask the Committee to come to order. We have a fair amount of business to do. Interruptions, even jocular, prolong speeches, and there are a fair number to be made before we can retire for the morning.

Sir D. Glover

Thank you very much for your help, Dr. King. I do hope hon. Members on the other side of the Committee will realise that I am being very serious about this, because it is a very serious problem.

Now, these independent traders—[Laughter.]—Hon. Members laugh, but there are at least half a million of them, not 20,000 but half a million—have to look after their shops while they are open. If they are to buy they have got to do it when they are closed, either on their half-day or after they have shut up shop in the evening.

They go to the traveller's showroom at 6.30, and, having looked at his collection and placed an order, it is 8.30. Are you such skinflints that you say he should not ask them to have a meal?

The Chairman

Order. I am protecting the hon. Gentleman against hon. Members on the other side, but he is not taking advantage of it. If he addresses any remarks to the Government benches he must address them through me.

Sir D. Glover

I am sorry, Dr. King.

Are hon. Members opposite saying that he should not say to his customer, "Will you stay and have a meal?" Hon. Members on the other side say that, of course, he should. I want to bring this down to human individual people. Many of these travellers are not travellers for Unilever or Shell-Mex. They are travelling for small firms. Many of them are not even on a salary. Many are on a part-salary, and the remainder of their earnings is commission on sales.

In the clothing trade, for example, some of them are entirely on commission. Under this Clause they are to be charged all their entertainment costs grossed up on their salaries, which will make it almost impossible for them. They will not be able to lay off any of these expenses against their business expenses.

I do ask the Chief Secretary, because I know that he has a lot of knowledge of these things, really to think whether, when he and the Chancellor set out to do this—and I have no animosity towards their major objectives—they realised how low down the scale this will go? Should there not be some limit to this?

The Chief Secretary and the Chancellor will make things almost impossible for a lot of worthy people if this entertainment is not to be allowed as entertainment. It really is not entertainment. I will give another example where it is a saving to the State. The Secretary of State for Education and Science laughs before he even hears the argument, which shows how ideologically stupid he is.

Take the ordinary traveller who can persuade someone to have a look at his collection at six to eight o'clock. He can pack up his goods and go from Bristol to Brighton ready to do some more business. Under this Clause, if passed without amendment, if he says at Bristol he can charge his hotel expenses as a legitimate expense. But if he gets more business, which must be good for the country, by going to Brighton and spending £1 on entertaining a customer, he has got to pay this out of his own pocket. He does not go to Brighton and he is now 24 hours behind. He is building up a decent income. [Laughter.] It is all very well to laugh, but this is a question of having an efficient or an inefficient society. If hon. Members opposite think that the commercial traveller should take it quietly, stay in Bristol, pay his hotel bill and go to bed early, that is where the Socialist Party is quite off-beam in its conception of the modernisation of Britain.

The Secretary of State for Education and Science (Mr. Anthony Crosland)

I wonder whether the answer would be for him to stay at one of the comprehensive schools in Bristol.

Sir D. Glover

I thought that when there was a change in the Cabinet the Prime Minister had made one of his more level-headed and successful appointments in the right hon. Gentleman, but after that interjection I am convinced that the change has been for the worse. It appals me to think, after a remark like that from the right hon. Gentleman, that he is in charge of education.

There are about 200,000 commercial travellers in the country. They are a large and important segment of the population. They work not 40 hours a week, but in most cases 50 or 60. They drive long distances in the night and they are people who are imbued with the aim, which the Labour Party was returned to power to carry out, of getting the maximum amount of business in the shortest possible time. The Clause will make it far more difficult for them to do that in future. It will make it much more attractive to be lazy and charge expenses to the firm. The go-getter who uses entertainment to secure more business in a shorter time will be charged with it against his income. Human nature being what it is, the result will be that he will not get the extra business. How can he?

Does the Chief Secretary realise that the 15s. for lunch and a drink here and there adds up, for an enormous number of commercial travellers, to £1,000? Added to actual earnings of £1,500 to £2,000, this puts the commercial traveller into a totally different tax bracket and makes his job worth while. Does not the Chief Secretary realise that unless note is taken of the Amendment the Government will do great damage to the ordinary commercial activities of a vast number of people and the Government will not increase national efficiency as they were pledged to do? I not ask the Chief Secretary necessarily to accept this Amendment [Laughter.] I am not talking to a lot of performing monkeys on the other side, but to the Chief Secretary. He is listening to my argument, which is a credit to him. He has a wide knowledge of commercial activities and I ask him to look at this problem of the salesmen, commercial travellers, journalists and all those whose jobs involve a greater or less degree of entertainment. I am not speaking for the tycoon in the Savoy Hotel, but for the great number of honest citizens who cannot carry on their job unless they can continue to incur certain business expenses. If the money is included in their gross salary, their jobs will no longer be worth doing.

1.30 a.m.

Mr. Box

I rise to support the Amendments, with particular reference to No. 39, which is in my name and the names of some of my hon. Friends. Judging by the noisy interruptions from the Government benches one would think that right hon. and hon. Gentlemen opposite have never enjoyed an expense lunch in their lives. I always enjoy watching members of the Socialist Party having expensive lunches of that sort, for they always seem to do extra justice to the fare.

My hon. Friend the Member for Nottingham, South (Mr. William Clark) referred to the fact that during his Budget speech the Chancellor made constant gibes about so-called lavish entertainment involving luxury penthouses and yachts. He seemed to be so morbidly preoccupied with the subject that I wondered whether he had delusions of grandeur and hoped that some day he would enjoy the fruits of his enterprise in that respect.

Although the Chancellor has been challenged many times to justify his statement that these abuses are happening on the scale he mentioned, or at all, he has not produced any evidence to prove the statement. To suggest that it is happening on a wide scale throughout the country casts a serious slur on the ability and integrity not only of the inspectors of taxes, but also of a large body of accountants. He would do well to remember that there is a fine balance of integrity between accountants and inspectors of taxes which we do not want to ruin.

The Inland Revenue already have powers to deal with any abuses of the kind which the right hon. Gentleman mentioned. I remind the Chief Secretary that when the last Socialist Government were in power the inspectors of taxes, as a result of instructions given by the then Chancellor, were exceedingly tough on business expenses. In my opinion, reasonable business expenses are both desirable and necessary to the successful and smooth running of a business, and there is little doubt that unless the Amendment is accepted some serious anomalies will occur in the future.

I quote merely one example. The Chancellor, if he were here, would agree that the Development Corporation of Wales, formed under the chairmanship of Sir Miles Thomas, was formed to encourage new industry to establish itself in the remoter parts of Wales where additional employment is badly needed. Some of the would-be employers are invited to look around the area to see whether they like the place and the people. Some come from overseas and some from other parts of the United Kingdom. Does the Chancellor suggest that the chairman and staff of such an organisation should be hamstrung by the provisions of the Clause so as not to be able to offer reasonable hospitality out of business expenses to such would-be employers?

Mr. Hugh Jenkins (Putney)

It is not a question of being able to offer entertainment, but a question of who is to pay for it.

Mr. Box

Such a man is performing a service in the region in which he is serving. There are regional corporations, and it is only proper that such a man should be allowed reasonable expenses. In addition to cases like this, there is another consideration. I wonder whether the Chancellor has stopped to consider the small employer and his employee? This is referred to in the Amendment, which says: unless such expenditure is incurred by an employee not being a principal, director, or shareholder and not earning over £2,000 per annum". I referred during our discussion on Clause 13 to the case of the commercial traveller and I would touch on it only briefly again because my hon. Friend the Member for Ormskirk (Sir D. Glover) has dealt with that matter in some detail.

Amendment No. 39 affects the commercial traveller and the manufacturer's agent; and to those can be added a very large number of salesmen. I understand that the average commercial traveller earns about £800 to £1,000 a year and that he can expect a commission on his turnover amounting to another £500 or £600 and, as my hon. Friend the Member for Nottingham, South (Mr. William Clark) reminded us, he should have the right to expect to be able to entertain reasonably. It is ordinary practice, and the traveller enjoying such facility has to render a strict monthly account so that the expenditure is accounted for.

I will grant the Chancellor that I am confident that he is not out to catch the small employer or his employee, but this Clause will catch them; it is bound to do so. The employer will find that there is a disallowance of this legitimate business expenditure and it will be added back to tax. He may have to pay tax at a very high rate indeed, and, certainly, Surtax in some cases; and then, if he increases the employee's remuneration and requires him to do a certain amount of entertaining, that increase will be added back to P.A.Y.E. although, presumably, at the lower rate payable by the employee.

The whole matter has been made unnecessarily complicated and may result in many people spending a lot of time trying to devise ways to reduce their liabilities. There is the case of the salesman or manufacturer's agent to whom my hon. Friend the Member for Ormskirk referred, working purely on a commission basis. He may work for only one or two firms and is, virtually, self-employed and likely to earn, gross, £2,000 a year, but do not hon. Members realise that he may well have to spend £750 to get his business? That man, who is helping the economy, will be hit very hard indeed by this Clause.

The Chancellor said in his Budget speech that expenses will not be allowed for business entertainment, but that entertaining would go on. Undoubtedly, that is true, and I am glad that it is, because I do not relish the idea of the foreign salesman coming over here with a large expense account at his disposal and laughing at the sort of competition which he encounters from British salesmen who do not enjoy similar facilities.

We know that entertaining will continue, but what I fear—I am sure that the First Secretary fears it, too—is that the cost will most probably go on to the price of the goods. We know what is happening to the Index of Retail Prices. It seems that the Chancellor is determined that many people shall suffer because of abuses by the few. I am sure that the expenses incurred by the smaller employer and his employee are not what he is really after, and I hope that the Chief Secretary will promise to reexamine the question to see whether the employee and small businessman can be treated more sympathetically under the Clause.

Sir F. Bennett

I shall not discuss the position of commercial travellers, because that aspect of the matter has been fairly fully ventilated already, and I cannot claim the same knowledge of the subject as my hon. Friend the Member for Ormskirk (Sir D. Glover) can.

What is the Clause all about? It has been generally accepted—I think that the Chief Secretary accepts it, too—that entertaining will continue. I take, first, the example of a large company which realises that entertaining must continue and carries on as it has been doing. The cost will have to come out of net as opposed to gross profits. At the end of the year, those net profits are available either to put into reserve or to pay out as dividends.

This is the point which the Chief Secretary must answer. At the end of the year, £X will be taken off net profits, and there can be only one of two effects: either that sum will not be put to reserve, which is against the Government's general policy in the Budget, as we understand it, or it will not be paid out in dividends and less Surtax will be paid on the dividends in the hands of the wealthier shareholders. Ultimately, will the Chancellor be so much better off in terms of hard cash?

Smaller, thrusting companies may well be unable to afford to proceed in the same way. Therefore, quite contrary to what appears to the Government's theory in wanting to clamp down on the big tycoon and help the little man, the Clause will work in precisely the opposite way in every respect. The small man has not got the profits which he can treat as net at the end of the year.

These are serious points calling for an answer. I have practical knowledge of these matters, and I know that very large companies such as the ones I am associated with will go on doing exactly what they were doing before, but the cost will either come off amounts put to reserve or it will not be paid out in dividends. Either way, the Chancellor will lose.

What is the real reason behind the Clause? A fly on the wall in the Treasury, before the Budget was produced, would have heard it admitted that there would be a high Bank Rate, that 3 per cent. mortgage loans and other things were not likely to come about, and the talk must have been about what sop could be thrown to the Left of the party—"Let us have a go at businessmen's expenses, the yachts, the mistresses, the penthouses and the rest". It was done purely as an attempt to keep the Left of the party happy, in the knowledge that things would have to be done which would be unpopular with the Government's supporters. One can hear it said, "Have a go at businessmen. They are easy meat, and it does not really matter whether you make any money out of it or not". That is the basic philosophy behind this Clause and the others which we have been discussing today.

1.45 a.m.

I want to deal with what I regard as an astonishing differentiation. The only argument, as I understand it, of the Government is that entertainment is not necessary for the conduct of business. Recently, we debated a Private Member's Motion, when a picture was painted of businessmen still sitting at table and swilling brandy at four o'clock in the afternoon, with no business really resulting. That may be an arguable case but if it be the case that such entertainment is unnecessary and achieves nothing for the national economy, what about foreign visitors?

Why is it that entertainment helps to achieve export business, but not internal business? The Government spend much time putting forward peculiar laws on racial discrimination. The only case for this provision is that, to the Government, foreigners are more easily corruptible by good entertainment than our own businessmen. That is the biggest case of racial discrimination before the Committee.

