FINANCE BILL

HC Deb 13 July 1966 vol 731 cc1467-641

As amended, further considered.

3.43 p.m.

Mr. Speaker

Before I call the hon. Member for Wanstead and Woodford (Mr. Patrick Jenkin) to move Amendment No. 102, it might be helpful to the House if I announce that I have slightly revised my selection of Amendments for today, having heard representations from the Opposition.

Amendment No. 24 is now selected and Amendment No. 63 is now not selected. Otherwise, the selection stands exactly as yesterday.

Clause 28.—(DIVIDENDS PAID OUT OF PRE-1966–67 PROFITS.)

Mr. Patrick Jerkin (Wanstead and Woodford)

I beg to move Amendment No. 102, in page 29, line 21, at the end to insert: Provided that this subsection shall not apply to dividends received in the year 1965–66 from a subsidiary company which had suffered a loss in the year 1965–66 as computed for the purposes of corporation tax to the extent that such dividends are not in excess of the amount of such loss, and further provided that the amount of one year surplus accruing to the first-mentioned company by reason of such dividend shall be reduced by any three-year surplus attributable to the subsidiary company. With this Amendment, and the Clause which it seeks to amend, we come to what I am sure all hon. Members regard as one of the most complex pieces of tax legislation that the House has ever had to consider. This part of the Bill deals with the one-year and three-year surplus transitional provisions, covering the taxation of pre-Corporation Tax profits, and the Clause makes amendments to the Sections and Schedules of last year's Finance Act.

In Committee, I was critical, I believe rightly so, of the Government's incompetence in having forced the legislation through last year at such a pace that the Parliamentary draftsmen unwittingly perpetrated what was a monumental miscalculation. We have since been told that this resulted in £100 million of relief which was not intended to be given. I will not reiterate those criticisms, except to say that the Government should be under no illusion at all as to the irritation and annoyance that this has created among those groups of companies which are affected. I will only refer the Chief Secretary to the remarks made by the Chairman of the Rio Tinto Company, if the right hon. Gentleman needs any evidence.

In particular, I refute the statement made in Committee by the hon. Member for Orpington (Mr. Lubbock), who referred to "synthetic indignation" expressed by hon. Members of the Conservative Party. That was absolute nonsense. The hon. Gentleman's statement was not justified in any way. The indignation expressed by those taxpayers who have been affected by this change in the law amounts to nothing less than a sense of outrage, since the relief to which they thought they were entitled has been greatly curtailed.

I begin with the assertion that the curtailing, in a sense retrospectively—although I appreciate the point made in the Clause—of this relief imposes on the Government a duty to make absolutely certain that the withdrawal of the relief goes no further than is necessary. This and a number of other Amendments attempt to deal with the problem where we feel that it is going further than is necessary and I trust that the Government will listen sympathetically to the case that I intend to make.

In his Budget Statement, in May, the Chancellor referred to the withdrawal of this relief given by the Finance Act, 1965, and he mentioned that the profits of subsidiaries and dividends were to be disallowed from qualifying for relief if they would have borne Corporation Tax. A number of people thereupon assumed that it was only in respect of such profits of those subsidiaries on which dividends had been paid that the relief would be withdrawn. In Committee we moved a number of Amendments aimed at that, but having heard what the Chief Secretary said on that occasion, and having since received a helpful letter from him, it is now apparent that the Chancellor's remarks were, to say the least, somewhat misleading. The withdrawal of the relief is apparently intended to go a great deal further than we thought and the question of chargeability to Corporation Tax of the subsidiary's profits is really no test at all.

I will deal, first, with the one-year surplus. The purpose of Section 85 is apparently confined to cases where the profits earned in 1965–66 were charged to Income Tax and Profits Tax. It is argued, therefore, that it is only in those circumstances—where there was an actual charge to Income Tax on profits for that year—that it is intended that the relief should operate and that it has nothing whatever to do with the fact that they have been charged to Corporation Tax.

The Chief Secretary said in his letter— and with this I am bound to agree—that it would not be right to give to groups of companies any greater relief under Section 85 than is available to a company trading on its own as a single company. I fully concede that this is a principle which it appears right to observe, but I add a gloss, which is that it should be "so far as comparable". The burden of the Amendment, and a number of others which will follow it, is that groups of companies, particularly when dealing with the distribution policy of subsidiaries in groups of companies are not comparable with companies trading on their own; and that, in certain circumstances, events may have happened which would make it a matter of justice that the withdrawal of the relief affected by the Clause should be modified to take into account the fact that groups of companies have different circumstances applying to them.

The Amendment deals with the case where a subsidiary has made a loss in 1965–66 and has paid a dividend out of of its pre-1965–66 profits. I concede straight away that this, by itself—were it a single company trading on its own —would not qualify it for the one-year surplus, but it does not follow that this is necessarily right in the treatment of a group. A single company in these circumstances would almost certainly, if it remained in being, qualify for the threeyear surplus, which is calculated in an entirely different way, as the Chief Secretary appreciates. I need not go into the details of this, except to say that, basically, it is where the dividends of 1966–69 exceed the distributable profits for the years 1967–68.

This is not necessarily so with a member of a group. There, the distribution policy will be governed by the parent's policy. The parent will deter- mine what distribution to expect from its subsidiaries on the basis of the requirements of the group as a whole, but the fact is that the dividends in the past from a subsidiary may have been so great that there is now no possibility of that subsidiary qualifying for the three-year surplus; that is to say, it may have no past profits out of which to pay future dividends in excess of its own future profits. Therefore, in such a case only the one-year surplus is available. It was available to the parent under the 1965 Act, and it has now been withdrawn.

The Amendment deals with the case where the subsidiary has suffered a loss in 1965–66, and its intention is to give the relief up to the amount, but not exceeding the amount, of that loss. The Amendment provides, as I am sure the Chief Secretary has appreciated, the safeguard for the Revenue—so as to make the Amendment, I hope, more acceptable to the Revenue. If by any chance I am wrong, and the subsidiary will still in some way qualify for the three-year surplus, although I have indicated circumstances where it could not, there is the further proviso in the last three lines that if the subsidiary later became entitled to the three-year surplus it would operate to reduce the one-year surplus receivable by the holding company.

The point of this Amendment and of one or two other Amendments, is that groups of companies are different in kind from and not comparable in all respects with the single company, and it would be wrong in those circumstances to ignore all inter-company dividends, which the Clause does. I think that this is a case where relief ought to be available, and the Amendment provides a suitable safeguard.

I hope that in those circumstances the Chief Secretary will regard it as acceptable.

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

I should like, first, to say, if I may without embarrassing the hon. Member for Wanstead and Woodford (Mr. Patrick Jenkin), that I entirely agree with most of what he said to begin with. I entirely agree that this is a very complicated section of the Income Tax law. I entirely agree that there is a responsibility on the Government, having taken the steps—the proper steps, as I hope the House will feel—that they did, not to go beyond what is absolutely necessary to ensure that the Revenue is reasonably protected.

I accept that basic philosophy, but I have difficulty in accepting the Amendment because, as the hon. Gentleman has made clear, his basis for moving it rests really on the one proposition that a group of companies is so different from a single company carrying on that totality of trade and making the same total profit, or whatever may be the case, that one should be able to avoid one of the major exclusions, or perhaps the major exclusion, from the one-year surplus relief; that it is so different that one should be able to avoid that exclusion.

The exclusion to which I refer is that to which the hon. Member himself referred, namely, going back earlier than 1965–66 to ascertain the profits, and to use the tax that was paid in those years as an offset to obtain the one-year surplus. If I may say so, the hon. Member has absolutely correctly described the three-year surplus, and if I might add just one sentence to it, the three-year surplus is the normal relief.

The one-year surplus is an abnormal relief. There were very unusual circumstances applying to that particular year. It is, therefore, totally irrelevant to the one-year surplus that the particular company, be it the parent or the subsidiary, has made profits in previous years out of which it has paid Profits Tax and Income Tax.

As we are on the common ground that, if this were one company and not a group, the hon. Gentleman would not be attempting to persuade me that one should accept this Amendment—because in that case one would be going completely beyond the purpose of the scheme of the one-year surplus relief—he then has to persuade me that a group of companies is of such a different nature in its combined functioning and profit as to make it entitled to different treatment. All I can say is that I am sorry, but I am not so persuaded.

I have accepted the hon. Gentleman's first premise that one must not go further than is absolutely necessary to protect the Revenue, as one is changing the rules during the course of the game, if that is the way to put it. That is why we have introduced the exclusion of dividends paid prior to Budget day. I reject completely that one is doing anything retrospective because, as I have previously explained, any dividend declared prior to Budget day and prior to the notification of the change in the rules would be protected.

I accept the basic philosophy that one must not go beyond what is needed, but I cannot accept that the group of companies is so different from the single company as to warrant treating this major exclusion in a different way. For that reason, I am sorry—and I am trying to keep it as broad as possible, and not to go into technicalities unnecessarily—that I cannot recommend the Amendment to the House.

Mr. Patrick Jenkin rose—

Mr. Speaker

Order. We are not in Committee. Did the hon. Gentleman want to put a queston?

Mr. Jenkin

I wanted to put a question to the Chief Secretary before he sat down, Mr. Speaker, and I hope that I may be permitted to do so.

The right hon. Gentleman has not dealt with my point that, in such a case as this, the subsidiary could well have put itself beyond the power to claim the three-year surplus—whereas the single company could still be able to do so—because the subsidiary may have distributed all available pre-Corporation Tax profits and, therefore, have no pre-tax profits from which to pay.

Mr. Diamond

I did not reply to that point specifically, Mr. Speaker, but I did so generally when I said, bearing in mind what the hon. Gentleman had said, that the group was not so different from the individual company and that I found it difficult to believe that there could be a case where a subsidiary had acted in this way and where it would not have profits in the ordinary way in 1966–67 out of which to declare dividends in the ordinary way. I found it difficult to believe that the subsidiary company had acted in this rather extraordinary way.

In those circumstances, I think that I was taking the generality of cases into account when I said that the group of companies was not so different from the single company as to warrant the very special and exceptional treatment the hon. Gentleman proposed.

Amendment negatived.

Mr. Patrick Jenkin

I beg to move Amendment No. 121, in page 29, line 41, to leave out "publicly announced" and to insert: duly recorded in the minutes of the proceedings of the board of directors". I dealt with this very short point very briefly in Committee on the Question, "That the Clause stand part of the Bill". It will be within the recollection of the House that when the Chancellor of the Exchequer announced the withdrawal of this relief from groups of companies, he stated, in col. 1450 of the OFFICIAL REPORT, that any dividend paid before 3rd May would not be effective.

Clause 28(3) provides that certain dividends may actually be paid after 3rd May, but are, nevertheless, to be treated as though they were paid before that date. These are the cases where it may be said that the company has committed itself to pay the dividend. For instance, we have the case in subsection (3,a) where dividend has been declared before 3rd May and only remains to be paid, or if the directors have recommended or decided hat the dividend should be paid irrevocably, that is, under paragraphs (b) and (c). The Clause goes on to say that the recommendation or decision should be publicly announced.

In Committee, I made the point, which was taken swiftly by the Treasury Bench, that the question of a public announcement is totally inappropriate in the case of a dividend paid by a subsidiary to its parent company. The Chief Secretary undertook to look at the matter again. It was with some disappointment that we found he had not put an Amendment on the Notice Paper. Therefore, we had another shot at the matter by putting down this Amendment.

4.0 p.m.

I have had a letter from the Chief Secretary in which, to some extent, he dissents from the view that the company should have committed itself and says that it is a question of a public announcement having been made and there having been dealings on the basis of a public announcement. I suppose it is possible to conceive of a case where the size of a dividend paid from a subsidiary company would affect dealings in the hands of the parent company, or, alternatively, where the public are interested in the shares of a subsidiary company, but that kind of case would be very limited indeed.

There may well be many cases where it would be acutely embarrassing for a number of reasons if a dividend to which the directors had committed themselves, but made nothing in the nature of a public announcement, were to be struck at because it happened to have been paid after 3rd May. The point at which the Amendment is directed is that in the case of subsidiary companies of that sort there is no public announcement. The decision is recorded in the minutes of the proceedings of the board of directors. The Amendment is so drawn that it needs to have been recorded in those minutes before 3rd May.

I entirely recognise that there may be unscrupulous people who have been so astute as to appreciate fully the force of this and to get out the minute book on 4th May and pretend that it was done on 2nd May. That danger would be a small price to pay for the substantial justice of dealing with the case where the decision was made, the directors had committed themselves, the matter was recorded in the minutes and the whole thing was free and above board. If a decision had been taken and not recorded—I am speaking as a former company secretary—this penalty would be a warning to a dilatory secretary to get out his minutes quickly. But if there were no public announcement what else could be done? I very much hope that the Government will be able to look on this proposal favourably.

Mr. Diamond

I have been many times asked not to pay over-much regard to the problems of tax avoidance. I am happy to say that questions of tax avoidance were completely absent from my mind on this occasion. I draw attention to it only because it is natural to think that tax avoidance is involved, but that is not the criterion. When one talks about a commitment—which is the essence of what the hon. Member has put to one is talking about the commitment made by directors of such a kind that, having been notified of the new circumstances they are unable to alter their minds and decide on a different dividend.

So far as concerns a public company—a parent company—which has made a statement on the strength of which dealings may have taken place and the price has been affected—the hon. Member would readily agree that this might have a bearing on the price and on dealings—the directors of the company, having heard my right hon. Friend's Budget speech, may nevertheless be unable to do anything other than they are committed to do—to continue with the declaration they have publicly announced or the recommendation of it to their shareholders. For that reason one does not want to treat a company the board of which has committed itself in this way any differently from a company which has, in fact, paid the dividend prior to the relevant date.

Mr. Patrick Jenkin

I am sure that the right hon. Gentleman recognises that there may be such a commitment, for instance, to a minority shareholder who may be resident overseas. The parent company may have shares in the subsidiary and it would be just as embarrassing to have to change the dividend although there has not been anything like a public announcement of the dividend.

Mr. Diamond

We are getting closer together and admitting that the main justification for the exclusion is the public commitment which does not allow the board of directors to change course even after having heard my right hon. Friend's Budget statement.

What the hon. Member is now saying is that there may be a case of a subsidiary company which has made some kind of commitment to a minority shareholder. This is a very unusual state of affairs. There is nothing which prevents the subsidiary company changing its dividend if it wants to do so before it has taken the irrevocable step of passing the resolution and having it recorded in the minutes

I cannot think that there is any such case which would warrant this kind of provision, although, if there were such a case the proposal of the hon. Member would go a good deal further than that, and would relate it in the same way almost as one does to the public com- pany. I think that he would agree that broadly there is a substantial difference between the publicity arising prior to a declaration of a dividend by a public company and the publicity arising prior to a declaration by a subsidiary company, subsidiary to the parent company. It is because there is that very substantial difference that one cannot treat the two in the same way, as this Amendment proposes.

I recognise that there may be something in what the hon. Gentleman said, but even if that were the case the Amendment would go too far in the present state of affairs. I hope that I have clarified the position in connection with the commitment and have made it clear to the hon. Member that we are talking about a commitment with the parent company.

Amendment negatived.

Mr. Patrick Jenkin

I beg to move Amendment No. 96, in page 29, line 45, at the end to insert: (4) The foregoing provisions of this section shall not apply to dividends paid by a company which is a member of a group of companies to another member of the group where the first-mentioned company is a company which has ceased to carry on business before the year 1966–67 or of which the business is at the beginning of that year, being carried on by a liquidator in the winding up of the company. This is another case of the one-year surplus where there can be genuine hardship. This is the case of the dormant subsidiary, the subsidiary which has ceased to trade and which may have very substantial funds in the form of taxed profits which have suffered only Income Tax and Profits Tax and the company has no chance whatever of earning for itself any three years' surplus simply because it has ceased to trade and will have no distributable profits in the three relevant years. Nevertheless, it is in existence and has a fund of profits which have borne Income Tax and, because of the disallowance in Clause 28, its dividends will be left out of account, in computing the one-year surplus of the parent.

If it had its own shareholders there would be no liability but because the money will reach the ultimate owners of the company via the parent which is still trading there will be no relief. I am sure that this must be wrong. I press this point on the Chief Secretary. The case of the dormant subsidiary is one which ought to be dealt with as an exception to the rule. As the Chief Secretary explained so lucidly in Committee, the object of Section 85 was to prevent profits becoming subject to three taxes. These profits will have become subject to Income Tax and Profits Tax in the hands of the subsidiary beforehand, and they will then become subject to Schedule F tax when they are eventually passed on to the shareholders.

There is no possibility of taking advantage of what the Chief Secretary called earlier this afternoon the normal relief, the three-year surplus relief. This is a clear case where some measure of relief must be given in order to allow account to be taken of the one-year relief. Yet under the exclusion and the withdrawal of the whole relief, the companies themselves will get no relief at all. I urge this point on the Chief Secretary as one of considerable substance, and on which the Government should make a concession.

Mr. Diamond

I am anxious to be as sympathetic as possible to the hon. Gentleman who puts forward his proposals in such moderate language, but I cannot see any case in this Amendment.

This is a case where the subsidiary, which one has to look at by itself, is not in a position to claim relief because it is not suffering. That is a very good reason for not claiming relief, because one is not entitled to ask for relief if one is not suffering in any sense. That is to say, the company is not paying the third tax. It is not declaring the dividend which will render it liable to Schedule F tax. It is the burden of the three taxes which is the suffering which one tries to relieve by the one-year relief. I therefore find it difficult to see how, in these circumstances, one could meet the hon. Gentleman's case. The probability is that the profits which will have been made will have been made in the previous years and, therefore, they will not be eligible to count for the purpose of the one-year relief.

The hon. Gentleman asked me to look at the point and, listening between the lines—if one can do such a thing—I gather:A that he was really asking me not necessarily to accept this Amendment, which I cannot recommend the House to accept, but whether I would consider it further to see whether there is anything which the Government ought to take into account at a future time. I cannot give any commitment of any kind. In fact, I am completely unpersuaded that there is any need for one.

However, the least courtesy that I can offer the hon. Gentleman is to say that I will gladly look into the matter and if, in a year's time, I have been persuaded that there is something which has been overlooked, and that there are cases where real hardship has arisen out of the circumstances which are now well known and agreed between the two sides. I will recommend that something should be done about it. But I cannot see that likelihood, and, in those circumstances, I can only ask the House not to accept the Amendment.

Mr. Patrick Jenkin

All I can say is that the Chief Secretary has been a little more forthcoming and, in those circumstances, I beg to ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Mr. Diamond

I beg to move Amendment No. 20, in page 30, line 1, to leave out subsection (4).

This Amendment is purely paving for Part II to Schedule 7, and I feel sure that it would be more convenient to discuss it when we arrive at that point. Indeed, the same remarks apply to Amendments Nos. 21 and 22.

Mr. Speaker

Is there any objection from the Opposition to that suggestion?

Mr. Patrick Jenkin

No, Mr. Speaker.

Amendment agreed to.

Further Amendments made: In page 30, line 8, at beginning insert "Part I of".

In line 19, after first "and", insert: the provisions of the said section 85 relating to the one year surplus shall have effect subject to the provisions of Part II of Schedule 7 to this Act.

(6)."—[Mr. Diamond.]

4.15 p.m.

Mr. Patrick Jenkin

I beg to move Amendment No. 103, in page 30, line 20, at the end to insert: (6) Where a member of a group of companies has paid a dividend to another member of the group and that dividend has been excluded, by reason of subsection (1) of this section from the dividends taken into account under subsection (3)(a) of section 85 of the Finance Act 1965, then both companies may jointly elect that such part of the dividend as may be stated in the election shall be regarded for all the purposes of the Income Tax and Corporation Tax Acts as having been paid on the first day of the year 1966–67. On we plough through this rather dreary wasteland, but I should like to urge on the Chief Secretary that these are all matters which have been put to this side of the House by companies concerned which, as I said at the outset, feel aggrieved at the withdrawal of the relief.

This Amendment approaches the problem from a rather different angle, and it is one to which I feel the Government ought, in duty bound, to give considerable attention. The position is this. A good many groups of companies acted on the assumption that the relief which was carefully spelled out in Section 85 of the 1965 Act meant what it said.

As I have explained in Committee, some of these people may well have looked at the reports of the debates and may have found that the Government themselves introduced an Amendment on Report dealing with groups of companies, and they may well have drawn the conclusion that the relief, substantial though it was, may have been intended. They acted on it quite properly with a view to putting themselves into the position to qualify for the relief which was spelled out.

In those circumstances—and this has happened, I am informed, in a number of cases—the subsidiaries paid substantial dividends to their parents in 1965–66 in order to take the maximum advantage of the relief. They now find that Clause 28 not only denies them the relief which they expected but, having acted in good faith on the basis of the legislation which was passed last year, they are not now in a position to qualify for the alternative relief, the three-year surplus relief, which would have been available if they had done nothing.

If they had left the situation as it was and did not pass these dividends on to the parents, they would have had a substantial fund out of which they would have ben able to qualify for the three-year surplus if what I may call their post- Corporation Tax dividends and profits brought them within the terms of that relief. In other words, they have been heavily penalised for having acted in good faith by reference to the express provisions of the Finance Act, 1965. I cannot believe that in those circumstances it is equitable to leave them in this position.

The Government have made a mistake. They are putting this mistake right, and the effect has been not only to deprive these companies of the relief to which they thought they were entitled, but also to give them no chance whatever of restoring the position to what it would have been if the mistake had not been made. I go so far as to say that for any Government to act in that way is totally unconscionable.

The Amendment is designed to give the companies the right to elect to treat any dividends paid in 1965–66 as having been paid in 1966–67 and so to bring them into the position where they could qualify, if the other circumstances fit, for a three-year surplus claim—that is to say, to give them a chance to put themselves back into the position which they would have been in if Clause 28 had been part of Section 85 of the Act of last year.

This is the minimum equity which the Government can offer to these groups of companies. It would enable them to repair the damage and, perhaps most important of all, it would restore some of the faith which this monumental error has cost the Inland Revenue. It would restore faith in the probity and uprightness of the financial dealings of the Government and of the Inland Revenue. I urge the Chief Secretary to accept the Amendment and give the minimum relief necessary to restore good faith.

Mr. Diamond

The hon. Gentleman referred to a subsidiary company having made the maximum payment of dividend, and I only add: as it was fully and quite properly entitled to do. But one should not be unaware of the thoughts that were possibly in the minds of the board of directors. They might even have included thoughts that this was an opportunity of making what is called in the City a "killing", that one should take advantage of it, exercise one's rights to the full, and therefore declare what the hon. Gentleman described as the maximum dividend.

Nobody suggests that companies were not absolutely and properly entitled to do this. But they were aware of what they were doing, and hardly anybody was surprised that the Government acted as they did when my right hon. Friend made his Budget statement. But I repeat that I accept what the hon. Gentleman said earlier, that the Government are not entitled in these circumstances to go further than they must. They are being asked to go much too far by the hon. Gentleman in the Amendment.

First, I imagine that in the vast majority of cases the subsidiary company would be able to claim its own one-year surplus relief by paying its dividend in 1967 in the ordinary way. I recognise that here might be a situation under which the subsidiary company had drained itself of its reserves in a previous year, but continued to make profits and would, presumably, make profits in 1966–67 and declare a dividend. It would get its own one year surplus, and therefore there must at most be a tiny, tiny number of cases where that particular door is closed to it.