The Government say that a businessman in England should not be and is not affected by lunches at four o'clock but that a businessman from Asia or Africa is. That is the logical explanation of their policy. There used to be a fascistic saying, "Wogs begin at Calais". The Government are responsible for a new thesis that "Non-wogs begin at Dover for business expenses."

Why have the Government made this exemption in favour of foreign businessmen? The only argument the Chief Secretary can put is that they are likely to be swayed by a good lunch and that this is not applicable to British businessmen. I have given a great deal of thought to this and I believe that no other explanation is possible. If I am wrong and other benefits do occur, I wonder why it is that, every day for months ahead, rooms in the Palace of Westminster and tables upstairs are booked by institutions and organisations which think it worth while to have hon. Members opposite to lunch, not partly at the expense of the taxpayer but wholly at his expense. I have not noticed that hon. Members opposite are noticeably absent from such functions.

Why is it that the C.O.I. and the Foreign Office hold these functions? Both of them have telephoned me to invite me to lunches at the total expense of the taxpayer. I am not exporting goods. [An HON. MEMBER: "Why do you not refuse?"] I have refused both of them. I want to be told why the businessman is at fault in accepting invitations from other businessmen. This provision is not to apply to politicians or Ministers. We see in The Times every day how worth while Ministers think it to go to the Savoy or to Claridge's. Do they add the cost of such lunches to notional benefit for Income Tax returns?

We should be told why British businessmen alone apparently do not and should not derive benefit from entertainment, but foreigners of all races and types need to be entertained to get export orders and Ministers and politicians need to be entertained to enable them to do their duty.

There has been more cant and humbug and class warfare about this Clause than about any other aspect of the Budget. Every hon. Member opposite knows that this is nothing more than a piece of naked class warfare in order to keep one half of the party opposite happy. The Government have to pay the penalty for Bank Rate and for supporting the Americans in Vietnam by throwing this sop to the Left-wing of their supporters.

Sir Rolf Dudley Williams

If there is one thing that I like not to have to attend, it is a business lunch. There is nothing that I find more disagreeable than having to go out and spend an hour or two with somebody with whom one is not very friendly to discuss some business affair. I do it extremely rarely. I should not think that I give anyone lunch for business purposes more than once in three years.

One of the reasons why I do not like going out to a business lunch, especially in the West End, is that I spend my time falling over Socialist Members of Parliament who are enjoying them also. The Government side of the Committee—does the hon. Member wish to intervene?

Mr. Alan Beaney (Hemsworth)

I remember going with the hon. Member to Gibraltar. Did you enjoy that?

The Chairman

Order. The question must be phrased, "Did he enjoy that?"

Mr. Beaney

I stand corrected, Dr. King.

Sir Rolf Dudley Williams

That was not a business expense. All I am saying to the Government side of the Committee is that every hon. Member on that side tries to get in on the act. They know it as well as I do.

The Prime Minister gets in on the act and he gets £4,000 tax-free for entertainment. He does not have to give any account of how or whether he spends it. It is supposedly given to him to maintain himself in a proper condition. What does he do? He cleans his own shoes when he goes to America. He does not employ a servant. He cleans his own shoes instead of getting on with the job of running the country properly. Let us have no more of this humbug——

The Chairman

Order. The reference to the entertainment expenses of the Prime Minister is in order. The rest is not.

Sir Rolf Dudley Williams

Thank you, Dr. King.

Tax-free allowances are paid to many officials in nationalised industries. No accounts are given to any public accounting body of how those sums are spent. This runs right through every part of the activities which are encouraged by the Government side of the Committee. Hon Members opposite are always trying to get in on the act and to enjoy themselves by getting something for which they do not have to pay. When going off to attend a television function, with those dreadful meals which one has to sit through before going on the screen—the hon. Member for Putney (Mr. Hugh Jenkins) knows about this; I expect that he has had plenty of free meals from television companies——

Mr. Hugh Jenkins

On a point of order, Dr. King. I regard the remark which the hon. Member has just made as extremely insulting and entirely untrue.

The Chairman

That is not a point of order.

Sir Rolf Dudley Williams

I have no doubt that it is very true indeed, if we could properly look into it.

As my hon. Friend the Member for Torquay (Sir F. Bennett) has explained, what lies behind this is spite. It is an attempt by the Government to divert attention from some of the things they are doing which their Left wing does not like, especially the hon. Member for Putney. To keep them quiet when they see operations going on by the Americans in Vietnam, and so on, they have to go for the businessmen.

Mr. Richard rose——

Sir Rolf Dudley Williams

The hon. Member must wait until he is called. He can make a long speech presently.

If the Government think that entertainment is wrong, why do they not make all entertainment a criminal offence? Why not say that there must be no business entertainment? If it is corrupting people, if it is a waste of money, why not say that anyone who entertains anyone for business purposes is committing a criminal offence? That is what the Government should do if the whole thing is dishonest.

The Government's action is a tremendous reflection on the Board of Inland Revenue. The Inland Revenue is extremely keen to examine any business expense. Only the other day, I saw that an enormous sum, something like £50,000, was charged back to a businessman is not being acceptable for expenses. It was spread over several years. Sooner or later the Revenue finds out when people have been swindling and then they have to pay, but to suggest that all business expenses have to be knocked out—I speak as one who does not have any—to overcome the malpractices of the few is scandalous and the Government are irresponsible to do it.

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

I did not hear the hon. Gentleman say over how many years this £50,000 had been written hack.

Sir Rolf Dudley Williams

I think that it was written back over three years. The gentleman concerned had done an extensive amount of travelling overseas. It was a matter which eventually was in the newspapers; I forget whether it was before the courts. This was charged back by the Revenue over three years. I stand to be corrected on that, but I think that it was three years. I think that the Revenue were quite right to do it, with a businessman or anybody else who gets money from expenses which are not justified.

To turn to the point of allowing entertaining of overseas visitors for business purposes, how can we be certain business will materialise from it? Are we certain that on every occasion this will result in a business advantage? How do we know the businessman is not entertaining charming ladies he has met abroad?

Are we sure this will keep the hon. Gentleman the Member for Putney quiet? Will this satisfy him? Or should we say no entertaining will be allowed at all? That is what the Treasury has to decide. Is it to allow any entertaining at all? If it is wrong to entertain people at all for business purposes let Ministers have the courage to say so, and say that this will be made a criminal matter. They will not do any such thing, of course, because they know it is essential to do this entertaining. We know that in no other business is entertainment so prolific as in the entertainment business itself. Does the hon. Member want to intervene?

Mr. Hugh Jenkins

If I catch your eye, Dr. King, I will intervene in the debate later.

The Chairman

It is not possible for an hon. Member to succeed in staking a claim to catch the Chairman's eye.

Sir Rolf Dudley Williams

I could have made that point to the hon. Member, Dr. King, but I thought it best that it should come from you.

What this really is, is a concealed extra tax on company profits. Entertainment will be permitted to go on, but it is not to be allowed for tax purposes. So it has to come out of the profits of the companies concerned. If it is one of the large companies with a household name entertainment will go on, it will be permitted by the executives, and the only people who will suffer from it will be the shareholders, although there will be the effect that the company will not have the reserves which are necessary to carry on its future investment plans. But a small company——

Mr. Hugh Jenkins rose——

Sir Rolf Dudley Williams

I cannot give way. The hon. Member is to make a speech later.

The Chairman

Order. Mere insistence by an hon. Member in attempting to intervene does not guarantee that he will intervene, if the hon. Member who has the Floor does not give way.

Sir Rolf Dudley Williams

I am sorry, but I think that the trouble is that the hon. Member has been told by his Front Bench that he will have to keep his mouth shut or he will not be allowed to pair.

The Chairman

When the Chair makes a Ruling it does not need assistance from an hon. Member.

Sir Rolf Dudley Williams

It will in many cases be quite impossible for a small company to bear the expenses out of its own profits and it is the very reason that many small companies are closely——

Mr. Hugh Jenkins rose——

The Chairman

I must ask the hon. Member for Putney (Mr. Hugh Jenkins) to refrain from seeking to intervene when the hon. Member is obviously not going to give way to him.

Sir Rolf Dudley Williams

Thank you, Dr. King.

A small company has to bear this expense out of its own profits. Very often, such a company is a closely controlled, or a director controlled company, and may well be subject to Surtax direction and will not be able out of its own profits to meet such expenses as these.

The fact that this legislation is pure spite, and that it will badly hit the smaller man and not the big man, should mean that the Committee should reject it.

2.0 a.m.

The Chairman

Mr. Diamond.

Sir Peter Roberts (Sheffield, Heeley)

On a point of order, Dr. King. Will there be an opportunity later to continue the debate?

The Chairman

The hon. Gentleman has been a Member of this House for a long time and he knows that in Committee an intervention by a Front Bench Member does not necessarily end the debate.

Mr. Robert Cooke (Bristol, West)

Further to that point of order, Dr. King. Would it not be to the convenience of the Committee if back bench Members had an opportunity to make their brief remarks and then the Front Bench could reply?

The Chairman

The hon. Member has been a Member of this House long enough to know that that is not a point of order. It is a point of argument.

Mr. Diamond

I think that having regard to the hour and to the fact that points have been made, I should have thought fully and, indeed, exhaustively, it would be for the convenience of the Committee if I were now to answer the debate.

Mr. Hirst

Only if there is a concession.

Mr. Diamond

If hon. Members wish to speak after I have finished, it will be my privilege to listen to an extension of the debate, but I was hoping that it would be convenient to the Committee if I were to deal with the debate that has taken place so far.

If I may put it in context, I hope that most hon. Members realise that what we are not talking about at all is whether entertainment expenses are proper, wise, unwise, or anything like that. What we are talking about is whether entertainment expenses shall continue to be allowed for tax purposes to the extent to which they have been allowed previously; that means, whether everybody's tax assessment should be computed on the same basis as hitherto. I am sure that the Committee realises that the purpose of computing tax is not to define the profits of an individual. The purpose of computing tax is to have a basis which is fair as between one individual and another. That is all we are talking about.

Here is a new arrangement—a definitely new and different arrangement—and any Government who introduce a totally different arrangement have to justify it. Here is a new arrangement which is to apply to everybody. If, therefore, it applies equally to everybody, there could not possibly be any claim for hardship at all because all that the tax system attempts to do is to see that there is a fair share of the burden between each individual. Therefore, all I have to do is to demonstrate, if this proposed system is not going to deal completely equitably with every citizen, why the Government are proposing it.

Sir D. Glover

The Chief Secretary said that this was a new rule of the Government—and I accept it—that applies to everybody. But there is one anomaly. It does not apply to the Prime Minister.

Mr. Diamond

The hon. Gentleman is wrong in that respect, too.

Sir D. Glover

It does not apply to the Prime Minister.

Mr. Diamond

The hon. Gentleman is wrong in that respect. [Interruption.] Perhaps it would be convenient to the Committee if I were allowed to continue my speech. If the hon. Member for Ormskirk (Sir D. Glover) does me the courtesy of listening to me half as closely as I listened to him, he will pay me a very great courtesy indeed.

The point I have to establish is that if we are not proposing to treat each taxpayer equitably we have to justify why we are adopting a new method. Nobody in the Committee has alleged for one moment that the present system is fair as between each taxpayer. On the contrary. The hon. Member for Exeter (Sir Rolf Dudley Williams) cited the case of a person—I gather that it was someone he knew about; at any rate, the case came to his knowledge—whose entertainment expenses had been excessive to the tune of £17,000 a year. He had had an excess amount of £340 a week on which he had had an allowance for tax and, no doubt, Surtax. That, of course, is a glaring example of a case where an individual transfers to the rest of the community his burden of tax. As long as we have it perfectly clear that we start on the basis that the present system is not fair, then we must find a system which is as fair as it can be.

Sir Rolf Dudley Williams

I am sure that the hon. Gentleman wishes to be fair. From the remarks he made it might be read that the person concerned was a personal friend of mine. That was not so. The case was reported in the newspapers.

Mr. Diamond

I am always anxious to give way in case I have done an injustice when referring to an hon. Member. It was unfortunate that when the hon. Gentleman referred to my hon. Friend the Member for Putney (Mr. Hugh Jenkins) three times he was not prepared to give way. That, as he knows, is against the normal practice of the Committee and against his normal custom.

We will get to the heart of the matter more quickly if I deal, first, with the speech of the hon. Gentleman the Member for Nottingham, South (Mr. William Clarke). He dealt with two closely interwoven themes. The first was the change. Why was it necessary to have any change, he asked, since the present system was satisfactory? He said that under Schedule D and Schedule E there was adequate control and that we did not need any change. His second theme was, in effect, this statement, "We are prepared, if there is to be a change, to adopt it, but not with this differentiation, for example, entertainment for the home customer and entertainment for the foreign buyer".