The Amendment goes miles too far and would open the door to a whole host of difficulties in the case of a chain of companies. I would bore the House if I started describing how this would happen, but perhaps the House will accept it from me. By a chain of companies I mean more than simply a parent and subsidiary company; I mean parent, subsidiary, sub-subsidiary, and so on. They could jointly act as a result of the Amendment so as to get benefits which the hon. Gentleman did not intend that they should get.

The hon. Gentleman has also drawn his Amendment in such a way that the dividend deemed to be paid on the date in question should rank for the purposes of calculating a three-year surplus, which is a totally different conception. I repeat that in almost every case a company will be able to get its own one year surplus and there will be no need to have recourse to an extraordinarily artificial way of dealing with the situation. Although I have accepted that one should not go further than one need, the Amendment, which is extraordinarily artificial in its conception, is not the kind that one could accept.

Mr. John Peyton (Yeovil)

I did not intend to take part in the discussion on this very difficult problem until I heard the remarks of the right hon. Gentleman, who has been very properly sympathetic. He has admitted that a miscalculation has been made, but there are one or two things which very much interested me in what he said. He said, first, that a company was quite properly entitled to make the payment. That point is therefore unchallenged and nobody is arguing about it. He went on to say what was in the. mind of the Board—the intention to make. a "killing". This sort of talk makes every hair stand up on the back of my head.

The business of always trying to make companies out to be crooks who are dodging things, trying to fiddle and cook the books, and trying to extract every unreasonable and uncovenanted benefit from a situation, is intolerable. I say to the Government Front Bench now, without qualification, that in so far as there are amongst industrialists and commercial people in this country those inclined to fiddle, it is the mentality of the Government Front Bench that has been the most potent factor in creating those people. It is this addiction—

Mr. Robert Sheldon (Ashton-under-Lyne)

rose—

Mr. Peyton

No. I am busy at the moment. I shall have time to spare for the hon. Gentleman, but at present I am concentrating on his Front Bench.

There are few things that I abhor more than the horrid tendency of the Government always to be looking out for the crook and the fiddler, always to be certain that the most important thing in life is to catch them. So busy are they doing this—one can almost say that when they left the Government in 1951 they left their horrid habits behind them to a certain extent—

Mr. Speaker

Order. The hon. Gentleman will not be out of order if he comes to the Amendment. He must refer to the Amendment.

Mr. Peyton

I bow, with great respect, to any Ruling you make, Mr. Speaker, but the remarks I am making were directly prompted by those which the Chief Secretary made just now. I shall continue to adhere strictly to what he said. He went on to say that it was no surprise to those concerned and that the Government were not entitled to go further than they must to remedy the situation. The Government are responsible, as the Chief Secretary has said, for this muddle. What I deplore is that, having made an error the Government, with all the assets and advantages, with all the panoply of power behind them, are unable to face the House and say that they made a mistake and that they find the idea of demanding full restitution from those who were not responsible for the mistake intolerable.

Instead, the Government, alone are entitled, apparently, to wipe the slate clean, go back over what happened and evade the consequences of their own errors. If the hon. Gentleman wishes to intervene, I shall be glad to give way.

Mr. Sheldon

The only point that I wanted to make is that the hon. Gentleman is getting worked up about a word that is in fairly common use. I have always interpreted the word "killing" in the City as a coup of one kind or another. This is surely one such.

Mr. Peyton

The hon. Gentleman is very much, although to a rather lesser degree than the Chief Secretary, one of those whom I had in mind. No doubt, if we ever have to suffer in the future the misfortune of another Socialist Government, the hon. Gentleman's mental approach to these things will qualify him very well for a place on the Front Bench.

Mr. Speaker

Order. We are not discussing the constitution of the next Socialist Government. The hon. Gentleman must come to the Amendment.

Mr. Peyton

I realise that I must, so far as possible, not only keep within order but avoid obscenities, so I shall revert to what the right hon. Gentleman said, as I understood him. I ask him to avoid, somehow or other, the innuendoes which he inserts, with no justification, suggesting that, because a tax, complicated as it is, allows a company to order its affairs in a certain way in its own interest, a company which acts in that way ought not to do so. The Government's reaction is a rather pious and disapproving frown—"This company has made a killing and now we must exact retribution". I deplore that attitude.

4.30 p.m.

Mr. Frederic Harris (Croydon, North-West)

I have listened to the interchanges which have taken place so far on these provisions, and I hesitate to come between the two experts in the matter, the Chief Secretary and my hon. Friend the Member for Wanstead and Woodford (Mr. Patrick Jenkin), who knows the details so well. But my hon. Friend the Member for Yeovil (Mr. Peyton) has expressed in no uncertain terms what I myself feel. It is extraordinarily unfair that, after the Government have made a mistake in their last Finance Act, not only are they anxious to put the matter right, which is understandable, but they appear to want to go further and make those who have acted properly in good faith pay an even bigger penalty for having done so. This seems quite wrong.

Mr. Diamond

I interrupt only because the hon. Gentleman was good enough, though unnecessarily modest, to say that he had been listening and, perhaps, he might not have fully understood. Had the proposition which he has just put been right, we should not be resisting the Amendment. There is no question of requiring anyone to pay an additional penalty or anything like that. There is no question of retrospection. Every dividend which was declared prior to my right hon. Friend's Budget Statement is protected.

Mr. Harris

The right hon. Gentleman may be correct in that, but the interpretation I have been given does not put us back to where we were before. As I see it, therefore, the Government are going further than one would expect them to go.

I am quite sure that the Chief Secretary, looking back to his accountancy days, would have expected boards of directors to be guided by professional advice given to them at the time in accordance with the current tax law. I regard it as the responsibility of boards of directors to save tax wherever it is proper and correct so to do. There is nothing wonderful in paying tax unnecessarily. Shareholders rightly expect their directors to act to save tax when it is proper and right so to do. This is where I cross swords with the right hon. Gentleman. He did not give me the impression that this was his view when he replied a few minutes ago.

As it understand him, the right hon. Gentleman looks upon it almost as a crime to avoid tax. In my view, on the other hand, the avoidance of tax in accordance with the law as it stands is correct, and a board of directors should undertake it. Furthermore, they should call in such professional advice as is available to them to give advice on whether the shareholders' money can be saved.

The Government made an unfortunate mistake, from their point of view. They are now trying to put it right, but they seem to be going too far. I join forces strongly with my hon. Friend the Member for Yeovil on this. He took exactly. the point which I take, but, unfortunately, the Chief Secretary seems to take a very different view. I can only say that I am surprised because I cannot believe that he would have taken this view i a his professional days when advising clients as to the best course to adopt when presented by a situation similar to that with which many of us in business have been faced during the past 12 months. I am quite sure that he would have advised his clients to do the very thing that many businessmen have found it necessary to do in, quite rightly, avoiding tax.

This is the difficulty I find, and I strongly support the views expressed by my hon. Friend the Member for Yeovil.

Mr. Eric Lubbock (Orpington)

I, too, have listened throughout the debate, and I had not intended to intervene until the points raised in several of the speeches brought to my mind another important point which should be raised in this connection.

As the Chief Secretary and others have said, boards of directors were quite within their rights in taking advantage

Division No. 110.]	AYES	[4.38 p.m.
Alison, Michael (Barkston Ash)	Bennett, Dr. Reginald (Cos. & Fhm)	Bruce-Cardyne, J.
Astor, John	Biffen, John	Bryan, Paul
Atkins, Humphrey (M't'n & M'a'n)	Birch, Rt. Hn. Nigel	Bullus, Sir Eric
Awdry, Daniel	Blaker, Peter	Burden, F. A.
Baker, W. H. K.	Braine, Bernard	Carlisle, Mark
Balniel, Lord	Brewis, John	Cary, Sir Robert
Beamish, Col. Sir Tutton	Brinton, Sir Tatton	Channon, H. P. G.
Bell, Ronald	Bromley-Davenport,L t. Col.Sir W alter	Chichester-Clark, R.
Bennett, Sir Frederic (Torquay)	Brown, Sir Edward (Bath)	Clark, Henry

of the provisions of Section 85 of last year's Finance Act, and there was nothing improper in what they did. But the Government realised that there would, as a consequence, be a large leakage of revenue. I think that the right hon. Gentleman gave us a figure earlier running into many millions of pounds. It was obvious that the Government could not allow the situation to stand. Therefore, as he said, many people in the City and in industry realised that the Government would have to take the action which they are now taking in Clause 28.

This brings me to the point I wish to stress. I hope that the Chief Secretary will transmit it to the Chancellor of the Exchequer because it is of important general application in our future procedure on Finance Bills. In cases of this kind, we ought not to stick to our time-honoured rule that nothing can be announced except in a Budget speech. The matter before us now gives a perfect example of steps which the Government intend to take and which they could announce at any time during the year once they become aware of a large leakage of revenue arising from an unforeseen consequence of previous legislation.

I hope that the right hon. Gentleman will give this point his favourable consideration. No doubt, even in the Bill before us there are provisions which will give rise to unforeseen consequences, and no doubt, also, having regard to its complexities, no one will be greatly surprised if the Finance Act, 1965 gives rise to further unforeseen actions which will be expensive for the Revenue.

The Government should not be bound by the unduly rigid rule in our financial affairs that no changes of this kind are to be announced except on Budget day.

Question put, That those words be there inserted in the Bill:—

The House divided: Ayes 124, Noes 182.