I will deal with the first theme first. It is just not the case that we have a satisfactory situation at present. This is the problem which has been troubling Chancellors of the Exchequer for a long time. The right hon. and learned Gentleman the Member for Wirral (Mr. Selwyn Lloyd) made some extremely relevant remarks on 17th April, 1961, when dealing with the problem with which we are trying to grapple now. He said—and I am not quoting his exact words—that he thought that there was something behind the strong feeling that existed that some so-called business entertainment goes further than purely business motives. He described this as an unhealthy feature on business and social grounds. My right hon. Friend the Chancellor, when introducing the Budget, said very much the same.

We must deal with the problem which exists and which creates inequity as between taxpayers because certain people get way with more tax than they should, which must be carried on the backs of the others. And it has social problems, as well. We must deal with this problem which has faced many Chancellors, but which, according to the hon. Member for Nottingham, South does not exist. He considers that the Revenue has all the powers it needs and he says that the Government are either calling the Inland Revenue incompetent or the taxpayer dishonest. Neither he nor I are calling the Inland Revenue incompetent.

After a third of a century of practical experience with it, and after six months' experience at the top level of the Inland Revenue, I assure the Committee of the respect I have for it and that I acknowledge the ability of those who operate within it. Nobody is saying that every taxpaper is dishonest. One is, therefore, driven to the conclusion that there is something wrong with the hon. Gentleman's logic. It is just not right to say that however much power the Inland Revenue has at present one can deal with this problem by giving it powers. One cannot. It has been tried, and it has failed.

It has been tried by the right hon. and hon. Members opposite when they were the Government, and it has been tried by the right hon. and learned Gentleman the Member for Wirral. Every Chancellor has pointed out the problems that arise. We are all aware of expense-account living, and of the irritation it causes. We are all aware of the social problem it is; and that there must be a "fiddle" going on somewhere when people can manage to live at this kind of level of consumption on salaries that are quite inadequate to cope with it. We are all aware that it has been going on. It cannot be tackled by giving the Revenue powers, because the Revenue has powers and the problem still rests with us.

If it is not absolutely clear that the problem still rests with us, let me give just a few examples of what has been happening. The hon. Member for Exeter referred to a particular case, which, I think he said, he had read in the newspapers. I shall refer to actual cases, which I shall not, of course, identify. If I may, I shall give four examples.

The first example is that of a gentleman who is the controlling director of a family company, receiving a salary of about £9,000 a year. For several years, the company has reimbursed to him his expenditure on entertaining at restaurants and elsewhere at a rate of between £3,000 and £4,000 a year. More than half of this sum relates to entertainment at his home. Some guests consistently entertained him in their turn, but it was asserted, and had to be accepted, that the entertainment was solely actuated by business motives.

The full amount of entertainment expenditure was, therefore, allowed for tax purposes. We are not alleging any question of dishonesty. I am merely trying to point out that there is case after case of lavish expenditure arising under the existing situation, which every Chancellor has tried to cope with and for which he has failed to find a solution.

Let me give a second example. It is that of the controlling director of a family company who spent over £10,000 a year on business entertaining, which is considerably more than his salary. Although it was claimed that the entertainment expenditure was on business account, the inspector disallowed about 25 per cent. of it, and this was accepted under protest. Even so, it means that one individual's entertaining expenditure of over £140 a week was charged against tax—£140 a week. In one day of which details were given, about £60 was spent on business lunches, business dinners, and night clubs.

A third example is that of a gentleman who claimed, and has been allowed, £3,600 for business entertaining. Of that, £1,700 relates to the provision of a grouse moor for business guests—£1,700.

The fourth example relates to two partners whose allowable expenses in one year amounted to £33,000. That included a ton of Christmas turkeys for gifts to business contacts. Nearly £600 was spent on one party for 70 guests. I could give many further examples, but I fear that I would weary the Committee——

Mr. Antony Buck (Colchester)

I am obliged to the Chief Secretary for giving way. It would help the Committee if he were able to tell us, in connection with his first example, something of the nature of the turnover of the company, so as to put it all into perspective. And perhaps, being an accountant, the hon. Gentleman cann tell me, a lawyer, how it can conceivably be said that the provision of a grouse moor is "necessarily" provided. What has always puzzled me is how, under the interpretation of the statutes, these things are required as being "wholly and necessarily", and so on. How can they be?

2.15 a.m.

Mr. Diamond

I am grateful to the hon. Member, because this makes it clear that the present arrangement is totally inadequate. These expenses are allowable by law. They are fully disclosable, have been disclosed and allowed by the law.

Mr. Hirst

The tax inspector allowed them, but if he should have disallowed them the fault is in the argument.

Sir F. Bennett

If the ton of turkeys to which the Chief Secretary referred were sent to foreign buyers it would still be allowable after the Bill became law.

Mr. Diamond

It is always a mistake to give way to the hon. Member. We are trying to deal with this in a serious way. If anyone wants to be frivolous afterwards, he can be.

I recognise that there is a serious point here because certain individuals will find their tax bills different from what they were before. They want to be assured that the new system deals fairly as between taxpayer and taxpayer, which the old system did not. I am, therefore, demonstrating instances—only a few, I could give many more of the same kind—showing that under the law as it exists—[Interruption.] It is no use the hon. Member for Colchester (Mr. Buck), who is a lawyer, trying to give a judgment on facts of which he has not the full details before him. These are matters which have been before the Revenue and the full details have been ascertained by the Revenue.

There is no dispute as to the facts. The Revenue knows the law and is satisfled that these claims could not be disallowed. I have given a case where, after long argument, a part was disallowed and, after protest, partial disallowance was accepted.

Sir D. Glover

I do not wish to destroy the case made by the hon. Gentleman, but to bring four cases without any background is, I think he will agree, a little unfair. [Laughter.] It is all very well for hon. Members opposite to laugh. If a firm is doing £10 million of business a year, £7,500 a year in expenses is justified. If it were £7,500 on a turnover of £10,000, it would be excessive.

The Deputy-Chairman

I hoped that the hon. Member would intervene shortly and not make a speech.

Mr. Diamond

I am not treating the hon. Member as a judge. I am putting all the facts before him. I do not regard him as a complete expert on tax law. I am giving the facts and everyone must use common sense in considering whether the Inland Revenue allows this expenditure because it wants to do so or because it is according to law. The simple answer is that we are in that situation at the moment. Every Chancellor has been aware of this problem and has attempted to deal with it.

Mr. Edward Heath (Bexley)

I recognise that the Chief Secretary is treating this as a serious matter and I agree that it is a subject which ought to be considered seriously, but he has had addressed to him a straightforward question, which has puzzled a large number of us in all these discussions. When examples of the kind he has given, including that of the famous grouse moor are produced, we want to know why they have been passed as necessary in the business interest. The Chief Secretary has replied that because the Revenue has passed a claim it must, therefore, be right.

To a layman that is not sufficient, because we know perfectly well that if the Revenue challenges a claim for expenses the onus of proof rests on the person who put in the claim to show that it was necessary. Those who have had experience of this matter know that this is the process which is followed. I cannot believe that an Inland Revenue inspector, of his own volition, merely says, "This is absolutely necessary" and that is the end of the matter. Inspectors must receive guidance. I hope, as he is treating the matter seriously, that the Chief Secretary will explain why these expenses were necessarily incurred.

Mr. Diamond

I am grateful for the intervention of the right hon. Gentleman, which demonstrates that the Committee was not fully aware that expenditure of this kind was going on under the law. The right hon. Gentleman is misinformed about the law. There is no rule of the kind he attempted to give with regard to Schedule D expenditure. He is thinking about Schedule E expenditure. The whole basis of the arrangement between the Revenue and the taxpayers is that the Revenue does not interfere with the way the taxpayer runs his business. It is for the taxpayer to say whether he thinks it wise or unwise to incur business expenditure—so long as it is business expenditure.

If the Revenue were put in a position of saying, "I think that it is right to pay that girl £15 a week, I think that it is wrong to pay that man £12 a week, I think that it is wrong to incur that kind of business expenditure," it would be quite impossible. The Revenue never interferes. It is for the businessman to run his business his own way and the Revenue is concerned with the profits arising and taxes those. [An HON. MEMBER: "Rubbish."] I do not think that the hon. Gentleman will find a comment like "Rubbish" very persuasive. It just demonstrates that the hon. Gentleman and right hon. Gentlemen opposite were not aware of what was going on and show signs of not now being prepared to accept the facts because they go against their pre-conceived attitude.

Mr. Heath

This is a very late hour. If the Chief Secretary wants to bring this Clause and the proceedings to a conclusion at a satisfactory hour he must address himself to the question which is seriously put to him. It was not a question of saying that these things were not going on. We have often heard accounts of them. An example has been given of a case brought before the courts and dealt with. I said that we wanted to understand why it was that if the word "necessarily" is there——

Mr. Diamond

It is not.

Mr. Heath

Then the hon. Gentleman is arguing that as far as individuals are concerned it was there and that the action could have been taken because this necessarily implies a judgment and that it is made by the Revenue.

Mr. Diamond

The right hon. Gentleman misjudges me if he thinks I am not trying to give him a full, frank and serious answer. I was trying to demonstrate that he was just misinformed about the law. It is no use the right hon. Gentleman getting up and saying that under Schedule D the word "necessarily" is included. It is not. If he is referring to Schedule E there is more than "necessarily". So far as Schedule E is concerned, an individual has to go through more than that one hoop to satisfy, as we all know. I am talking about business expenses incurred by companies. There is nothing to prevent a company incurring expenditure if it alleges that it is in the interests of the company——

Sir D. Glover

By whom?

Mr. Diamond

Many at present succeed in establishing that it is business expenditure. This is what has happened. I am giving the Committee the cases to demonstrate that under the present——[Interruption.] I shall listen with complete calm to the hon. Member for Ormskirk, although he made the kind of speech that stimulated every one of my hon. Friends in one way or another. The hon. Gentleman has interrupted many times. On most occasions he has not even asked me to give way. Whenever the hon. Gentleman wants me to give way, I will gladly do so. I hope that the hon. Gentleman will treat this matter with the seriousness with which he asked me to treat it.

Mr. Graham Page (Crosby)

The Chief Secretary has led the Committee to believe that "necessarily" is not in the Section. Indeed, it is not. In Section 137 the phrase used is wholly and exclusively laid out or expended for the purposes of the business.

Hon. Members

But not "necessarily".

Mr. Graham Page

Surely those are even stronger words.

Mr. Diamond

I am sorry. I assume that the hon. Gentleman has not come across this kind of problem, either before the commissioners or anywhere else. What is now happening is that, when I give the Committee the facts, right hon. and hon. Members opposite are unwilling to accept them. The hon. Member for Crosby (Mr. Graham Page) has corrected the right hon. Member for Bexley (Mr. Heath), for which I am grateful. I am not giving cases of dishonesty—not one. I am giving cases where the facts are known, declared, ascertained, and where expenses are allowed for tax purposes because they are expenditure which is properly allowable under the law as it exists at present.

Therefore, a different solution must be adopted, because the present system is revolting to many, challenging to many others, irritating to most of us, and a loss to the Revenue. Nobody can allege that the scale of entertainment which goes on in many cases is of a kind which any one of us here would want to approve. Therefore, something different must be done about it. This is why things cannot be left as they are. It would be absurd to put upon the Revenue the responsibility of saying that one level of expenditure was right and that another was wrong, or that it was right to entertain a certan man at the Savoy, whereas another man should have been entertained only at Lyons Corner House. As it would be absurd to place that kind of decision upon the Inland Revenue, we are driven to the conclusion that the fairest way as between taxpayer and taxpayer is to disallow entertainment expenditure of this kind completely. That is what we are completely driven to.

Right hon. and hon. Members opposite, during the 13 years they were the Government, found no way of dealing with the problem. They now say that we have a new formula; they say that the reasonable figure which is introduced is a new formula. They must realise this. If this would have been a satisfactory formula which would have solved all our problems, right hon. and hon. Members opposite would have adopted it when they were the Government. There is nothing magic about it. This is the only way of dealing with the problem, and we have felt it right to deal with it. Hon. Members opposite did not do it. That is all there is to it. There was gross inequity going on which carries on up to today. From this day on the matter will be dealt with fairly as between all taxpayers. All taxpayers will have them disallowed and everybody's tax will be calculated on the same basis.

Sir F. Bennett

Except in relation to foreign buyers.

Mr. Diamond

As to foreign buyers, there is a simple explanation. The hon. Member for Torquay (Sir F. Bennett) need not have invented all these things, even if it gave vent to his feelings. There is a simple explanation. It is normal courtesy to entertain a visitor from abroad. It is normal courtesy which is reciprocated. It is the kind of courtesy which one would wish to allow. That is why we have adopted in the Bill the provision to do with the reciprocity which goes on.

Entertaining customers at home is a different matter. Businessman after businessman finds himself caught, against his will, in this competition, where one man entertains at a certain level, the next man has to entertain at a higher level, so the first man entertains back at a still higher level. They get caught up in this competition which is wasteful all the way round. I hope, therefore, that I have satisfied the Committee that we are proceeding on this on the most serious basis, on the basis of fairness as between taxpayer and taxpayer. We are dealing with a problem which has confronted every Government for a long time, which right hon. Gentlemen opposite were not prepared to deal with and which we have.

2.30 a.m.

Mr. Heath

I must tell the Chief Secretary that, eloquent and precise though he was in his opening remarks, the last sentences were so hasty and skimped that he has completely failed to convince the Committee. I hope that I can treat the matter seriously, as the hon. Gentleman did.

When the hon. Gentleman came to the point why the Bill allows these expenses for those who are possible purchasers of goods in this country and who come from overseas, he said that it was merely courteous, but this, of course, is avoiding the whole issue.

I must put this to him plainly and seriously. The Chancellor has, in the Bill, allowed expenses of this kind, for entertaining people who are coming here, presumably, with the specific purpose of buying goods in this country, to be allowed for tax. He has done this quite deliberately, and it is not just a matter of courtesy. It is because the Chancellor wants to see business carried on, and let us give the Chancellor credit for that. He believes that it will encourage the business he wants to see. I think that everybody in this Committee agrees with him. He is absolutely right and he is justified in doing it.

Until the Chief Secretary spoke I gave the Chancellor and his advisers credit for believing that by the phrasing of this subsection the Chancellor was instituting a system which would enable this to be carried on without abuse. [HON. MEMBERS: "Oh."] Yes, because I expect these things to be carried on without abuse.

Mr. Richard

I thank the right hon. Gentleman for giving way. Is he seriously telling the Committee, at half past two in the morning, that the words "reasonable having regard to all the circumstances" were stronger than the words "wholly, exclusively and necessarily" or "wholly and solely"?

Mr. Heath

I credited the Chancellor with wanting to prevent abuse because that is what he said in his Budget speech. He said he wanted to do it by tightening up the law. If the Chief Secretary says that the Chancellor is doing it by loosening the law, then he should say so. But "a kind and on a scale which is reasonable having regard to all the circumstances" allows of a judgment by those who have to enforce the law, of which they can take full advantage. I have no doubt at all that they can do that. I gave the Chancellor and his colleagues credit for doing that.

Mr. Richard

I do ask the right hon. Gentleman again. Is he saying that the phrase "reasonable having regard to all the circumstances" puts a lesser burden on the taxpayer than the words "wholly, exclusively and necessarily"? Which is worse for the taxpayer to have to prove, the old words or the words we have here?

Mr. Heath

We have already had the argument about "necessarily", which the Chief Secretary says does not apply to companies. He himself first raised the question of "necessarily", and that is why I rose at all. But let us leave that on one side. I do not wish to argue with the hon. Gentleman about this phrase. If he thinks that the Chancellor should have put in the old phrase, well and good, I do not mind. All I am saying is that I accept that the Chancellor's phrase should prevent abuse as far as the entertainment of overseas buyers coming into this country is concerned.

What is the purpose of it if it is not to prevent abuse? The Chief Secretary has just said that the problem is insoluble. He is arguing, therefore, that this does not prevent abuse. He said that all Governments have faced this problem and that it is insoluble. If it is insoluble, he is saying that the Chancellor has put into the Bill a phrase which means nothing and will not prevent abuse. Which proposition is the Chief Secretary arguing? Is he saying that expenses which are allowed for customers coming to this country will permit of abuse and that he will not be able to stop it? Is he saying that anybody who comes to this country can be entertained on any scale and that this will go on without any possible means of preventing it?

Mr. Diamond

I admit straight away that I did not deal at length with this point, purely because of the lateness of the hour. I made it quite clear to the right hon. Gentleman that the present system is unsatisfactory. I made the point, particularly, that had it been as simple as introducing a form of words including the word "reasonable" it would have been done by the right hon. Gentleman's Government a long time ago, but it is not capable of being dealt with in that way. The proposed words relating to expenditure on entertaining foreign customers will give the Revenue certain limited additional powers of inquiry which will be of some help in the limited field of entertaining of that kind.

I am not saying, and it would be inconsistent with what I previously said if I did, that this form of words stops all kinds of abuse. I go further and say that we hope that there will be no abuse. If expenditure in this field is abused we will be compelled to do in the matter of entertaining foreign customers what we are compelled to do about entertaining domestic customers.

Mr. Heath

I thank the Chief Secretary for that explanation. On the advice which I am given, and on my reading, the words of a kind and on a scale which is reasonable having regard to all circumstances do not give the Government limited access to information. This House gives them everything they require to control this expenditure. It may well be that the judgment will be challenged. Every judgment of this kind that is made will be challenged. We accept that. At one moment the Chief Secretary gave the impression that it would be very difficult if a judgment were challenged. I do not accept that. This provision allows various standards to be laid down by those who enforce the law, and one would expect them to enforce it in such a way as not to allow the abuses which the hon. Gentleman cited.

I take it that this phrase gives the Revenue power to a considerable degree to see that there is no abuse in the entertaining of purchasers in this country. I would gladly provide stronger language if the Chief Secretary wants that. Presumably, if there is stronger language he would use it. I am prepared to give it to him in the context of overseas. The argument which I want to follow from this is that the Chancellor and the Chief Secretary have accepted the principle that, from the point of view of the conduct of business between nations, entertainment of a kind and on a scale which is reasonable having regard to all the circumstances is justifiable. That must be the basic principle from which they work. I believe that what follows is that entertainment of a kind and on a scale which is reasonable having regard to all the circumstances is also justifiable in business inside a nation. My hon. and right hon. Friends have given many examples of the way in which this is carried on—in a way which is essential to the business. We could give many examples from our own personal experience in business. The Chief Secretary has not explained why he cannot use powers to prevent abuses in trade within this country which are to be used to prevent abuses in respect of customers coming to this country. That is the crux of the matter.

We all recognise that there are great emotional attachments to the question of expenses, but I hope that we can consider seriously why the same effective method cannot be used to ensure that those who are justified in having expenses allowed for business can have them allowed inside this country. The Chancellor could very well take the view that, having got this method of dealing with those coming to this country, he could use the same method for dealing with those at home and yet prevent the obvious abuse about which he spoke. That is the crux of the matter.

I had hoped that the Chief Secretary would take the view which the Financial Secretary took on Clause 13, for the Financial Secretary took a practical approach to the question of covenants and admitted that there are cases in the professions in which covenants are justified. He intends to see whether there can be a form of words in the Bill to allow them to continue. But he could not accept the view that he should go wider in the personal cases. That was a practical approach.

The Chancellor has been anxious to impress upon the country that he does not wish his administration, in the Exchequer or generally, to be regarded as anti-business. This is a wise approach of which the First Secretary would approve. The adoption of my proposal would do much to show that the Administration is not anti-business, but is prepared to approach the problem in a more practical way to meet the genuine requirements of business, while preventing abuse.

I hope that the Chancellor, who has given personal attention to this matter, will look at the situation in the light of the Amendment. We accept that he is doing his utmost to prevent abuse in the entertainment of customers coming to this country and that he would be fully entitled to do the same in respect of business and commerce inside the country. I hope that he and his colleagues will adopt the same approach as the Financial Secretary adopted in the question of covenants for professional men.

2.45 a.m.

Mr. Hugh Jenkins

I intend to make a short general point and then to reply to the rather scatter-brained but virulent attack made on me earlier by the hon. Member for Exeter (Sir Rolf Dudley Williams), who, I am sorry to say, has left the Chamber.

It is surprisingly difficult to draw a line between courtesy and corruption. It is legitimate, proper and reasonable that business people conducting relationships with each other should from time to time extend the courtesy of entertaining each other. We have common ground there. Taking it to the other extreme, the Chief Secretary has given examples in which this courtesy has been taken to a point approaching corruption, although it was legal. The expenditure of money on that scale cannot be justified morally, even if it was legal. We cannot justify expenditure on that scale being carried out not only at the expense of the organisation concerned but also, at least in part, at the expense of the community.

This is the point at which the necessity for altering the law comes about. What the Government are seeking to do in this Clause is to ensure that if a firm, an organisation, or an individual decides that it is necessary for entertainment to be given, the cost of it shall fall on that organisation or individual and not on the nation. Hon. Members opposite are trying to confuse the issue by claiming that entertaining is itself being excluded.

I have been attacked; it has been said that I have accepted, in my professional experience, entertainment from television companies. It may be that, accustomed to the looser standards of the business world, the hon. Member for Exeter was entitled to believe that, but I can say that, during the 15 years I have spent in the entertainment business, I have never accepted favours from employers, and particularly not television employers.

So far as Equity is concerned, it is a rule we have always followed. We may sometimes give entertainment, but when we do it is paid for from the subscriptions of our members. There are organisations which have their own standards and do not exploit to the full all the legal possibilities. There are organisations which believe that it is improper for their officials to place themselves under any obligation to another person. The Government are merely trying to tighten up standards in the business world.

Dame Patricia Hornsby-Smith

Is the hon. Member seriously suggesting that no member of Equity, if he happened to be in the studio—and he has completely turned round the point which my hon. Friend the Member for Exeter (Sir Rolf Dudley Williams) made—would not accept any hospitality that might be offered? Does the hon. Member seriously suggest that if he was in a studio for five or six hours he would never do that? If that is what he is asking the Committee to believe then it just does not make sense.

Mr. Jenkins

The right hon. Lady seems to think that I am an actor, but I would say that the hon. Member for Exeter is more skilled in that art than I am. I am a trade union official and so far as the trade unions are concerned, officials maintain their independence and do not accept entertainment from employers.

The other attacks made upon me—although the hon. Gentleman may not appreciate the fact—were really compliments in that he seemed to suppose that I was in a position to influence the course of Government action and that I had had something to do with this Clause of the Bill. I am delighted to believe it is thought that I have that sort of authority. If I had, I would say there are other ways in which one would try to influence the Government rather than through this particular Clause.

You have been very kind, Sir Samuel, in allowing me to reply to the attack made upon me. I have for a few minutes escaped from the Amendment, but to sum up, I would say this. The Government are trying to stop up a nasty leak, trying to draw the line between what is legitimate and what is not. Hon. Members opposite have been doing their best to prevent them.

There is a difference between the exchange of hospitality between companies or businessmen at home and expenditure on entertaining an overseas guest. The point the Government make here, indirectly if not directly, is that the nation which helps to meet the charge should derive some benefit from it. If a businessman entertains an overseas visitor, it is quite possible that the country as a whole will derive a benefit from the result of the entertainment. Therefore, an exception is made in that case. This is the point. It has not been made hitherto, and it is time that it was.

Sir P. Roberts

If passed, the Amendment would loosen the powers which the Inland Revenue has on normal Schedule D and E cases. There is no doubt about that. Hon. Members opposite who were getting so excited a little while ago make a valid point: obviously, we accept that the Clause as it stands would be weakened. I am sure that, if the principle of the Amendment is accepted, we should be prepared to consider the possibility of putting in tighter words later, if necessary. Let us have that clear. There is no doubt what the Clause would mean, if amended.

I should not encourage my right hon. Friend the Member for Bexley (Mr. Heath) to put teeth into the Clause as it stands in respect of overseas customers. I understood him to say that he might be prepared to consider putting teeth into the words at a later stage, but it would be most unwise to do that, with the Clause as it now stands, and it would be going further than the Government themselves wish to go. There has been some confusion about that, and that it ought to be cleared up.

We have not yet discussed the real crux of the debate. The hon. Member for Putney (Mr. Hugh Jenkins) spoke about doing something to stop abuses—[Interruption.] Sir Samuel, the hon. Member who is almost undressed and just outside the Committee is talking in such a loud voice that I can hardly hear myself speak. If he is to come in in that state of sartorial disorder, he should at least keep quiet. [HON. MEMBERS: "Get on with it."] I am trying to address you, Sir Samuel. I was so much interrupted by the noise on my left—[Interruption.]—that I could not——

Sir D. Glover

Other Members making a noise are outside the Committee, too.

The Deputy-Chairman

Order. I hope that hon. Members will allow speeches to be heard without so much comment from both sides.