Clegg, Walter	Holland, Philip	Peel, John
Cooke, Robert	Hordern, Peter	Peyton, John
Cooper-Key, Sir Neill	Hutchison, Michael Clark	Pike, Miss Mervyn
Corfield, F. V.	Irvine, Bryant Godman (Rye)	Pink, R. Bonner
Costain, A. P.	Jenkin, Patrick (Woodford)	Prior, J. M. L.
Cunningham, Sir Knox	King, Evelyn (Dorset, S.)	Pym, Francis
Currie, G. B. H.	Kitson, Timothy	Renton, Rt. Hn. Sir David
Dalkeith, Earl of	Langford-Holt, Sir John	Ridsadale, Julian
Dance, James	Lewis, Kenneth (Rutland)	Rossi, Hugh (Hornsey)
Dean, Paul (Somerset, N.)	Lloyd, Ian (P'tsm'th, Langstone)	Russell, Sir Ronald
Dodds-Parker, Douglas	Longden, Gilbert	Sharpies, Richard
Elliot, Capt. Walter (Carshalton)	Loveys, W. H.	Shaw, Michael (Sc'h'gh & Whitby)
Errington, Sir Eric	McAdden, Sir Stephen	Smith, John
Fletcher-Cooke, Charles	MacArthur, Ian	Stodart, Anthony
Fortescue, Tim	Maclean, Sir Fitzroy	Summers, Sir Spencer
Galbraith, Hn. T. G.	Macleod, Rt. Hn. lain	Taylor, Edward M.(G'gow,Cathcart)
Gilmour, Ian (Norfolk, C.)	Maddan, Martin	Temple, John M.
Glyn, Sir Richard	Marten, Neil	Thatcher, Mrs. Margaret
Goodhew, Victor	Mathew, Robert	Turton, Rt. Hn. R. H.
Grant-Ferris, R.	Mawby, Ray	van Straubenzee, W. R.
Grieve, Percy	Maxwell.Hyslop, R. J.	Walker, Peter (Worcester)
Hall, John (Wycombe)	Mills, Stratton (Belfast, N.)	Walker-Smith, Rt. Hn. Sir Derek
Hall-Davis, A. G. F.	Monro, Hector	W alters, Dennis
Harris, Frederic (Croydon, N.W.)	Morgan, W. G. (Denbigh)	Ward, Dame Irene
Harrison, Brian (Maldon)	Morrison, Charles (Devizes)	Webster, David
Harrison, Col. Sir Harwood (Eye)	Munro-Lucas-Tooth, Sir Hugh	Whitelaw, William
Harvie Anderson, Miss	Murton, Oscar	Wills, Sir Gerald (Bridgwater)
Hawkins, Paul	Nabarro, Sir Gerald	Wilson, Geoffrey (Truro)
Hay, John	Nicholls, Sir Harmar	Wylie, N. R.
Heseltine, Michael	Noble, Rt. Hn. Michael
Higgins, Terence L.	Nott, John	TELLERS FOR THE AYES:
Hiley, Joseph	Orr, Capt. L. P. S.	Mr. R. W. Elliott and
Hill, J. E. B.	Osborn, John (Hallam)	Mr. David Mitchell.
Hirst, Geoffrey	Pearson, Sir Frank (Clitheroe)
NOES
Abse, Leo	Dunwoody, Mrs. Gwyneth (Exeter)	Lawson, George
Allaun, Frank (Salford, E.)	Dunwoody, Dr. John (F'th & C'h'e)	Leadbitter, Ted
Alldritt, Walter	Eadie, Alex	Ledger, Ron
Archer, Peter	Edwards, Robert (Bilston)	Lestor, Miss Joan
Armstrong, Ernest	Ellis, John	Lewis, Arthur (W. Ham, N.)
Atkins, Ronald (Preston, N.)	English, Michael	Lewis, Ron (Carlisle)
Atkinson, Norman (Tottenham)	Evans, Albert (Islington, S.W.)	Lipton, Marcus
Bacon, Rt. Hn. Alice	Fernyhough, E.	Lomas, Kenneth
Baxter, William	Finch, Harold	Lubbock, Eric
Beaney, Alan	Fitch, Alan (Wigan)	Lyons, Edward (Bradford, E.)
Bessell, Peter	Fletcher, Raymond (Ilkeston)	McBride, Neil
Bidwell, Sydney	Fletcher, Ted (Darlington)	MacDermot, Niall
Binns, John	Floud, Bernard	McGuire, Michael
Bishop, E. S.	Foley, Maurice	McKay, Mrs. Margaret
Blackburn, F.	Foot, Michael (Ebbw Vale)	Mackenzie, Gregor (Rutherglen)
Booth, Albert	Ford, Ben	Mackintosh, John P.
Boston, Terence	Fowler, Gerry	McMillan, Tom (Glasgow, C.)
Bowden, Rt. Hn. Herbert	Fraser, John (Norwood)	McNamara, J. Kevin
Boyden, James	Fraser, Rt. Hn. Tom (Hamilton)	MacPherson, Malcolm
Braddock, Mrs. E. M.	Galpern, Sir Myer	Mahon, Peter (Preston, S.)
Brooks, Edwin	Garrow, Alex	Mahon, Simon (Bootle)
Brown, Hugh D. (G'gow, Proven)	Greenwood, Rt. Hn. Anthony	Mallalieu, E. L. (Brigg)
Brown,Bob(N'c'tle-upon-Tyne,W.)	Gregory, Arnold	Manuel, Archie
Brown, R. W. (Shoreditch & F'bury)	Griffiths, David (Rother Valley)	Mapp, Charles
Buchanan, Richard (G'gow, Sp'burn)	Griffiths, Will (Exchange)	Mason, Roy
Butler, Herbert (Hackney, C.)	Hamilton, James (Bothwell)	Mellish, Robert
Butler, Mrs. Joyce (Wood Green)	Hamilton, William (Fife, W.)	Miller, Dr. M. S.
Cant, R. D.	Hamling, William	Mitchell, R. C. (S'th'pton, Test)
Carmichael, Nell	Hannan, William	Molloy, William
Chapman, Donald	Hart, Mrs. Judith	Morgan, Elystan (Cardiganshire)
Coe, Denis	Hattersley, Roy	Morris, Alfred (Wythenshawe)
Conlan, Bernard	Heifer, Eric S.	Murray, Albert
Corbet, Mrs. Freda	Hooley, Frank	Newens, Stan
Crawshaw, Richard	Howie, W.	Noel-Baker, Francis (Swindon)
Cullen, Mrs. Alice	Hughes, Emrys (Ayrshire, S.)	Noel-Baker,RtHn.Philip(Derby,S.)
Davies, Dr. Ernest (Stretford)	Hughes, Roy (Newport)	Norwood, Christopher
Davies, C. Elfed (Rhondda, E.)	Hunter, Adam	Ogden, Eric
Davies, Harold (Leek)	Hynd, John	O'Malley, Brian
Davies, Robert (Cambridge)	Jackson, Colin (B'h'se & Spenb'gh)	Oram, Albert E.
Delargy, Hugh	Jackson, Peter M. (High Peak)	Orme, Stanley
Dempsey, James	Jeger, George (Goole)	Oswald, Thomas
Dewar, Donald	Johnston, Russell (Inverness)	Owen, Will (Morpeth)
Diamond, Rt. Hn. John	Jones, Dan (Burnley)	Page, Derek (King's Lynn)
Dickens, James	Judd, Frank	Pearson, Arthur (Pontypridd)
Doig, Peter	Kenyon, Clifford	Pentland, Norman
Driberg, Tom	Kerr, Dr. David (W'worth, Central)	Perry, George H. (Nottingham, S.)
Dunn, James A.	Kerr, Russell (Feltham)	Price, Christopher (Perry Barr)

Probert, Arthur	Skeffington, Arthur	Wainwright, Richard (Come Valley)
Pursey, Cltdr. Harry	Slater, Joseph	Walden, Brian (All Saints)
Redhead, Edward	Small, William	Watkins, David (Consett)
Rhodes, Geoffrey	Snow, Julian	Wellbeloved. James
Roberts, Albert (Normanton)	Spriggs, Leslie	Williams, Clifford (Abertillery)
Roberts, Gwilym (Bedfordshire, S.)	Steel, David (Roxburgh)	Williams, W. T. (Warrington)
Robertson, John (Paisley)	Steele, Thomas (Dunbartonshire, W.)	Willis, George (Edinburgh, E.)
Robinson, W. 0. J. (Walth'stow, E.)	Summerskill, Hn. Dr. Shirley	Winnick, David
Rodgers, William (Stockton)	Symonds, J. B.	Winterbottom, IL E.
Rose, Paul	Thomas, George (Cardiff, W.)	Woof, Robert
Ross, Rt. Hn. William	Thomas, torwerth (Rhondda, W.)	Yates, Victor
Rowlands, E. (Cardiff, N.)	Thornton, Ernest
Sheldon, Hobert	Tourney, Frank	TELLERS FOR THE NOES:
Shore, Peter (Stepney)	Urwin, T. W.	Mr. Gourlay and Mr. loan Elans
Silverman Sydney (Nelson)	Varley, Eric G.

Clause 32.—(TRANSITORY PROVISIONS FOR DOUBLE TAXATION AGREEMENTS FIA VING RETROSPECTIVE EFFECT.)

Mr. Patrick Jenkin

I beg to move Amendment No. 24, in page 38, line 18, at the end to insert: unless the payment is made in respect of securities issued before 3rd May 1966". The Amendment deals with an entirely different point. We have now come to Clause 32. I am delighted to observe that we shall now have a different replier from the Government Front Bench. Although the point is different, I am afraid that it is no less complex than the one that we have been dealing with.

The position concerns companies which have in the past raised loans overseas. The matter at which the Amendment is aimed in particular concerns companies which Dave raised loans from the public in Switzerland. There have always been two requirements which companies trying to raise their finance in this way have sought to meet. The first was a requirement imposed by the Swiss lenders that the interest should be paid gross without tax being deducted. The second requirement, which the borrowers have tried to make sure they achieve, is that the interest when paid should be a deduction in computing their profits, formerly for Profits Tax and Income Tax and now for Corporation Tax.

To achieve these aims, the simple transaction where a United Kingdom company raises a loan in Switzerland and pays the interest to the Swiss lenders is no good. It will not achieve its objectives because the interest has to be paid under deduction of tax, and even if the interest were paid gross to satisfy the Swiss lenders, the amount would not count as a deduction for Income Tax purposes.

Therefore, the firms that were in this position devised a fairly complex scheme.

I should say at the outset that it was devised with the full knowledge, assistance and blessing of the Inland Revenue, and I shall return to that point because it is very important. I take a Swiss loan as an example. This may well apply in other countries. Let us say that money was lent to a United Kingdom company. It was then lent back to a subsidiary specially formed for the purpose, resident in Switzerland, which again might relend the money to the United Kingdom company. The result, working backwards, which is what one has to do with the payment of the interest, was that the interest was paid gross by the United Kingdom company to its Swiss subsidiary, no deduction for Profits Tax being claimed, and then the interest was paid gross, as it was entitled to be under Swiss law, back to the United Kingdom company, and in the hands of that company it constituted an overseas source of income taxable under Case V. This interest was paid gross to the original lenders.

Under Section 132(1,c) of the Income Tax Act, 1952, they were entitled to deduct that gross interest from the taxable income arising under Case V. In that way the object of the exercise was achieved. The Swiss lenders got their interest gross without any United Kingdom tax deducted from it, and the company was in a position to claim a deduction in respect of the gross amount. I emphasise that this scheme was devised with the blessing and assistance of the Revenue.

There was another variant which some companies introduced, perhaps for convenience or to make transactions appear rather more convincing, whereby the third loan, instead of being made back to the original borrower—the parent company—was made to another United Kingdom subsidiary company, so that it would go from the Swiss subsidiary to the United Kingdom subsidiary.

Then came the Finance Act, 1965. Schedule 11, paragraph 1(1)(d)(iv) said that interest paid overseas to a nonresident subsidiary, or to a company where both payer and payee were subsidiaries of a third company, was to amount to a distribution and not a charge. It had all the characteristics of distribution—in particular, that Schedule F tax had to be deducted and accounted for to the Revenue.

I understand that some negotiations took place and it was agreed with the Revenue that this did not apply in the case particularly of Switzerland, for that position was overridden by Article VII of the then Anglo-Swiss Convention relating to double taxation. The result was that the transaction continued in being as it had originally been intended to do, in effect, by the 1965 Act.

Subsection (2) of this Clause recognises the position to be what it was. Subsection (2) deals with Schedule 11, paragraph 1(1)(ci)(iv) and says that Schedule 11 … shall apply to any such payment if, under an existing double taxation agreement, the recipient is entitled to relief … But subsection (3) takes us back to square 1, because it says: Subsection (2) above shall not apply to any payment to a company more than fifty per cent. of the voting power in which is controlled, directly or indirectly, by a person or persons resident in the United Kingdom. That takes us back to the position where companies had thought they were and from which they thought they had extricated themselves by their arguments last year with the Revenue.

The Amendment is intended to restore the position in the case of arrangements of this nature made before Budget day and to leave the position as it was and as it had been agreed to be under last year's Finance Act. I believe that this is entirely justified. The Government are encouraging firms which want to invest overseas and, indeed, are compelling them to raise their money abroad. It is now almost impossible to obtain the sanction of the Bank of England for the transmission abroad of funds from this country to invest overseas.

The needs and requirements of foreign lenders must still be met and firms which want to borrow money in these circumstances will find that they will have to pay the interest gross. These arrangements, which were entered into in the past entirely for this purpose and have been given the Revenue's blessing, should be allowed to stand. It might be thought that as a result of the change in the law companies might unscramble their present arrangements and make new arrangements which would avoid the difficulty. But in many cases the securities on which the loan is secured were issued to members of the Swiss public and not to a single lender. Indeed, perhaps the lenders total hundreds or indeed thousands of people. An unscrambling operation is impracticable.