Sir P. Roberts

It is very difficult to do what the Government are trying to do, that is, to make it easier to control the so-called abuses. It is not fully realised that we are here talking about a form of entertainment which is allowed in respect of staff but not allowed in respect of a guest. I hope that the Chief Secretary realises what is in his own Bill.

I take the example of a workmen's canteen in which, say, 1,000 workmen eat each day. The manager brings in a guest. What will the procedure be? I want enlightenment about this. The difficulty and novelty of so many provisions in the Bill is such that we almost want instruction. I hope that the Committee will bear with me because we must try to get this clear. If we have the case of one guest among a thousand people in a canteen, I assume a record will have to be kept, a ticket given to the company accountant and at the end of the year the auditor will have to go through it all and the matter will go to the inspector of taxes. Just think of the difficulties that will arise to effect the control the Chancellor wants.

The problem is that one will now have to differentiate between what is wholly necessary or not; there will be a new distinction between guests and employees which will be far more difficult to do and will raise far more problems. The Chief Secretary did not deal with this. Unfortunately, at this time of night, we must take it, but, nevertheless, a large number of people in business want an answer.

If the inspector of taxes does not take the word of the auditor, the book work will be fantastic. The hon. Gentleman did not apply his mind to this aspect. How does he think this system will be instituted without vastly increasing the Inland Revenue and without companies vastly increasing their accounting staffs? Then there is the question of travelling in cars. Suppose a man travelling in his firm's car gives a lift to a friend. What the Chancellor wants to do will cause enormous problems. In a later Amendment a limit is suggested. Unless the Government put some limit to the enormous number of pieces of paper that will be involved, the system will be unworkable.

Another question concerns definition of an overseas customer. The Bill contains such a definition, but no Amendments have been put down to that. However, this Amendment deals with overseas customers. We must define an overseas customer more clearly. Let us take the case of an American company with a subsidiary here. [Interruption.]

On a point of order, Sir Samuel. I am constantly being interrupted by an hon. Member with his feet up, who is talking with the sartorially undressed hon. Gentleman. I cannot hear what I am saying. They are outside the Committee.

The Deputy-Chairman

I hope that hon. Members both inside and outside the Committee will be quiet enough to allow other hon. Members to be heard.

Mr. Robert Cooke

Further to that point of order, Sir Samuel. A Minister of the Crown is lying partially dressed outside the Committee. That is where the trouble is.

The Deputy-Chairman

That is not a point of order. I have already dealt with the matter and I do not need the help of the hon. Member for Bristol, West (Mr. Robert Cooke) to apply them.

Sir P. Roberts

Although the clothes of the hon. Member do not upset me, Sir Samuel, he is outside the Committee and should keep quiet.

The Deputy-Chairman

I have dealt with that point and I hope that the hon. Member for Sheffield, Heeley (Sir P. Roberts) will get on with his speech.

Sir P. Roberts

I will not be drawn. I sat on the benches opposite a long time, and through many Finance Bills. I hope that the Government will notice this. If Government supporters want to delay business, I do not think that they are well advised. I am being interrupted, Dr. King, by hon. Members opposite who are sitting in their seats, who have not caught your eye and who are making it difficult for me to make my speech at this time of night. I ask for your protection, Dr. King. This side of the Committee is perfectly quiet.

3.0 a.m.

The Chairman

My predecessor in the Chair just now asked hon. Members to listen to the hon. Member who was speaking and I repeat the request. This, after all, is a place where one hears things of which one disapproves. That is what Parliament is about.

Sir P. Roberts

I am obliged, Dr. King.

Mr. William Hamling (Woolwich, West)

On a point of order, Dr. King. The hon. Member was threatening us on this side of the Committee.

The Chairman

That is not a point of order. I did not imagine that the hon. Member was issuing threats.

Sir P. Roberts

If I wanted to threaten the hon. Member, he would know that I was doing it.

Hon. Members

Big stick.

Sir P. Roberts

If, after those interruptions, I may be allowed to come back to the point I was trying to make, I was dealing with an American parent company with a wholly-owned British subsidiary. The British subsidiary company, let us say, has one of the grouse moors or one of the big entertaining establishments which is paid for, so to speak, from the profits of the British company. If the owners of the American company come over to their subsidiary and if they bring their friends over with them, will they be customers? They may not have the entire shareholding. I see the difficulty, because this is one of the things which has always upset me when overseas companies come in and use lavish expeses against the British taxpayer.

We are catching a lot of things. Is the Chief Secretary satisfied that we are catching this one? I should like to see it caught. I am frightened that under the words of the Clause, those gentlemen will still be able to come over and have their recreation here at the expense of the British taxpayer. This is something that the hon. Gentleman should consider when looking at the definition of "overseas customer", because it is a loose definition of "customer". Even if the companies were limited in America or France, there might well be a loophole. I should like the hon. Gentleman to consider the question and to tell me, tonight if possible, whether I am wrong in my interpretation or whether there is no need for me to worry, because worry I do.

It must be made clear from this side that as a party we are not in favour of lavish expenses. Let me say—[Laughter.] It shows, Dr. King, the ignorance of hon. Members opposite who laugh. Let me tell them something else, because they look as if they are in a laughing mood. The average businessman who is any good, who is a good man and a good employer, does not like to see lavish expenditure either. [Interruption.] The ignorance on the benches opposite is appalling. Never mind, we have to put up with this degeneration in the Committee.

Mr. Raphael Tuck (Watford)

Is the hon. Member aware that the majority of the night clubs are said to exist on business expenses?

Sir P. Roberts

The hon. Member may have first-class knowledge of that. I certainly have not. If he can speak to us later in the debate and tell us of his experiences, we shall be interested. I should think that that was an entirely scurrilous statement.

The average businessman who goes overseas tries to win export orders, which we know the Left wing of the Labour Party is always trying to denigrate. Basically these people, on whom our exports depend, are as much in favour as my right hon. and hon. Friends, and the Chief Secretary, of ensuring that the abuses do not exist. That is part of their job. Admittedly, there are one or two offenders—a very small section of the business community—who abuse it, but from some of the remarks we have heard tonight from the other side of the Committee it seems to me that hon. Members opposite have a complete misapprehension of the keen desire which good business has to bring down business expenses. I personally am delighted to have any weapon which can help me, in the various companies with which I deal, to keep these expenses down to the minimum.

We have to remember two things. First, in the business world there is the idea of having to keep up with the Joneses, that if x spends so much one's company must do likewise or it will be thought to be bankrupt. Anything which can correct that is, to my mind, good. The second thing is that people who come from overseas to sell their goods in competition with our own goods have in the past been the people who have tended to push these expenses up. That ought to be watched as well.

I remember that during the war American soldiers with higher pay than our soldiers had could afford more than British soldiers could. That caused a certain amount of feeling, and we could get the same sort of thing in business circles if we do not watch out. The hon. Member opposite, with his arms stretched out, and his braces showing, astonished me. He seems to have little idea——

The Chairman

I hope that the hon. Member will keep to the subject we are discussing. A reasonable amount of interruption and comment ought to pass without his breaking into his own speech.

Sir P. Roberts

I am trying to make a speech, and, as you know, Dr. King, that area of the Committee is a little vocal. I look to you to protect me from it, and I hope that, if I can keep to my theme, I should not detain the Committee much longer.

Mr. Raphael Tuck

Ought the hon. Member to touch on the sartorial elegance of hon. Members on this side?

The Chairman

I hope that hon. Members on both sides will allow the Chair to look after order.

Sir P. Roberts

The point I am trying to make is that responsible business and politicians wish to see that this expenditure is kept down. It is only a small section—that is the point I am trying to get over—of the community who are leading the Government into this action.

Mr. Diamond

The hon. Member is making a sympathetic speech. He said that he, and many business people with responsibility similar to his own, want this level of expenditure to be kept down. He made it quite clear that in his view, which I share, the word "reasonable" will not do that. He made that clear at the start of his speech. Would he care to suggest how this level of expenditure is to be kept down?

Sir P. Roberts

I was referring to management in industry by itself. I do not think that the Government themselves can. This is one of the troubles, I think, that Socialists think that the Government have got to do this. I believe that industry itself must do it. It must be done by example, and done by lowering the idea of keeping up with the Joneses.

Basically, the principle which the Government are bringing in is one which good management welcomes. It is only bad management which does not. When hon. Members opposite jeer and shout about this, they must realise that really they are jeering and shouting about bad management, not good management. I hope that they will differentiate between the two. It seems to me they have got into the habit of supposing that all profits and all business must be attacked. That is what I very much deplore.

I conclude with points to which I should like an answer from the Minister. First, there is the question of the method of administration for the visitor and the employer; and, secondly, there is the question of overseas customers if they happen to be the overseas owners of British companies

Sir Spencer Summers (Aylesbury)

I wish to deal with the somewhat limited but vital point raised by my right hon. Friend the Member for Bexley (Mr. Heath), who drew attention to the fact that the Government were seeking to avoid abuse in connection with the entertainment of foreign persons. It is not correct to assert that the wording in lines 3 and 4 on page 9 of the Bill is weaker than the present arrangements affecting entertainment expenses.

The phrases "wholly and exclusively" in connection with Schedule D and "wholly, exclusively and necessarily" in connection with Schedule E still apply and, as I understand, are now reinforced. This is a genuine and, I suggest, welcome attempt on the part of the Government to strengthen the hands of the Revenue in dealing with improper claims for expenses.

I want to highlight one feature which seems to me to clinch the argument of my right hon. Friend. I call in aid the speech of the Chief Secretary. He said, in effect, that Government after Government had failed to do anything about this situation because the powers of the Revenue were such that if an expense were seen to be wholly in connection with business, the law precluded the Revenue from challenging it. My right hon. Friend said that one could not claim, "This is justified as a form of expenditure, and that is not" because if both were without question incurred in the course of business both of them must be allowed.

With this wording, the situation which my right hon. Friend described as being unsatisfactory to achieve the desired object is completely changed because the Revenue is now given the power to challenge the degree to which expenditure is incurred, even if it is wholly in the course of business. If the degree is on a scale which, in the judgment of the Revenue, is unreasonable having regard to all the circumstances, it can be thrown out, and if it is thrown out and the taxpayer so affected thinks the Revenue is unjustified in so doing he can go to the court about it.

The fact remains that with these words, for the first time, the degree to which it is justified is open to the Revenue to assert—a power which hitherto we have been told was lacking. Further, we have been told that that is the defect in the law as it is at present. I suggest that these words are strong and effective and will do the job adequately where an overseas buyer is concerned. I am prepared to believe that the Government would not tolerate them unless that were so; and, if that is so, surely there is every reason to permit their effectiveness to be tested in the home field also. Ministers sit shaking their heads, but they must choose which way they are going to have it.

Either the words will be of no use because they cannot stop abuse in the case of the overseas buyer, or else they will effectively stop it because they give new powers to the Revenue which it did not have before.

3.15 a.m.

Mr. Diamond

I dealt with precisely that point. The hon. Gentleman is trying to say that these additional words will solve the problem from the point of view of domestic entertainment. I have said that they will not. I repeat that they will not. I repeat that had it been possible for these words to have solved it they would have been introduced by previous Chancellors in former Governments.

I add again that they will be of some help in the limited sphere of overseas entertainment, so to speak, but if they are not adequate and if they do not serve the purpose, then we come back to the interesting suggestion which was made; that the only solution is the self-discipline of the firms themselves, and if that discipline is not exercised we will be compelled, as any Government would be, to treat the expenditure of entertainment costs from the overseas point of view in the way we are now treating domestic entertainment expenditure.

Sir S. Summers

It is totally insufficient for the hon. Gentleman to make assertions like that and expect us to believe that they are sufficient evidence to show that what he is saying is right. Nor is it convincing for him to say that if some fresh words would do the trick they would have been thought of before now. That is a completely unconvincing answer and about as futile as what some people say of modern improvements and inventions, "Why was it not thought of before?"

The hon. Gentleman evaded the point when he drew attention to the inadequacy of the present situation. After saying how impossible it was for the Revenue to challenge the degree to which such expenditure was justified and that these powers permitted the Revenue to challenge the degree, he said that they must, therefore, be not just a bit of help, but that the whole situation must be transformed. He must take my right hon. Friend's suggestion much more seriously than he has.

Mr. Miscampbell

The Chief Secretary said that my right hon. and learned Friend the Member for Wirral (Mr. Selwyn Lloyd) had said that he had tried to grapple with the problem we are discussing. Many of my hon. Friends and I have had the feeling throughout our discussion of this question that the Government are not really prepared to grapple with the problem.

It is difficult to accept that the Government are not able to find a form of words which would solve most of the difficulties which face us. My hon. Friend the Member for Aylesbury (Sir S. Summers) suggested that the words … on a scale which is reasonable having regard to all the circumstances would be sufficient. Be that as it may, what we are discussing—because it is agreed that entertainment will continue; we accept that it must necessarily and properly be used as a business means—is another impost upon industry. The trouble is that, to a large degree, industry will have to continue with this expenditure.

At this late hour I will not delay the Committee for long. It is difficult to understand why the Government wish to confine business entertainment expenditure to customers only. Are they not aware that in many instances foreigners come here on business and are not customers—people wishing to sell to us or to show us a patent or a new invention? Is an American or German who wishes to sell us something excluded? If so, why? What principle are the Government adopting?

I remember the occasion very well when, during his Budget statement, the Chancellor turned to his own back benchers and said, in effect, "If there is to be this entertainment, at least we need not pay for half of it" That has been touched on already by my hon. Friend the Member for Torquay (Sir F. Bennett), and it is very questionable whether it is true. If one looks at £100 of expenditure which takes place after we have Corporation Tax, if it is expended it is removed from the possibility of two things happening to it. It could have been given to the shareholders, in which case Income Tax would have been paid on it, or it could have been ploughed back into the business when, later, it would have become, if properly applied, a capital gain in the hands of someone.

It is questionable how much the Government will save at the end of the day. One must, therefore, ask why they should go to all the trouble of this exercise to try to stop perfectly proper legitimate business entertaining. The answer has been given—it is largely a political exercis——

Mr. Diamond

Let me repeat it once again. We are not trying to stop perfectly legitimate business expenses, to use the hon. Gentleman's words. We only want them to be taxed.

Mr. Miscampbell

I am obliged to the hon. Gentleman. But one comes back to the question: why are you trying to, if you accept that they are legitimate?

The Chairman

Order. The hon. Gentleman must address the Minister through the Chair.

Mr. Miscampbell

I do apologise, Dr. King. Why is it not the Government's purpose to try to make sure that this can be accepted as a proper business expense?

Perhaps I may turn from that point for a moment to deal briefly with something that has not yet been mentioned this evening. The Bill will not only inhibit ordinary entertaining, which has been discussed, but it will also inhibit the giving of small gifts, which has been common in business. Many of these gifts are diaries—we hon. Members get them from a business firm each year, with our names on. Why should this be stopped?

The Chairman

Order. Let me help the hon. Member. We have an Amendment dealing with that subject later.

Mr. Miscampbell

Thank you, Dr. King. I was only raising it at such a late hour because we manufacture diaries in Blackpool——

The Chairman

The fact that the hon. Member manufactures them in Blackpool does not put this part in order on this Amendment.

Mr. Miscampbell

I shall not trespass further, Dr. King, but will simply say that once again we have a situation in which the Government, quite regardless of the business health of the country, are prepared to put on firms a further impost simply to further their own particular political principles.

Mr. Stephen Hastings (Mid-Bedfordshire)

I want briefly to draw the Committee's attention to two points, both of which have regard to the distinction which the Government seek to make over entertainment in this country. I should like to cite the example of a recent export deal amounting to between £3 million and £4 million for this country. I believe that the purpose of this distinction is not just courtesy to overseas customers, as the Chief Secretary seemed to hint at—a hint that my right hon. Friend the Member for Bexley (Mr. Heath) picked up. The purpose of the distinction is exports. It is to sell. As my right hon. Friend said, this is absolute sense. It makes sense to this side, at least.

The deal I have in mind—a successful and, I think, important one—cost two years of effort. There was a great deal of entertaining in this country and elsewhere. I was myself involved. I assure any hon. Member who thinks that after two or three days of lunches and dinners to be kept up to almost this time of the night to argue the hardest aspects of a deal of this kind is no fun. It is a hard school and one is forced to take part in entertaining from time to time in the export trade.

The point I put to the Chief Secretary—if he can afford to listen for a few moments——

Mr. Diamond

I hope that the hon. Member will not misunderstand me. I have listened to every word he has said.

Mr. Hastings

I am glad to hear the hon. Gentleman say that. He had the aspect of reading as he held a paper in his hand.

The entertainment involved in this deal stretched over two years and consisted partly of entertaining people in this country who would not fall into the category of the Bill as overseas customers, but they were certainly buyers from overseas customers although they did not fit the descriptions laid down in the Bill. If it is not a matter simply of courtesy, but of export trade and balance of payments, it seems that this distinction is not valid. I should be glad to have the opinion of the Chief Secretary on that point if he addresses the Committee again.

The deal was in capital goods. With this distinction we would never have been able to offer those goods at the prices we did offer them and bring off the deal unless we were able to sell the same goods in this country, and aggressively. We would not have achieved that sort of sale without entertaining in precisely the same way as we entertained the people interested in export. In regard to the company I have in mind there is a range of capital goods of the greatest importance to this country for its balance of payments. There was no distinction whatever between what is done in this country and what is done with regard to the export trade.

If this distinction is not valid, what reason can there be for making it in the Bill? It is up to the Chief Secretary and all hon. and right hon. Members opposite to pay serious attention to this Amendment. I think that the Chief Secretary would agree that all the points that have been made from this side of the Committee have been serious ones and that this is not a filibuster. Without doubt, there are holes in this Clause and they have regard to business efficiency and exports—something with which I am daily concerned. I therefore hope that he will take very seriously not only the points I seek to make, but others which have been made.

Mr. Eldon Griffiths (Bury St. Edmunds)

I agree entirely with the Chief Secretary that the heart of this debate is very simple. It is not whether business entertainment is proper or improper, but whether or not it should be regarded as a legitimate cost of doing business and, therefore, allowed as a tax deduction. I am all for stamping out abuses in entertainment where there are abuses, and I agree that they exist, but the Chief Secretary did not convince me that the way of going about it that he suggested will succeed.

3.30 a.m.

The hon. Gentleman seemed to emphasise that the thing uppermost in his mind was whether or not it was going to be equitable. Was it going to be the same for everybody? A perfectly reasonable principle. But there is another point I would turn his attention to and that is: is it efficient? Will it help industry and exports? He did not touch upon that point at all.

I should declare an interest in the sense that I do not have an expense account and wish I did. For many years I did have one, as an editor of a very large and powerful news magazine. I used to have an entertainment allowance and I think it fair to say that I entertained many members of the present Government with that allowance. I used it very well and as a result I knew fairly well what was going on. Now I do not have an entertainment allowance I very seldom know what is going on, which is one of the penalties of leaving journalism and coming to the House of Commons. They key to the larder is lost.

In losing my own entertainment allowance I have not, as hon. Members opposite have, become envious of those who do have them. On the contrary, I recognise the usefulness that can and does occur in industry, farming and commerce from being able to deduct from Income Tax the reasonable costs of entertaining clients. There are abuses and hon. Gentlemen opposite love to wallow in them, but it is a gross libel on industry to suggest, as the Chancellor and Members opposite have done, that expense account entertaining is a big racket at the public's expense.

It is a lie to say that of the great majority of firms and the Chancellor knows it. The great majority of lunches, or whatever other entertainment there is, by firms and commercial travellers, are a useful contribution to the trade of those firms and I challenge the Chancellor to deny it.

One of the reasons expense accounts exist and have been allowed for tax deduction is that the general level of tax on our executives is far too high. It is not possible, under our present levels of taxation, to reward many executives, and trade union officials, for their hard work unless they are given some form of compensation additional to their taxed income. Some hon. Members pretended to be shocked at the idea that expense accounts are, in a sense, additional income, but they are being disingenuous. It happens; it is a fact of life in all sections of our society, in most countries of the modern world.

The businessman has his expense account, the miner has his free coal, the typist has her luncheon vouchers and the railwayman gets his free tickets—and so do Members of Parliament. These are perfectly normal, widely accepted and necessary costs of running a modern economy and if we are to be forced by a lot of Government Pecksniffian Puritans to give up these necessary expenses of doing business, then it is the economy that will suffer.

If the Chancellor does not believe that, he is simply not a man of the world. Until such time as we reduce overall levels of taxation on our executives we shall have to face the fact that business firms will seek to reward them for extra work by giving them some form of compensation other than their taxable income. We have to face this fact. If the Chancellor carries on every method will be taken to get round the law somehow. It is almost an invitation to new types of ingenuity in fighting this new kind of law.

Speaking of ingenuity, I wish to refer to the intervention of the hon. Member for Putney (Mr. Hugh Jenkins), who, I am sorry to see, is not here. The hon. Gentleman said that the real point about expenses was: who is to pay for them? Is it "them", he asked, or is it "us"? The hon. Gentleman got quite a cheer from hon. Members opposite when he said that. What did the hon. Gentleman mean by "us"? Presumably, he meant the Government. This was typical of the attitude of hon. Members opposite. The Government as such have no money of their own. They get it from the "them" the hon. Gentleman was talking about, the "them" being all of us as taxpayers. It was improper for the hon. Gentleman to ask, "Who pays—them, or us?", if the Government can stick their hands into the taxpayer's pocket at any time they like.

Mr. Arthur Palmer (Bristol, Central)

Surely my hon. Friend the Member for Putney (Mr. Hugh Jenkins) pointed out what is obvious. When he said "us", he meant the general body of taxpayers.

Mr. Griffiths

It may be that some taxpayers do not consider the present Government simply to be "us". They have different views. The hon. Member for Putney also spoke of a narrow line between courtesy and corruption. This is a very nice phrase. I have the impression, having entertained many hon. Members on both sides, that courtesy is what one receives and that corruption is regarded as what one gives. A very shady distinction is made there. It all depends which side of the table one is on.

I turn briefly to one specific group of people who are affected by the Clause, namely, journalists and correspondents. My hon. Friend the Member for Cardiff, North (Mr. Box) mentioned this point. Most of them—not all—have expense accounts. These expense accounts, in my experience, are rigorously checked and supervised. The probability is that as a result of the Clause these expenses will be either cut out or cut down; but apparently only for British journalists, not the American Press corps in London, nor he Germans, nor the French, nor even the Russians. The expense accounts will not be touched. This is perfectly reasonable—the British Government will tax only their own subjects.

It must be recognised that this change will do damage to the competitive position of the British Press in our own capital city. I know this from many years' experience as a journalist who has entertained politicians. Hon. Members who disagree with me might like to give me some practical evidence to show why I am wrong. If there is a choice between going to lunch at the Dorchester with an American correspondent who has a nice fat expense account, or going downstairs to the Members' Bar and having a pint of beer with a British correspondent, there is not a Member on the Government Front Bench or a member of the former Government who is not tempted to choose the Dorchester. The British Press will increasingly be placed at a disadvantage against their American colleagues in this country.

I turn a third and more basic arguement. As the law stands, reasonable entertainment of customers, clients or news sources is regarded as a legitimate cost of doing business. The Government recognise this. That is why they have left in entertainment of foreign customers. If it is a legitimate expense to entertain the foreign buyer, why is it not legitimate to do the same for the British buyer? If it is right to entertain Mr. Krupp, if he comes here from Germany, or someone from the United States, why is it wrong to entertain a man who comes down here from Scotland on business? The distinction does not make sense. These two things are not on all fours. It is discriminatory.

I was struck by a letter written recently by A. P. Herbert, in which he spoke of two publishers who were after a new book. One of them was an American. One was British. They were both after the same thing—the rights to publish his book. He asked this question: is he to have these two gentlemen round a table and the one from the United States on his left may be charged up as an expense because he is a foreign buyer, whereas the man sitting on his right-hand side is not to be charged up as an expense because he is a British buyer? The administrative difficulties are obvious.

It is simply not "on" to expect a person such as Herbert or any other businessman in this country to discriminate between the man who sits on his right hand and who comes from abroad, and the man who sits on his left at the same table and who happens to be British.

There is one great danger of abuse that will arise here, and it can perhaps best be expressed in an apocryphal story which I am told is already making the rounds. It is of the British businessman arriving at a factory in this country and not being introduced as "Mr. Diamond" but as "Herr Diamond", not as "Mr. Callaghan" but as "Monsieur Callaghan". One does have this sense among businessmen that a great deal of malarkey will be played along these lines.

A second anomaly will be the distinction between entertainment by directors or salesmen of private companies and that by Her Majesty's Ministers or their officials, the Armed Forces or ambassadorial posts abroad. I have received as a journalist, on many occasions, very lavish entertainment from the Government, whether at Lancaster House or whether in the form of brandy and cigars from the Army or the Royal Air Force, and the hon. Member for Ebbw Vale (Mr. Michael Foot) knows that this is true.