The result is that subsection (3) of this Clause would put these companies into a substantially worse position than they were and had been agreed to be by the Revenue under the law passed last year. Justice and good economic sense require the Amendment, which would have the effect of leaving the arrangements entered into before the Budget day unaffected by subsection (3), and I hope the Government will accept it.

The Financial Secretary to the Treasury (Mr. Niall MacDertnot)

I am afraid that the Amendment is misconceived and that I cannot accept the background history or introduction which the hon. Member for Wanstead and Woodford (Mr. Patrick Jenkin) gave if it was intended to suggest that this was the origin of the Clause. I agree that the matter is complicated. The background to the Clause is that Schedule 11 of the Finance Act, 1965, prescribes that various categories of interest and certain royalties paid by a close company to participators are to be treated as distributions. The result is that the paying company can make no deduction for these payments in computing its profits for Corporation Tax.

The taxation position of the recipient of the interest or royalties is quite unaffected by this provision. Any relief which is due from our tax under an existing double taxation agreement to a resident overseas continues to be due, regardless of the treatment of the paying company. That is the starting point.

In negotiating our new double taxation agreements, we are prepared to concede that, unless the recipient is a company under United Kingdom control, the provisions of Schedule 11 should be overridden so as to allow the paying company a deduction in computing its taxable profits in respect of two cases—first, interest paid by a U.K. subsidiary to an overseas parent company or overseas close subsidiary company and, secondly, royalties paid by a close company to participators. We have written a provision to that effect into our recent protocols with the United States aid with Switzerland.

As a transitional measure while we are negotiating these agreements, the Clause unilaterally writes this concession into existing double taxation agreements which we have not yet had time to renegotiate. It does this for a long transitional period of two years, to allow deductions for Corporation Tax purposes for the payment of interest and royalties of these kinds. It also limits the class of payments to those which are received by non-resident persons who are entitled under an existing double taxation agreement to exemptions from U.K. tax on them.

Subsection (3) limits the class of payments still further by excluding payments to a company under United Kingdom control in which more than 50 per cent. of the voting power is controlled by United Kingdom residents. The Amendment would remove that limitation in respect of payments on securities issued after Budget day. It is unlikely that many such securities were issued before Budget day and the effect of the Amendment would, for practical purposes, be to remove that limitation in subsection (3) for practically all interest payments.

We see no reason why it should be removed. This proposal might be appropriate if the Clause withdrew relief to which companies had formerly been entitled but that is not the position. The Clause gives relief which, prior to Budget day, companies were not entitled to expect and the exclusion by this subsection of payments made to a company under United Kingdom control corresponds to provisions which have been incorporated in revised double taxation agreements, including agreements with the United States and Switzerland.

5.0 p.m.

The main reason for this exclusion is that since the payments in question effectively belong to United Kingdom residents, other countries cannot reasonably expect us to override the provisions of our domestic law in relation to them. Indeed, if we were to accept the Amendment, we would get the rather absurd result that, for example, a company making payments to a United States company under United Kingdom control in respect of securities issued before Budget day would get relief under the Amendment for the two-year transition period and when the transition period ended it would then lose the relief, because it would not be provided for in the Double Taxation Agreement which we have concluded with the Americans. For these reasons, I must ask the House to reject the Amendment.

Amendment negatived.

Clause 33. — (TRANSITORY PROVISIONS FOR DOUBLE TAXATION AGREEMENTS HAVING RETROSPECTIVE EFFECT.)

Mrs. Margaret Thatcher (Finchley)

beg to move Amendment No. 25, in page 38, line 43, to leave out: concerning interest or royalties"and insert"in respect of interest or royalties which have already been allowed against income tax and profits tax". The Amendment concerns a discussion which we had in Committee on what was then Clause 31 and is now Clause 33. The Financial Secretary will remember that we had a good deal of difficulty in construing the purpose of that Clause from what it said. The hon. and learned Gentleman gave quite an explanation, which consisted of saying, first, that it was an enabling Clause and implying, secondly, that it could not be very damaging because any agreement brought before the House under the Clause would have first to have been agreed with another country as well as our own and that that would limit its operation.

We should always look carefully at a Clause which confers enabling powers on any Government. We want to see precisely what we are enabling that Government to do. The Amendment is one means of narrowing down those powers to achieve exactly what the Financial Secretary said it was meant to achieve, and no more.

There is no reference in the Clause to the Swiss Double Taxation Agreement. One would say, therefore, that the Clause could go a good deal wider than the new protocol which has recently been signed. The only limitations in the Clause are three. First, any agreement which is brought before the House of Commons must be made before 1st January, 1968; secondly, the agreement can only withdraw relief from Corporation Tax; and, thirdly, it must be one which concerns interest or royalties.

That leads us to ask a number of questions of the Financial Secretary about the powers under the Clause and under the Amendment. First, will he tell the House whether he has it in mind to bring any other double taxation agreements before the House before 1st January, 1968, withdrawing relief retrospectively? As the hon. and learned Gentleman has not referred to the Swiss Agreement only, it is possible that he may have it is mind to vary other agreements before 1st January, 1968.

Secondly, will the Financial Secretary give an assurance that he will not use his enabling powers under the Clause to require a taxpayer to repay tax for which relief had previously been granted? If the Clause refers only to the Swiss Agreement, it will not he a question of repaying tax, because the first payment of Corporation Tax will not be due until 1st January, 1967. There is, therefore, no question of clawing back tax which has already been paid.

My third question is whether the hon. and learned Gentleman can give us an assurance that these powers will be invoked only where there has clearly been a mistake and relief was never intended in the first place. I refer to a mistake not in the amount of relief but as to the terms upon which it was granted.

The Amendment is a little more specific than the Clause. It attempts to replace the phrase concerning interest or royalties with one which narrows that phrase and states: in respect of interest or royalties which have already been allowed against income tax and profits tax". That is merely one attempt to try to narrow the Clause to do what the Financial Secretary said he wanted it to do.

I shall be grateful if the hon. and learned Gentleman will answer one or two of my questions so that before we part finally with the Clause and the Amendment, we may have certain undertakings from him.

Mr. MacDermot

In moving the Amendment, the hon. Lady the Member for Finchley (Mrs. Thatcher) is exercising a proper traditional function of the House of Commons in scrutinising closely any demand for enabling powers. I share the hon. Lady's concern about it.

As I explained when we discussed this matter in Committee, all that we are seeking to do here is to take powers for the House, to enable the House to consider the provisions which, if approved, would have the effect of withdrawing certain reliefs retrospectively and to enable them to be considered when we look at the protocol to the Swiss Agreement. That is the sole purpose for which the Clause was drawn.

The purpose of the Amendment, as the hon. Lady has made clear, is to narrow the terms in which the Clause is drawn and to limit it more closely to that specific Agreement or agreements strictly parallel with it.

In principle, I see no objection to limiting the Clause in the sort of way that the hon. Lady suggests, but the Amendment would not succeed in achieving the right result. First, although this is not the main difficulty, there is the fact that, quite understandably, the Amendment is drawn in such terms that it is limited to cases where the retrospective withdrawal of the provision in the Swiss Agreement entitling a payer of interest or royalties to a deduction for Corporation Tax purposes was made necessary because payment of interest or royalties made prior to 6th April would otherwise have got effective relief both against Income Tax for the year of assessment in which the payment was made and also against Corporation Tax charged on the profits arising during that year.

One rather exceptional case is covered by the protocol where the provision will also apply to payments made after 6th April. I did not go into this in detail in Committee, but when we look at the protocol it will be seen. The matter is a little involved and perhaps hon. Members will not wish me to take up the time 01 the House in explaining it.

The effect of the Amendment would be that we would not be able to consider those provisions in the protocol which we have provisionally agreed with the Swiss. Secondly and more seriously, however, in its reference to Profits Tax the wording of the Amendment would frustrate the whole exercise. Profits charged to Corporation Tax are not also charged to Profits Tax, and, therefore, there would be no question of the interest or royalties which are to be denied Corporation Tax relief having, in the words of the Amendment, been allowed against Profits Tax.

There is also a drafting error in referring to interest or royalties which have already been allowed against Income Tax. That would be more apt a reference if interest were allowed as a deduction from income for Income Tax purposes.

Those are somewhat technical arguments, but they are valid ones for rejecting the Amendment.

Mrs. Thatcher

When I put the Amendment down on the Notice Paper, I hoped that the Financial Secretary would see what I was trying to get at, and put the Amendment in order if he is prepared to accept it in spirit. I am a little concerned about the breadth of the powers.

Mr. MacDermot

I am coming to the breadth of the powers. I do not think that the anxieties which the hon. Lady has expressed are ones which need concern her or the House.

The Clause is already fairly narrowly drawn. In the first place it only applies in respect of interest and royalties. It is only in respect of them that it can authorise the retrospective withdrawal of relief, and then only if the withdrawal is in consequence of arrangements made pursuant to an Address presented to Her Majesty by the House before 1st January, 1968. That means that we are not taking some permanent power for the future.

The hon. Lady referred to my explanation in Committee that the consent of the other country must first be obtained. It would only be in unusual circumstances that another country would agree to consent to the retrospective withdrawal of a relief in this way. I explained in Committee briefly how those circumstances have arisen in one case. I do not think that it is something that is likely to arise often.

I was asked whether we have any other agreement or protocol in mind. The answer to that is no. We do not anticipate that we shall need the power in respect of any agreement other than the Swiss one. Equally, the question of clawing back any tax which has already been paid does not arise, and I do not envisage this being used except in comparable circumstances, if they arise, to the ones which gave rise to the Swiss agreement, where there clearly was a mistake which both countries recognised must be rectified.

Mrs. Thatcher

In view of the Financial Secretary's reply, I beg leave of the House to withdraw the Amendment.

Amendment, by leave, withdrawn.

Clause 35.—(ABOLIT1ON OF INVESTMENT ALLOWANCES AND AMENDMENTS AS TO INITIAL ALLOWANCES.)

Mr. Diamond

I beg to move Amendment No. 28, in page 39, line 42, leave out from "where" to end of line 2 on page 40 and insert: that asset is brought into use not later than 16th January 1968".

Mr. Deputy Speaker (Sir Eric Fletcher)

I think that it will be for the convenience of the House to discuss with it Amendment No. 27, in line 42, leave out from "1966" to end of line 2, in page 40, and Amendment No. 29, in line 43, after "made", insert: not later than 16th January 1967".

5.15 p.m.

Mr. Diamond

It will be within the recollection of the House that there was a long and helpful discussion in Committee relating to a situation where capital expenditure incurred after 17th January, 1966, but under a contract entered into before that date, would still rank for investment allowance, provided that the asset concerned was brought into use and paid for within nine months of that date.

There were many views expressed about the nine months, and they were unanimous in saying that the period was inadequate. There were a number of examples given of ships, industrial buildings, farm buildings, buses, lorries, and so on. I was much impressed with the weight of the arguments particularly coming from my hon. Friends the Member for Heywood and Royton (Mr. Barnett) and the Member for Ashton-under-Lyne (Mr. Sheldon).

As usual, the Government are always anxious to take full account of the views expressed in the Committee and to come forward at the appropriate stage with what is a suitable Amendment, in the Government's view—[Laughter.] I am totally unaware of the cause for merriment. I made an obvious statement about the flexibility of the Government and, in particular, the Treasury Bench.

It will he recalled that I was not anxious at the time to indicate which of the many Amendments moved was the most suitable one, because the Government wanted as far as possible to take them all into consideration and come forward with an Amendment which would satisfy the whole House.

Dealing with it in its two parts, and, first, the period within which the asset ought to be brought into use, there were many speeches advocating periods of up to two years. I do not recollect a single case of a suggestion of more than two years, although there were other suggestions of periods less than that. It seems to me that we ought to try and meet the fullest wishes of the Committee, so the Government are proposing in the first place that the period shall be a full two years. That should be adequate to meet the needs of every hon. Member who spoke on that occasion.