I have had the greatest hospitality from the nationalised industries, from British Railways, for example. One has splendid hospitality there—very few private firms have ever given me the kind of hospitality which I have received from British Railways, or from the National Coal Board or the Electricity Board. I thoroughly approve of it. They were selling their wares to me as a journalist, possibly for publicity in the United States, or for better understanding.

But what is the position now? Are Ministers to continue to entertain at the taxpayers' expense while businessmen are not allowed to do so? Are the nationalized industries to go on giving lunches and private industry be prevented from so doing? This is discriminatory, applying a double standard, one thing for the nationalised industries and another for the private sector of the economy.

It is part, I fear, of a growing legislation of envy. The trader who comes here and who is to do business with someone selling abroad is good—he can have lunch on the Chancellor. But the trader who is not doing business abroad is bad and must pay for himself. The customer from Nigeria or Communist China can have a tax-free lunch, but the customer from Wales or Bury St. Edmunds must go hungry or pay for it himself.

The Chancellor's aim in this Clause was clear from the beginning. He wanted a bit of cheap, spurious publicity. He poses as a sort of Robin Hood of the Government, taking away from the bloated expense account "wallahs" and giving it to the poor. I believe that it derives in the end from the Prime Minister's famous phrase that this is a vulgar country. Here is the phrase—they would take care of all this, sweep it away, there was not to be any more vulgarity and the reformers would arrive. That is what we have whenever we hear members of the Government. When the Prime Minister, in particular, is speaking about this question of vulgarity, we see this nasty, mean and envious streak coming out. We saw it from the Prime Minister on television the other evening; we hear echoes of it tonight and it is enshrined in this Clause.

I want very much to see the stamping out of abuses in expense accounts where they exist. I am quite sure that there is unity about that on both sides of the Committee, but I am also certain that by creating this distinction between the foreign buyer and the British buyer, and by using some of the language which has been used tonight, all that the Chancellor is doing is to add to the cost of doing business in this country and creating problems and evasions which will trouble the right hon. Gentleman for a long time to come.

3.45 a.m.

Mr. Hirst

The Chief Secretary, in his usual courteous way—and I do not remember his doing anything in any other way—has not been very effective. I remember a right hon. Gentleman of his party, who made speeches on foreign affairs, who, I found if I listened carefully for long enough, came back eventually to where he started. I rather think that of the Chief Secretary tonight. I am disappointed. I hope that we shall have greater clarity on this subject—I am glad to see the Chancellor here, in his usual grinning form.

We all know that what is behind this legislation is, "If we cannot all have an expense account nobody shall". A great deal of the expense to which reference has been made is ordinary business expenditure. It is not greatly abused. We have dealt with this abuse business—the grouse moors and the rest—and we are now down to brass tacks. Some hon. Members opposite do not like advertising, but it has to be accepted that it is an essential business expense. Unquestionably, for some people advertising takes the form of entertaining. Some professional people are not allowed to advertise in the accepted sense and they have a legitimate way of doing business by entertaining. It is part of their necessary function.

It is absurd to draw a distinction, if there is one—and my hon. Friend the Member for Nottingham, South (Mr. William Clark) made clear that there was not one—between the overseas customer and the home customer. But what about the agent? A large number of people in this country, though not as many as in some others, do their selling through representatives of foreign buyers who are ordinarily resident here and, therefore, are not people who can be legitimately stood a glass of beer. The agent is employed by a foreign firm and sits in London or wherever it may be to transact that firm's business. It makes a nonsense of things if, because that person does not flit across the Channel to and from Dover on the requisite number of days a year, he is not treated in the same way as a buyer from overseas. This proposal of the Chancellor's just will not work. That is the truth of the matter, and possibly we have spent too much time on this nonsense. If the Chancellor will allow him, I should like to have the Chief Secretary's attention particularly for my next point.

Mr. Eric Ogden (Liverpool, West Derby)

On a point of order. The Chief Secretary's inattention is my fault. The hon. Member for Shipley (Mr. Hirst) was speaking of an agent and I thought it proper to draw the attention of my hon. Friend and my right hon. Friend the Chancellor of the Exchequer to the fact that the position of the agent is dealt with in a later Clause and another Amendment.

Mr. Hirst

That is not a point of order. I am not accusing the Minister of discourtesy; I never do. But I had been making some very general remarks, to which he might not have wished to listen so closely, and I am about to make a point on which I want an answer. If I am wrong about it, I want to know, because if the Government will do nothing about it, I intend to put down an Amendment on Report to deal with it.

I am informed that a trade association is in a peculiar position. A trade association may entertain a foreign trade association or trade delegation, the purpose of whose visit is almost exclusively to promote trade. A very considerable trade association, such as the Federation of British Industries, which is soon to become a much bigger organisation, is quite often asked officially to do entertaining which otherwise would be done by the Government. Such an organisation does much to help promote trade, but I am informed that on the wording of the Bill—and my own quick glance at it confirms this view—a trade association in the sense in which the Bill is drafted is not a business carrying on trade and therefore even in the narrow—forgive the word—stupidity of the Clause it would not be allowed even to do what is legitimate for every firm, and that is to entertain a foreign customer.

I have a difficult and long-winded Amendment on the subject for Report, but I should like to know whether the right hon. Gentleman is seized of the point and is prepared to do something on behalf of the Government to put it right. Private enterprise on Report, as I know very well, is not very successful, and it is better for the Government to deal with these matters. I therefore hope that they will relieve me of the need of putting down my Amendment.

Mr. Robert Cooke

At this late hour I will not indulge in a long reply to some of the provocative interjections which have been made from the Government benches. I have never been a businessman, but I have been fairly close to business as a Member for a great commercial city for more than eight years and I have had plenty of experience of meeting people of one kind and another over meals. No doubt they were charged as expenses. There are, therefore, certain questions which I should like to put to the Minister. He could have saved himself this trouble by not rising to reply so prematurely, because there were two other hon. Members on their feet when he rose at the Box. I am flattered to see the Chancellor here. Perhaps he will be interested in some of the criticisms which I want to make of his proposals and in my support of the Amendment.

In making his case the Chief Secretary used some selected tax cases, although he did not reveal their identity. When my hon. Friends replied he said that they did not know the details of those cases. In other words, he tried to make his case by giving selected examples without being able to give the Committee the full details and without my hon. Friends having the facts on which to make a judgment. He was giving only half the picture and he was certainly using highly selective figures. Very little help was given to his argument as a result.

Much criticism has been made of the use of expense accounts to give meals to people in commerce, but I put it to the Chancellor that a meal can be, often is and no doubt always will be, a period for work in the world of business. The meal at which some sort of work does not take place is probably a waste of time. The Chancellor laughs, but if he looks at his own working day he will realise there are few days when he does not conduct some sort of business over a meal. Some days it may be only a sandwich, but it is his meal, and he will find he is conducting some business with one of his colleagues or a member of his staff. That is what these so-called expense account meals are all about.

I see that the hon. Member for Poplar (Mr. Mikardo) is in his place. I hope he will not leave the Chamber because I want to deal with him in a moment. [Interruption.] Lest I should be drawn prematurely into a series of exchanges with some hon. Members opposite, I will make my main point. The expense account meal is being attacked by this provision which my hon. Friends are seeking to amend; but it is a period of work. My hon. Friends have dealt with the various criticisms of the idea that meals for those from abroad should be exempt but that meals for those who live in this country should be caught.

If one seeks to do business with someone from a distant part of the United Kingdom one is unlikely to succeed without some sort of entertainment. The North-East could be an example. Hon. Members opposite have often painted the picture of the North-East as a depressed area which is in need of some sort of support, and if a business man went there to have a look at the place with a view to doing business it is unlikely that those in the North-East would have much success if at the end of his long journey he got nothing better than a curled up sandwich in a third-rate boarding house.

The Chancellor may laugh, but if he tried to get a business man from the North-East down to Cardiff he would not take him to a boarding house in Bute Town and give him any odd thing for a meal. He would take him to that rather nice little restaurant by the docks. That would not be gorgeous luxury, and when we hear that expression from the other side of the Committee hon. Members are talking of those people caught by the revenue. Many can be caught.

Sir D. Glover

The Chief Secretary cited four cases but was very careful not to say what activity those four firms were engaged in. Even under the Bill, if they were in the export business they would have to stand in a white sheet. It is not the amount of the expense that matters but the way in which it is incurred.

Mr. Cooke

I said that I would not speak for long. Many of the points have been made by my hon. Friends, but I felt that there were certain things which should be said by someone who could look at the matter impartially; someone not engaged in business himself but who has had connections with business men in a large city and who knows that business lunches are working periods; an experience very different from that of some hon. Members opposite, to whom I will come to in a moment.

4.0 a.m.

I come now to my last point. I shall make it moderately rather than create what one might describe as a flaming row at this hour of the morning, though there are some things I could say which would prolong the debate and cause a commotion. But we should look at the problem dispassionately. We have been provoked from the back benches opposite and from the Front Bench, with the Secretary of State for Education and Science suggesting to my hon. Friend the Member for Ormskirk (Sir D. Glover) that he should put his guests up in a comprehensive school in Bristol. What that had got to do with the argument I do not know.

We can draw only one conclusion from what the Government are doing, and all the sneers and sniggers we have heard from hon. Members opposite are proof enough that it is right. There is a political content in this. [HON. MEMBERS: "Hear, hear."] There is the case given away. For political reasons, hon. Members opposite feel that there is something here which must be cut down or destroyed. The Clause has been put in out of motives of envy.

The hon. Member for Poplar is still here. He will recall a speech he made on 26th February when he talked out a Bill called the Emoluments of Top Management Bill. He said that on every occasion when he came away from an expense account lunch there could be seen people sitting at tables at about a quarter to 4, after their fourth double brandy, saying that, of course, the only real way to progress was to make the workers give up their tea breaks. This idea that the world of commerce indulges itself in that way and makes that sort of remark is typical of the sort of attitude which hon. Members opposite adopted on that occasion. We had the forecast that something like this Clause would be in the Budget. Even the Minister on the Front Bench suggested that it would come.

I am left with the conclusion that hon. Members opposite see something here which is to be envied and, therefore, destroyed. I hope that the Chancellor will think carefully again and realise that by giving in to some of the more militant Socialistic forces on his side he may do real damage to the world of commerce on which his whole future and that of the country depends.

Mr. Ian Mikardo (Poplar)

On a point of order, Dr. King. May I ask for your guidance and seek your protection? At the beginning of his remarks, the hon. Member for Bristol, West (Mr. Robert Cooke) said that he would deal with me. Members of the Committee will recall that he did no such thing. I am very disappointed. Can you protect me, Dr. King, against being deprived of my pleasures in this way?

The Chairman

That was a fascinating point, but in no way was it a point of order.

Mr. Geoffrey Wilson

There is one point which has not had much attention but which may cause great difficulty in the implementation of the Clause. I refer to the definition of "overseas customer". I have two sons-in-law whose positions will serve to illustrate the problem. One is English, He is not ordinarily resident in this country. He is resident in India and not carrying on a trade in the United Kingdom. He manages a factory in India and, presumably, although the factory is a subsidiary of a British company, he would be an overseas customer entitled to entertainment under the Clause. The other is an Indian who is resident in this country and presumably would not be.

We shall get extraordinary anomalies out of this definition. It will cause a great deal of difficulty. Perhaps we can have an explanation of how it is proposed the definition shall be interpreted.

Mr. Buck

I should like the assistance of the Chief Secretary a little further on the definition of "overseas customers". Difficulty may arise under that definition. For instance, a German businessman living in Hamburg may be the director of a British company which trades overseas and also be involved in another company which could be said to be trading in the United Kingdom. We may have persons in this dual rôle, foreigners living abroad but in some capacity carrying on trade in the United Kingdom. I should be interested to hear from the hon. Member how such a problem is likely to be dealt with and how he sees the definition of "overseas customer".

Sir D. Glover

I do not apologise for speaking again in this debate. I believe we are in danger of doing great damage to British commerce. I believe the Chancellor and the Chief Secretary have set out to do something on which there is no hostility between the two sides as to aim. There are views on entertainment. I think abuse is far less than the Chancellor thinks. But I do not think that this Clause, unamended, will stop the abuse where it takes place.

This is, perhaps, the fundamental problem. The Clause is putting a heavier burden not on the large international companies but on the small developing companies, on the individual traveller. The Chief Secretary never answered the problem of the individual traveller who is perhaps working partly on salary and partly on commission and not earning a great deal of money but whose legitimate expenses are now to be grossed up with his income and made subject to tax. These problems are genuine.

The Chancellor's attitude is that the Committee not being in favour of adultery he is going to do away with adultery by abolishing marriage. This all-enveloping thing is doing virtually that.