There was also the point about the date of payment, and many difficulties were brought to our attention about it. One hon. Member referred to the discounting of bills, where the payer's bills had been discounted by the seller and therefore it was no longer possible for the payer to expedite payment, because he had a promissory note or whatever it might be, had to meet the bills on the due day and therefore could not expedite the bills as could have been done by a person paying by cheque.

There was a related argument about retentions, where a contractor would naturally expect to have five or 10 per cent. of the final payment withheld until after a period of testing had been carried out on whatever it was he was supplying to the satisfaction of the purchaser. It was certainly not the intention of the Government that that normal safeguard should be prejudiced in any way.

There was also the point about accounting machines, which do not readily identify the date of purchase.

For all of those reasons, it seemed that the question of a date for payment was one of some difficulty, and certainly a period of nine months was not suitable. But, on further consideration, we came to the conclusion that there was no particular safeguard in the provision with regard to payment. The essential safeguard is the period within which the asset is brought into use.

I think that it would be accepted all round that once an asset is brought into use, the provider expects to be paid for it within a reasonable time afterwards, if it has not been partly paid for before that date. Therefore, the relevant provision is the date when the asset has been brought into use.

As a result, we are proposing this Amendment, which is a costly one. hope that the House will not be unduly critical of a Treasury Minister who comes forward with an Amendment which will cost about £10 million within the next three years. It is the responsibility of a Treasury Minister to put himself at the mercy of the House and accept whatever criticisms for extravagance may be forthcoming. In the present case, I hope that it will be agreed that this is a useful Amendment.

Mr. Terence L. Higgins (Worthing)

We on this side of the House welcome the Amendment. We are very glad that it appears that reason has prevailed and that the Government have seen fit to make some concessions. I do not know that I would agree with the Chief Secretary in feeling that the representations of the hon. Members for Ashton-under-Lyne (Mr. Sheldon) and Heywood and Royton (Mr. Barnett) were largely responsible for the Government's change of heart. The Amendment which they have now tabled linked with the Government's Amendment is asking for something less than they are now prepared to give. Therefore, it may well be that it was the very cogent representations made from this side which rightly persuaded the Government to change their mind regarding the restrictions which have been imposed.

We stressed in Committee that it was essential that confidence in the investment allowance system should not be shaken. Yet, even if the Government Amendment is accepted, we shall still find ourselves in a position in which an additional restriction has been placed on the grants after the investment decisions have been taken. There is still to be a restriction with regard to the date by which the assets have to be "brought into use". The terms originally offered have been altered ex post by the Government. This is clearly not desirable.

The Chief Secretary said that this is a costly Amendment; about £10 million would he involved. I should have thought that this was something which the Government should incur in order to increase investment, particularly at a time when investment is being deterred by the general squeeze on liquidity which is likely to be greatly accentuated by the Selective Employment Tax in the autumn. I should like to ask how much more it was likely to have cost if the restriction had hen removed altogether, because we have not been given any reason why this additional restriction has to be imposed.

I should like the Chief Secretary to clarify one point of definition. Suppose that the House accepts the Amendment. The crucial phrase in the Clause would then be "brought into use". I wonder whether the right hon. Gentleman could clarify precisely what this means. For example, if the chassis of a vehicle has been constructed but the vehicle has not been fitted with, say, seating but has been tested, and "brought into use" on the road. Would it be considered to be "brought into use "? Suppose that a bus has been delivered and has been completed in every respect but is being held as a reserve stock until the existing buses become uneconomic to repair. Would it be considered to be "brought into use" within the terms of the Amendment?

What would be the position with regard to equipment installed in a building which had been "brought into use" initially and produced samples but which had, perhaps, teething troubles and was not in full production by the date specified in the Amendment. Would it be regarded as having been "brought into use"? If so, would the investment allowances be granted to the people who had carried out the construction of the building and machinery? It would be helpful if the Chief Secretary could clarify what this phrase in the Amendment means, because a number of industrial firms are worried even now about the restriction which the amended Clause would impose on their entitlement to investment allowances.

We on this side still feel that there is a strong case for accepting Amendment No. 27 which would eliminate these additional restrictions altogether. Even if the Government Amendment is accepted the time limit between the date when the contract was entered into and when the asset has to be "brought into use" will still be only two years. There may well be cases in which the asset is not brought into use "in full production within this period. The building which will be occupied by the asset may not have been completed within the two years. It may be that the effect of the credit squeeze has had an impact on the building and delayed it. It may be that this has deferred certain parts coming forward and being used in the completion of the project. It may be that the impact of the squeeze on liquidity brought about by the Selective Employment Tax will slow down the operations and make it more difficult for the project to be completed within two years.

I presume that all the projects which would be covered by this Clause have been approved and are known to the appropriate Government Departments. I wonder whether the Chief Secretary could give some idea of the total value of the projects. He has given an estimate of the cost of the Amendment. Therefore, presumably he has figures for the total number of projects. What is roughly the value of those projects, and what does he think the value is likely to be of those which may go beyond the two-year period? Unless some of them are likely to go beyond the two years, there is no point in the Government's Amendment. There would be every case for accepting; Amendment No. 27.

I should be grateful if the Chief Secretary would clear up the technical points which I have raised, because I know that he agrees that it is desirable that industry as a whole should be clear about the circumstances surrounding these investment allowances. Perhaps he would also give a clear indication as to why the Government do not feel able to accept the Amendment which would limit these additional restrictions completely.

Sir Robert Cary (Manchester, Withington)

May I thank the Chief Secretary for and congratulate him on his act of repentance in moving this Amendment. In Committee I made the plea that two years was fairer than nine months. I named quite a large number of vehicles which I had ordered only a few months ago which I hope will be delivered and in service within two years. By that much the point is covered.

But I would ask the right hon. Gentleman to bear this in mind. We are heavily committed and visibly engaged in the export trade. I do not begrudge the chassis of a public service vehicle due to go to the Manchester Corporation or to the concern in which I am interested, Lancashire United Transport being diverted to the export trade. That would be a national benefit, although in operating my fleet it would retard progress. For that reason, I agree with the sentiment expressed by the Financial Times yesterday, namely, that 1969 would be better than 1968. The Financial Times was pleading for three years. I am pleading for two years.

What the Chief Secretary has done matches the words he used in Committee, namely, What we would be considering sympathetically are arrangements related to the transitional period and we would not be considering a complete root and branch operation."—[OFFICIAL REPORT, 22nd June, 1966; Vol. 730, c. 650.] We shall deal with that later.

I ask the Chief Secretary to bear this in mind, too. My hon. Friend the Member for Worthing (Mr. Higgins) referred to the phrase" brought into use ". A chassis may be delivered, but it may take three, four, five or six months of bodybuilding operations to complete it before it can be brought into operation. There may be an overflow of eight, nine or ten vehicles because of the delayed work of the body-builders in bringing them into operation. I do not want to retreat from what I said about two years, but it would be wise if there were a little more flexibility. Operation root and branch will be dealt with by a later Amendment.

I conclude by again thanking the right hon. Gentleman for the Amendment, which is the reverse of an operational extraction. We are suddenly taking £10 million out of the Treasury instead of having the Treasury take £10 million out of us, and that is always a very satisfactory state of affairs for Private Members on the back benches.

5.30 p.m.

Mr. Sheldon

1, too, am impressed by my right hon. Friend's generosity, which went further than I had intended. Perhaps I was trying a little too hard to protect the revenue in a manner which my right hon. Friend found unnecessary. I am delighted to see this extension, which covers so many of the points which I made in Committee.

I am particularly pleased that we are now taking account of the delay between the ordering of and the paying for plant or machinery, or whatever the investment may be. This is important largely because of the recent upsurge of investment, which has considerably extended delivery dates and has led to some firms over-stretching themselves and using somewhat unorthodox methods to make payment for some of the investment programmes which they have had in mind.

We now know that there are many occasions when plant and equipment and instrumentation are put in progressively, one after the other, in very great detail and such planning can be largely upset by any interruption in the scheme by which allowances are paid. We are getting much more sophisticated in our ideas about investment and as we become more sophisticated, so interruptions or changes in investment allowances have more effect, although the country ultimately benefits from such greater sophistication.

I believe, as the Royal Commission on the Taxation of Profits and Income said very strongly, that it is important always to honour to the maximum investment allowances, grants and incentives of whatever kind. What we need most is some assurance that, so far as it lies within the province of the Government, investment decisions will be honoured and that the investment decision will not be distorted by the introduction of factors which may be outside the province of those making the decisions. They must have a reasonable assurance that future legislation will not detract from the correctness of the decision as and when it is made.

This is becoming even more important now that more sophisticated methods of determining the value of an investment are being used. It is useless thinking of a discounted cash flow if there is to be a change in the investment incentive which will nullify the effect of such massive sophistication. There have been many critics of these types of refinement who have felt that investment decisions are so broadly based that such refinements are of limited value. But it is useless to expect people to bring in any refinements if there is then a massive change in the allowances or the incentives.

The most important aspect of this is that it is the largest of the investment decisions, those which use the most sophisticated methods, which have the longest period of gestation. So by one blow we affect the largest investment decisions as well as those who use the most sophisticated methods. It is important that we do not upset this kind of investment more than is necessary and I therefore very much welcome the Amendment.

Mr. Richard Wainwright (Colne Valley)

We on this bench naturally welcome the Amendment which deals with an issue which we raised on Second Reading and, more important, which brings to an end at last the period of very great anxiety among those businesses, large and small, with contracts now outstanding and placed before 16th January in the expectation of civilised treatment of investment allowances.

While welcoming the Amendment, I must note that throughout several discussions of this time limit no defence or excuse was ever offered for the date of 16th October which appeared in the Bill and which naturally gave rise to great anxiety in the business community. Perhaps it is not too much to hope that when limits of this kind have to be introduced in future legislation, unnecessary alarm will not be caused by apparently random choice of dates. Quite naturally, I very much support the Amendment.

Mr. Diamond

I rise to speak again by leave of the House. I fully realise that we are on Report and I am in a rather difficult position, having moved the Amendment, that if I do not seek the leave of the House to speak again, I shall not be able to reply to the questions which have been properly put to me. I hope quite shortly to give whatever information I can, although I do not have a great deal.

I cannot make any estimate of the further cost which might arise if there were no limit on the period. The words "brought into use" are simple English and have no special legal definition which would detract from their ordinary English meaning. The inspectors of taxes will not take too narrow a view of the meaning and if as in the example put to me, a factory or machine is being run in. that will certainly be regarded as being brought into use. I cannot think that there will be any difficulty, as we have gone to the length of two years so as to cover any possible case.

Mr. Peter Walker (Worcester)

This is rather important in connection with buses. I do not necessarily expect the right hon. Gentleman to know the answer now, but I would be most grateful if the Treasury could make clear to the bus operators what their position will he when taking delivery of a bus which has to he fitted with certain needed refinements. Presumably, on a legal definition, if a bus went on a trial run before the fittings were added, it could be argued that it was brought into use.

Mr. Diamond

I take the point. That is why I have said that the inspectors of taxes will not take too narrow a view of the meaning of the words. I would not have thought that there would be any difficulty, in what I shall have to call the bona fide cases, about satisfying the reasonable requirements of the Revenue, which are the reasonable requirements of the House.

There was a comment about diversion for export which struck a sympathetic chord. I have not had an opportunity to consider this, but I am sure that it would be right for me to say that if, notwithstanding the two-year extension, there were to be a case in which it became apparent that there was competition to satisfy an export order and to satisfy an English domestic operator—and one knows that lorries, for example, are regular exports—it would obviously be in the interests of the nation that the export order should have first claim on the manufacturer of the chassis, for example, and it would be the duty of the Treasury and the Government to take note of that in any necessary adjustments. I do not want to go further than that except to say that we regard exports as priority No. 1.

There is one further point. I was asked why there should be any limitation at all. The reason is the same as that for which we introduced the nine-months' limitation. First, it was thought to be a reasonable half-way house between the proper requirements of those who acquire assets and the proper protection of the Revenue against those who had anticipated the situation and entered into long-term contracts.

We feel that a two-year period goes quite far enough. Those who have thought fit to protect themselves by entering into long-term contracts for a long period of years cannot object to having a two-year run and that being the end of it. I am grateful to you, Mr. Deputy Speaker, and I hope that the House will accept the Amendment.

Amendment agreed to.

Mr. Peter Walker

I beg to move Amendment No. 31, in page 39, line 42, after the words last inserted, to insert: (ii) in so far as that expenditure is on public service vehicles as defined by section 117 of the Road Traffic Act 1960.

Mr. Deputy Speaker (Sir Eric Fletcher)

With this Amendment we can also discuss Amendment No. 30, in page 40, line 2, at end insert: or where that asset is a public service vehicle as defined by section 117 of the Road Traffic Act 1960 and if this is desired it will be convenient for the vote to take place on Amendment No. 31, I understand.

Mr. Peter Walker

This seeks to continue investment allowances in respect of those vehicles defined as public service vehicles under Section 117 of the Road Traffic Act, 1960. This is a continuation of the argument propounded in Committee. There we argued that there was a need to continue investment allowances for buses and public service vehicles, seeing that they were not to receive the new cash grants which the Government are bringing into being.

On an examination of the debate in Committee it will be seen that the Chief Secretary—I think he would agree with this—did not answer the points made on this subject. This appears to have been due to a genuine misunderstanding on his part. We therefore welcome this opportunity of his being able to propound the arguments for not providing any form of investment grant or cash grant in respect of buses and public service vehicles.

It seems an extraordinary thing for a Government who have stressed the need for better public transport suddenly to introduce taxation policies which add to the tax burden on bus companies. The Amendment seeks to ensure that bus companies continue to enjoy investment grants. When I say that no argument was propounded by the Chief Secretary, I should make it clear that in a previous debate on 22nd June, on another Amendment, he propounded a rather remarkable argument, which is the only one I can find on record which enables the Treasury to put forward the view that it is a reasonable thing to take away all forms of investment allowances in respect of buses. In that debate, the Chief Secretary was talking about investment allowances and was dealing with the argument of my hon. Friend the Member for Manchester, Withington (Sir R. Cary), and he said: I would not wish to encourage him to believe that the Government are likely to look very sympathetically on cases where investment is already so overstretched it is impossible to supply the investors' demand for two or three years."—[OFFICIAL REPORT. 22nd June, 1966; Vol. 730, c. 616]

5.45 p.m.

This is a very interesting new concept why investment allowances should be offered. If we examine current Government proposals as they concern the new cash grants we find many items in respect of which there are long order books and other items where, presumably, the Government hope that the grants will result in a considerable demand. Is this concept of the Chief Secretary's to be applied in the future? If the Government decide that machine tools are in great demand at a certain time will they take away the investment allowances?

If that is the case, it is a very dangerous and frightening new concept of the Government's attitude to the question of investment allowances. If this is not the basic argument, however, I must ask the right hon. Gentleman to give the House the arguments that the Government can provide for seeing that the bus industry is penalised in this way.

On a previous Amendment, the Chief Secretary boasted of his generosity. In my view the Treasury is never generous. It is our money and not the Treasury's. Thus, we are very surprised that the Government now intend to take away investment grants on buses. This will cost the public bus companies £2.8 million a year. This is apparently the Chancellor's policy for the bus companies. This is the same Chancellor who, when he increased petrol tax, decided that the level of fares was such an important problem that special legislation should be introduced whereby the bus companies could obtain a rebate in respect of the increase in fuel tax, worth approximately £5 million a year.

This is the same Chancellor who, last year, decided that it was essential—in terms partly of the Government's prices and incomes policy and partly their policy on public transport—to introduce the novel and unusual factor of the rebate scheme in respect of fuel tax. Yet a year later the same Chancellor, in the same Government, by doing away with the investment allowances, imposes additional taxation amounting to £2.8 million a year, and, by way of the Selective Employment Tax, takes from the bus industry an interest-free loan of £15 million.

Those two factors combined mean that there will be no advantage from the rebate on the fuel tax for about seven years. We see that the net result of the rebate and the removal of investment allowances is a total concession of £2.2 million a year. In their Selective Employment Tax the Government are taking an interest-free loan of £15 million, and I just cannot understand why, of all organisations, the buses should have this form of investment incentive removed, with the very dramatic result that in respect of a bus costing £6,000 there is an increase of £720. A bus company operating 300 vehicles, with the normal sort of replacement programme, will have to bear a burden of £45,000 a year. This question appears to have been treated by the Government with the most remarkable complacency. In Committee, I gave some attention to the remarks which had been made by the Ministry of Transport. Once again, one must express surprise that on a major transport matter such as this there is no representative from the Ministry of Transport present. However, this is the normal practice and we are now used to it.

I quoted this in Committee. As, obviously, the Chief Secretary will have read through carefully the reports of the Committee debates, he will no doubt wish to comment on these words of the spokesman of the Ministry of Transport. He said that he: had considered the representations made by the industry to see what could be done to help but he appreciated that this had not yet resulted in effective action. He appreciated that the effect of the withdrawal"—

of the investment allowances— might be increased fares, reduction of services or standards.

The Ministry of Transport have appreciated that the withdrawal of the investment allowances will mean increased fares, reduction of services or standards. Will the Government tell the House whether they are happy to produce taxation proposals which will increase fares and reduce services or standards?

The same spokesman of the Ministry of Transport said that: It was necessary that the industry and the Ministry jointly should face these problems and whilst he was not yet in a position to comment on the recommendations of the Prices and Incomes Board, he had noted the recommendations that the industry should take the lead in obtaining extention of one-man operation."—[OFFICIAL REPORT, 22nd June, 1966; Vol. 730, c. 640.]

Taking the lead in going over to one-man operation means more new buses. There has to be a different type of bus. Therefore, if the Government wish to go over to one-man operation of buses, their task, if anything, is to increase the investment allowances to those public companies which are willing to do so.

Yet if the Amendment is not accepted, rather than increasing the investment allowances to encourage the conversion to one man operation, the Government will discourage it by taking away what allowance exists. I believe that public transport has been very badly treated and affected. It has had to meet considerable wage increases, it pays an enormous fuel duty, it has considerable licence fees to meet and it now has the burden of the Selective Employment Tax. It is remarkable that, added to all this, the Government should ruthlessly decide to do away with the investment incentives which have existed. I therefore hope that, in the interests of the many people who travel by bus, the Amendment will be accepted by the House.

Sir R Cary

I would reinforce what has been said so vigorously and eloquently by my hon. Friend the Member for Worcester (Mr. Peter Walker). He has raised many questions in my mind. I could speak a long time on the relationship which I have known for many years between the industry and the Treasury. It is only in recent years that I have begun to see any relaxation or any gesture to the industry at all. A recent example of this, almost the first that I can recall, is the putting into effect of the right hon. Gentleman's intimation in Committee, giving the industry a benefit of £10 million.

However, that is in the short run, and we are now considering the long run, the root and branch operation. What my hon. Friend has said is all too true. I am fearful of the range of additional expenses which may fall upon the operation of our fleets, whether municipal or private. In the pipeline at the moment is a claim, under consideration by the National Council, for 6 per cent. The Government are making their own pleading about what any such advance could be, but in any case, if the Government's norm of 3,½, per cent. were agreed, plus the withdrawal of investment allowances and with no concession on the extremely heavy fuel duties carried by the industry, in spite of the modest concession by the right hon. Gentleman of £10 million for vehicles in the short run spread over—

Mr. Walker

My hon. Friend will realise, of course, that this does not apply solely to vehicles but to everything in the economy. Not only this industry will get the benefit.

Sir R. Cary

Yes, only a limited part of that £10 million applies to this industry. Only a proportion will apply, which makes it rather worse for the industry.

These are two shattering things at constituency level which upset me more than anything else. One is, outstandingly, any substantial increase in rates. The second is the destruction of fare schedules which necessitates the rebuilding of the fare structure to give an enhancement of revenue of about 15 per cent. to 16 per cent. to operate a company.

Private companies have to operate profitably or go out of business. The municipalities operate too, but always have the acrobat's net of the ratepayers' cheque book below them to make up the deficiency if necessary. This is often done by the municipalities, but private companies, whether a holding company and an operating company like the B.E.T. or the Lancashire United Transport Company, in my constituency, which is a wholly joint stock company, have to make both ends meet. If it had two bad years and used up its reserves, in the end it will go out of business.

Following my hon. Friend's pleas, I would put this proposition to the right hon. Gentleman. The Government are extremely keen to get an economy by co-operation. Because of the slow improvement of the industry, they want a change-over as quickly as possible to one-man operation. Even if the right hon. Gentleman will not consider accepting the Amendment root and branch, if a company decides, in conjunction with the manufacturers, to expedite the replacement of its fleet, with as much one-man operation as possible, under the referee-ship of the Traffic Commissioners, will he allow investment allowances to be given to those vehicles which have to carry into effect the Government's policy of converting fleets as much as possible to one-man operation?

I know that this will make a separation in taxation between some vehicles on the road and others which will be brought on to help to meet the Government's point about the use of manpower in industry.

In addition, I repeat a plea which I have made over and over again—a plea which the industry has made repeatedly: will the Government ease the fuel tax position of the industry? The industry is still paying 2s. 9d. a gallon on its fuel. If the Chancellor will consider the age-old problem which has worried the House for a long time he will realise that he can confer no greater benefit on the industry than that of reducing the level of fuel taxation. The Government have demanded that the industry should not destroy the existing fares structure, but I make a prophesy that in less than two years the present fares structure all over the country will have to be destroyed and rebuilt— and that can be done only at the expense of the fare-paying public. How shall we get moderation in wage and salary demands if we allow a substantial increase in the cost of living— and bus fares are a basic part of the cost of living—by destroying the present level of fares over the whole industry? In great cities such as Manchester and Liverpool there will be an additional 15 to 16 per cent. added to the fares paid by the general public.

6.0 p.m.

Mr. Geoffrey Hirst (Shipley)

I rise briefly but very sincerely to support the Amendment and the very strong and lucid speech of my hon. Friend the Member for Worcester (Mr. Peter Walker). We discussed this very important matter in Committee in various ways, and I hope that the Chief Secretary is now ready to offer a solution to what is a glaring inconsistency in Government policy which must be corrected.

It is shattering that, on a subject which is so important, and which must inevitably lead to an increase in cost to the travelling public, apart from the thin red line on the Treasury Front Bench and the attentive and long suffering P.P.S. sitting behind the Chief Secretary, we have had an average of fewer than two hon. Members on the Government Benches throughout the discussions, and in part of the time there has not been one hon. Member on those benches.

It is devastating that so little interest has been shown in a proposal which will add £750,000 to the costs of the operating bus companies. Hon. Members opposite ought to be up in arms about it. If I had been on that side of the House and the Conservative Party had been in power, hon. Members know what hell the Treasury Bench would have been getting from me had they introduced a proposal such as this. Nothing inhibited me when I was on the benches opposite and nothing inhibits me now. Hon. Members opposite should have been out in full cry on this occasion. The Government last year said that they would give a rebate in respect of the petrol duty to ensure that the fare structures were maintained as far as possible, but now they have added this charge to wipe out a great slice of that essential advantage which was needed to maintain the structure.