I am not asking the Chancellor to take out the Clause, because he is committed to it. What I ask him to do. perhaps not tonight, but before Report, is to see whether he cannot bring in something on the lines of what he brought in for the overseas buyer to cover the small independent trader and particularly the commercial traveller. If he brought in a Clause to cover that on the same basis as the overseas buyer, I should not mind if he specified a maximum figure of, say, £1 or so a day. If he does not do that, he will cause a serious burden to a responsible and respectable element of the population and one in which there is no outlet for them. There is no other way for them to overcome the problem.

I shall not delay the Committee at this hour. The Chief Secretary did not reply to this real and serious problem. I never know when the hon. Gentleman nods his head whether he means that he agrees with me or the opposite. The Chancellor is ignoring this. If his wording for the overseas buyer applied to the home buyer, I think that he would find that it would cut out 90 per cent. of what he now regards as abuse. It would give the Inland Revenue the opportunity of saying, "Glover, Smith, justify these expenses. Why did you have to spend £20 on this? "The right hon. Gentleman can do it for the overseas buyer. I think that he can do it for the home buyer.

Before the Chancellor disrupts the whole basis of our commercial life, which has grown up over many years, will he try bringing in a Clause to apply to the home buyer that he is bringing in for the overseas buyer? If he finds that it does not work, he can come back to the House of Commons. We are not talking about thousands of millions of £s. Once the Chancellor has brought in the Clause, he will bring a far greater weight of hardship upon those who have never abused the entertainment arrangements and who have no redress under the Bill. I ask the right hon. Gentleman to reconsider the matter before Report.

The Parliamentary Secretary to the Treasury (Mr. Edward Short) rose in his place and claimed to move, That the Question be now put.

Question, That the Question be now put, put and agreed to.

Question, That the words proposed to be left out, to "being" in line 3, stand part of the Clause, put accordingly and agreed to.

Mr. James Scott-Hopkins (Cornwall, North)

I beg to move Amendment No. 41, in page 9, line 3, after "person", to insert: or of a customer of that person at a trade exhibition or agricultural show

The Deputy-Chairman (Sir Samuel Storey)

With this Amendment, we can discuss the following Amendments:

Amendment No. 108, in line 39, leave out from "himself" to "of" in line 41.

Amendment No. 107, in line 44, leave out from "who" to "is" in line 45.

Amendment No. 42, in page 10, line 4, at end insert: (c) any person who is the agent for an overseas customer within paragraph (a) of this subsection.

Mr. Scott-Hopkins

Thank you, Sir Samuel. As the Committee will realise, the Amendment concerns a much narrower point than the Amendments we have been discussing. [Interruption.] It concerns—[HON. MEMBERS: "Speak up.] If hon. Members opposite did not talk so much among themselves they could hear.

The Deputy-Chairman

Order. I hope that hon. Members will allow speeches to be heard.

Mr. Scott-Hopkins

Thank you, Sir Samuel.

The Amendment concerns particularly agricultural shows, which, as the Chancellor will realise, are part of the window of the countryside and are extremely important for the agriculture industry. The Amendment includes also trade exhibitions which have the same effect for industry. At agricultural shows a great many firms have their goods on display and entertain their customers there while in the process of selling their goods. I am asking the Chancellor for only a small concession here. One wants to see these agricultural shows continue, and it is only on the basis I have described that to a large extent they are kept going in our countryside. That is my first point.

4.15 a.m.

The second point to which I want to draw the Committee's attention is an anomaly which could easily arise. At these agricultural shows we have farmers from abroad. One could, for instance, have three farmers from Belgium who would go into one of the exhibition tents and there be entertained, and one could, presumably, say that the expense of the entertainment is legally allowed. Straight behind them come three British farmers, but the expense of entertaining them would not be deductible. So the Clause will create an anomaly.

The Amendment would help to keep the agricultural shows going, and it would also make the administration of the Clause more possible if this small concession were made to agricultural shows and trade exhibitions. I do not think it would harm the principle of the Clause or do any damage, or breach the principle the Chancellor is trying to establish. On the contrary, it would be of value to those who care about keeping our agricultural shows going, and would be of value to trade exhibitions. I hope that the Amendment will be accepted.

Mr. Diamond

I do not think I can advise the Committee to accept this Amendment. There is really no valid distinction between entertaining at one place and at another. To claim that it is permissible and deductible for Income Tax purposes to entertain a person at the Empire Exhibition, for example, but not permissible or deductible to entertain that person at a restaurant is really to claim a distinction which is completely invalid. I am sorry, but I cannot recommend the Committee to accept the Amendment.

Amendment negatived.

Mr. Hirst

I beg to move Amendment No. 113, in page 10, line 20, at the end to insert: (9) This section shall not apply to advertising calendars or advertising diaries supplied by firms and companies to their customers and to potential customers.

The Deputy-Chairman

It will be in order also to discuss Amendment No. 303, in page 10, line 20, at end insert: (9) This section shall not apply to the provision by any person of an article bearing a clear and permanent advertisement and not exceeding £3 in value.

Mr. Hirst

This is a quite small Amendment, but it has considerable significance. It arises out of the fact that entertainment, by definition, includes gifts of various kinds, and although there are many other examples which could be advanced with equal force, I am raising the question of advertising calendars, diaries and such like. As we all know, it is customary among a large number of firms to order calendars and advertising diaries in considerable quantities and to send them out at Christmas as gifts, and that this is a quite important matter to some industries.

I have here one of the letters which, no doubt, other hon. Members have received. It is from the Master Printers' Alliance. I will quote a short extract from it, because it is so often the case that a quotation can make a point in shorter time than a speech. It says: This Alliance, no less than the trade unions, is gravely concerned at the threat to security of employment owing to the serious loss of business in the general printing industry presented by Clause 14 of the Finance (No. 2) Bill. Under this Clause no deduction may be made in computing profits chargeable to tax for any expenses incurred in providing business entertainment, including gifts, and we are advised that advertising calendars and advertising diaries would be regarded as gifts and would not come within the scope of the exemption for certain advertising matter provided in sub-clause 14 (8). I underline that because, if the Chief Secretary can assure the Committee that they could come under Clause 14(8), a great deal of trouble would be removed. Millions of advertising calendars and diaries are purchased for distribution. Therefore, this is a very serious matter. I have no interest in the printing or publishing of calendars, or anything like that, but I take an interest in a matter of major importance to the industry which affects the employment of a vast number of people. I trust the hon. Gentleman will give some satisfaction on this point.

Mr. Diamond

I am afraid that for reasons which I am going to put to the Committee I cannot find myself persuaded by what the hon. Member for Shipley (Mr. Hirst) has said.

Let me be quite clear. These articles do not rank as gifts manufactured by the particular taxpayer in question, goods bearing his own name, which would rank as advertising expenditure. These diaries, in general, would be gifts which are excluded by the Clause, and the difficulty is that a diary is sometimes quite an expensive article. There are many diaries which cost £2, £2 10s., and £3 a time—the price of a bottle of whisky—and there is no distinction between making a gift which is a bottle of whisky and a gift which is a diary. One cannot draw a line.

One has considered this Amendment very sympathetically, but no line can be drawn. I am afraid, therefore, that I must tell the Committee that as this is logically part of the exclusion and there is no administrative way of distinguishing between what is one kind of gift and another kind of gift, I cannot recommend the Committee to accept the Amendment.

Mr. Box

In supporting the Amendment, I ask the Chief Secretary to give some further elucidation of his argument about the word "gift".

I should also like to bring another aspect of the matter to his attention. I refer to Amendment No. 303, which seeks to exclude articles bearing advertisement matter to the value of £3. Hon. Members will be familiar with various small articles bearing advertisements. I refer to things like pencils, pens, ashtrays, cocktail mats, drink trays, car key rings, road maps, car cleaning sets, rulers, brushes, shoe horns and similar items.

I have here one very good example which has been lent to me by a colleague and which shows how ridiculous things can get. It is a thermometer supplied by a very well-known firm in Ireland and describes the best temperature and condition for drinking Guinness. I hasten to assure hon. Members that between the high and low temperatures there is plenty of scope. Surely if the Chancellor intends to include items of this nature we are getting into rather a ludicrous state.

It seems to me that if these are to be regarded as gifts and liable to taxation we shall damage the advertising industry. We shall hurt the manufacturers, because I imagine that there are manufacturers who specialise in the production of these articles and we may cause a certain amount of unemployment if their orders are drastically reduced.

I cannot believe that the Chancellor is so small minded that he really wishes to catch items of this description. I hope, therefore, that the Chief Secretary will, on behalf of his right hon. Friend, agree to accept the Amendment and also agree to exclude items up to £3.

Mr. Buck

I was surprised to hear the Chief Secretary say, even at 4.45 in the morning, that there was no difference between a bottle of whisky and a diary. Diaries, calendars and the other items mentioned by my hon. Friends are obviously clearly different from the other items mentioned by the Chief Secretary. They are especially different since they are so nearly akin to advertising material.

A calendar is given to someone. It is placed on the wall in his home or place of business, and as the months pass he turns the pages to find another picture and another advertisement showing the merits of the firm which presented the calendar to him. The same applies to a diary, only more so, because it may be carried on the person and referred to more regularly. This is obviously advertising material and completely different from other types of gifts.

Many people in my constituency are undoubtedly employed in the manufacture of these articles. It will be a grave blow to them, as well as to the printing industry and art workers who deal in diaries and calendars. In this connection, will it be permissible, under the Bill as drafted, for firms to send diaries, calendars and like gifts to prospective customers abroad? I ask this because subsection (2) refers to "entertainment" but not "business entertainment." The latter phrase has been described in the broad sense and I understand that it would include such gifts, but I would like to know.

I hope that we will be given an assurance that gifts such as diaries and calendars may be sent to potential customers abroad. This is not a light matter. I fear that it may affect a number of my constituents and I hope that the Government will have second thoughts on the subject.

Mr. Diamond

The hon. Gentleman will be glad to know that I am advised that the provision means that it is perfectly permissible to deduct for tax purposes the expenditure of sending diaries of this kind to customers abroad.

4.30 a.m.

Mr. Hirst

The Chief Secretary has not been forthcoming on my Amendment, and I want him to have clearly in mind that many of these calendars and diaries are printed and the pictures for them obtained a long time ahead. We have had this argument before when we have discussed Christmas cards in Finance Bill debates, so it is not a "phoney" point. Many firms place orders for thousands of pictures and other component parts of calendars, and it will make a great deal of difference to them if this fairly expensive type of advertising is to be made almost impossible by not being regarded as an ordinary business expenditure like any other form of advertising. That should be kept in mind.

I am not very impressed by Her Majesty's Government, as everyone knows, but I do not want them to look sillier than is necessary, and how silly will they look if we have to get down to this sort of thing with calendars and diaries? We cannot hope to maintain reasonable decency in this regard, and have the respect of the people, if the Government are to be so crassly stupid as this. I ask the Government to try to rescue themselves from this ludicrous position before the Report stage.

Sir D. Glover

There is no doubt at all that a calendar is a form of advertising. If we send it to our customers it is, presumably, a gift, and it would not, therefore, be allowable as a business expense. But if we send our calendars to our customers and also to 1,000 potential customers it is an advertising campaign. In that case, would it escape tax? One is not just sending it to one's customers as a reward for faithful service, but to a large number of potential customers to bring one's name to their attention.

Mr. Box

The Chief Secretary has made no attempt to deal with my question about small gifts. Will he say "Yea" or "Nay" whether these petty items are to be subject to tax under this Clause? Are such things as pencils and Biro pens to be subject to this tax?

Mr. Diamond

The hon. Gentleman is quite right—I did not deal with his Amendment, which went wider than the previous one and dealt with items not exceeding £3 in value. By his Amendment, instead of giving one bottle of whisky one could give a case, because the value of each item would be less than £3. One could send five cases to each customer, if that were desired. That is something that one obviously cannot contemplate at the moment.

Amendment negatived.

The Deputy Chairman

I am of the opinion that the principle of the Clause and matters arising therefrom have been adequately discussed on the Amendments, and I therefore propose to put forthwith the Question, That the Clause stand part of the Bill.

Question, That the Clause stand part of the Bill, put and agreed to.

Clause ordered to stand part of the Bill.

Clause 15 ordered to stand part of the Bill.

Mr. James Callaghan

I beg to move, That the Chairman do report Progress, and ask leave to sit again.

We have made some progress, Sir Samuel, and I am very glad to move this Motion. For some of us it seems a very long time since we had the last Division, but never mind, we have reached the end of our labours for the evening.

Question put and agreed to.

Committee report Progress; to sit again upon Monday next.