Another important aspect concerns the manpower situation. We hope to see manpower in this country fully stretched. I could make some comments about vacancies at present but this would not be an appropriate time to do so. We all know that there is a shortage of manpower and we want to see more economic and a more modern use of the manpower available. If that is related to the Amendment it will he seen clearly that we are seeking to encourage bus companies to go over to the new one-man buses. Yet the Government produce a fuel investment policy which has been condemned throughout industry. How can they defend this inconsistency?

What particularly concerns me is that this matter was discussed clearly in Committee and yet the right hon. Gentleman did not jump to his feet immediately after my hon. Friend had moved the Amendment in order to save the precious time of the House by saying," This fault will be rectified ". He has not done so and his silence gives me no encouragement that the inconsistency of the Government's policy has been admitted, despite the inevitable increase which it must cause in fares being paid by the public.

Mr. David Mitchell (Basingstoke)

I rise only briefly to add to the pleas which have been made particularly in two respects, one of which has scarcely been touched on in the debate. The first is the effect which this proposal will have on the costs of bus operators and on a fares structure, and the way in which it will affect old-age pensioners. I make the point particularly strongly that it is the old people who have no cars and who have had no share in the prosperity of the past 13 years. This section of the community uses bus transport most and will be most affected by this proposal.

Secondly, I make a plea about the effect of the proposal on rural transport. In the Basingstoke and Andover rural areas, we have serious problems arising from the difficulties which local bus operators have in maintaining an economic service without driving up fares to a point at which they will cause great difficulties, or without—this is more serious—being forced to withdraw their services from the outlying villages and hamlets. This aspect causes me grave concern and it should concern a Government which at the Election said that it would help all sections of the community Their proposals are making the problems of rural transport substantially worse. Looking at the Government benches, I regret that only five hon. Members of the Labour Party appear to consider this matter sufficiently important to attend the House.

Mr. Hirst

That is a 100 per cent. increase on two-and-a-half minutes ago.

Mr. Mitchell

There is no Transport Minister on the Front Bench. I very much hope that the Minister will give a sympathetic hearing to this proposal. One of the major social problems of the country districts is that we are having a drift out of the smaller hamlets, because farmers cannot get farm workers who will live in those areas because they are isolated and cut off from public transport. I hope that the Minister will be more receptive to this proposal.

Mr. Paul Dean (Somerset, North)

I should like to support the plea which has been made from this side of the House and particularly the remarks of my hon. Friend the Member for Basingstoke (Mr. David Mitchell) about the difficulties of rural bus operators. I am sure that even the Chief Secretary admits that they are having an exceedingly difficult time under present arrangements. They are finding it very difficult to maintain a satisfactory service, and in many cases already the service is inadequate. Their costs and their fares have been mounting rapidly. The Chief Secretary also knows that we are dealing with a comparatively small section of the community who are not well off. Tycoons do not travel by public transport[Interruption.]—not usually. The majority of people who use public transport, particularly in the country districts, are those with comparatively modest means, certainly those who cannot afford motor cars. They are already finding bus fares a considerable burden, and now the Chancellor is making things even harder for them. Hon. Gentlemen opposite are always talking about social justice. Here is a policy which is completely contrary to their avowed aims.

Many rural bus operators are having to run additional services because of railway closures, services which would not have been contemplated had those closures not taken place. These are additional burdens being placed on bus operators and I hope that the Chief Secretary will recognise the strength of the pleas which my hon. Friends and I are making.

Sir Douglas Glover (Ormskirk)

Unless the Chief Secretary accepts the Amendment, he will be demonstrating that the Government have completely lost control of their transport policy. I trust that the right hon. Gentleman has noted that only one back bencher is seated behind him voluntarily and is not a pressed man. That is an indictment of the party opposite, which was returned to power to protect the interests of the underprivileged and the transport problems particularly of those who cannot afford motor cars. I am surprised that more hon. Gentlemen opposite have not been prepared to come here to listen to our discussions, even if they are not prepared to take part in them. It is a pity that there are not a few honourable and independent hon. Gentlemen opposite of the calibre of my hon. Friend the Member for Shipley (Mr. Hirst).

It is obvious, from the policies the Government have pursued, that they are like a wounded rhinocerous which has been shot in one eye and is running around in ever increasing circles damaging the remainder of the herd and not achieving anything else. This has happened to the Government's transport policy.

Before referring to last year's Finance Act, I must mention that we seem to have had a permanent Finance Bill since the Government came to power. No sooner have we dealt with one Measure than another is before us. In this continuous process, might it not be a good idea for the Government to introduce a running Finance Bill, which they could amend from time to time, thus saving us the trouble of having to go through the various stages of each Measure? I am certain that before this Measure has received its Third Reading the Chancellor will produce further measures of financial repression and restriction.

Sir Harmar Nicholls (Peterborough)

rose—

Sir D. Glover

I will not give way.

Hon. Members

Give way.

Sir D. Glover

I trust that my hon. Friends and I will not argue over this. My hon. Friend the Member for Peterborough (Sir Harmar Nicholls) always makes brilliant speeches. I am sure he will do the same today.

6.15 p.m.

In 1965 the Government had a transport policy. But that was in the dim and distant past when there were heads of agreement and statements of intent. At that time they were trying to keep down the cost of transport, so much so that when they introduced what they called their mini-Budget, in which fuel tax was increased by 6d., the Chancellor excused the transport undertakings from paying it. Now—having saved the road transport operators about £5 million on that occasion—in this Measure the road transport undertakers will have to pay another £2,¾ million, in addition to which they are faced with the Payroll Tax, which will cost them £10 million to E12 million, so that their total oncost of the Government's so-called co-ordinated transport policy is colossal and means that the Government are deliberately putting up the costs of the road transport undertakings at a time when hon. and right hon. Gentlemen opposite keep telling us that they want to keep the cost of living stable.

The Chief Secretary should remember that these additional costs are paid not by the community at large but by those in the lower income groups. I should, at this point, correct my hon. Friend the Member for Worcester (Mr. Peter Walker), who said that it was not the Treasury which found the money but us. I am grateful that he thinks that Members of Parliament are so wealthy that we raise all this money for the nation. Of course, the money is not raised just by us but by the public in general. These increased charges will be paid by, if anyone, the under privileged people in our community. I am glad to see the right hon. Lady the Minister of Pensions and National Insurance in her place because she takes a great interest in these matters. Hon. Gentlemen opposite stated that they would help the underprivileged members of society, but here they are increasing the costs of the road transport industry, costs which will be paid by those in the lower income groups.

My hon. Friend the Member for Basingstoke (Mr. David Mitchell) spoke about the rural districts, and while I do not want to make a special case of my constituency, I must tell the Chief Secretary that the Minister of Transport is at present considering whether or not to accept the closure of the line from Ormskirk to Preston. If that line is closed, additional rural road transport will have to be provided. What encouragement have the Government given, by their recent actions, for rural road transport undertakings to produce such additional facilities? The rural areas are finding it increasingly difficult to keep their road services going.

A great drive is on for the introduction of one-man operated buses, but this involves capital expenditure. Bearing that in mind, what have this modernising Government done? They have taken away the capital allowances which would encourage operators to introduce buses controlled by one man.

As I said, the Government are acting like a wounded rhinocerous, running around in ever increasing circles, damaging the population and showing more and more that they are losing control of events and are acting out of panic rather than out of real thought and resource. I hope that, for once, the Chief Secretary will realise the sense of what my hon. Friends and I are saying and will accept the Amendment.

Mr. Robert Cooke (Bristol, West)

I am privileged to speak following my hon. Friend the Member for Ormskirk (Sir D. Glover), although he did not go nearly far enough in drawing the attention of the House to the way in which the Government have utterly neglected the sphere which we are trying to help by the Amendment.

It is also worth noting that, despite the hurrying and scurrying of the Government Whips throughout the building, they have managed to produce only a smattering of hon. Gentlemen on the benches opposite who, I am sure, have no idea of what we are discussing. For their benefit, we are at page 1674 of the Notice Paper—Amendments Nos. 30 and 31. I suppose that we have the one consolation that they are unlikely to muster 100 Members for the Closure in the near future.

I want to take up one or two of the points made by my hon. Friends and also to make some new ones. First, there is the question of one-man bus operation—. the modern approach. This will not be helped by the Government's attitude. In fact, as a result of Government action it will go forward much more slowly. The result will be the perpetuation of out-of-date public service vehicles; out-of-date buses blocking up our roads long into the future, because those buses cannot be replaced by new vehicles as the operators will not get the necessary help.

That will make for considerably worsened traffic conditions. Heaven knows, we have had evidence that with buses or taxi cabs off the road traffic moves with complete freedom in London. Perhaps if we had better buses in the provinces—and we need them in Bristol—we might have a quicker flow of traffic. Here we have an example of Britain's modernisation being impeded by the Government's own policies.

Before I had the privilege to speak in this debate I listened to the end of the previous one, when I heard the Minister say that exports were the Government's No. 1 priority. How do we have a healthy export market in these new buses if we do not have a healthy home market? We shall not find them being ordered in great quantities unless we have them being used here, and they will not be available here unless they get the proper tax treatment—

Mr. A. Woodburn (Clackmannan and East Stirlingshire)

I am very much interested in the arguments advanced by the hon. Member for Bristol, West (Mr. Robert Cooke) and his hon. Friends. During this debate we have heard a great deal about the numbers of people and the kinds of people who should not pay the tax. Will the hon. Gentleman now suggest who should pay it, if these people should not?

Mr. Speaker

The hon. Member would be out of order if he responded to the challenge.

Mr. Cooke

I am most grateful, Mr. Speaker, for your guidance, and help in not getting this debate off the lines. I have no intention of following the right hon. Gentleman the Member for Clackmannan and East Stirlingshire (Mr. Woodburn) into his irrelevant field. We are now discussing the difficulties which bus operators, in particular, are facing, and which are not being helped by what the Government are doing. It is a pretty desperate state of affairs when all one can get from the other side is the right hon. Gentleman coming in and, as you said, Mr. Speaker, interrupting, with something quite irrelevant and out of order.

One of my hon. Friends spoke of municipal bus undertakings. The Government are no doubt in favour of anything not privately owned, but many undertakings are a partnership between the municipal and the commercial elements— and we have just that state of things in Bristol. My hon. Friend the Member for Manchester, Withington (Sir R. Cary) said that underneath there was always the ratepayer's cheque book as a sort of safety net into which the undertaking could fall if it got into deficit. That is a pretty poor attitude to adopt, and a pretty poor solution— that because the Government are not doing their duty, the ratepayers will pay lest the undertaking should go out of business.

From what I have heard in this debate this afternoon I am thoroughly convinced that the Government should make this concession. I hope that they will accept the Amendment.

Mr. James Dance (Bromsgrove)

I want to underline what was said by my hon. Friend the Member for Somerset, North (Mr. Dean) about rural buses. In Worcestershire we have been, and are, threatened with railway closures, and some of these have been carried out. When this scheme first came out under Dr. Beeching, most of us approved, provided we got adequate alternative forms of transport. I gave my support to closures of uneconomic lines and insisted that we must have this alternative form of transport.

The ordinary bus is not good enough today. We need a form of goods van such as they have on the Continent, where a woman can pack her pram or her trunk. I have even travelled in France with a thing on top of the vehicle carrying a lot of chickens, ducks and geese—[An HON. MEMBER: "Pigs?"]—yes, let us take a few pigs along, too. We need proper goods vans on our buses.

When I got in touch some time ago with my right hon. Friend the Member for Wallasey (Mr. Marples) on this subject he produced a photograph of one of these things being tried out. They were not cheap. They were tied to the back of an ordinary single-deck bus and contained quite a lot of things that people in the country areas want to have carried —prams, mail carts, trunks, parcels, and so on, which cannot be taken in the normal bus.

The Government are completely falling down in this respect in not allowing these allowances. This development would cost money, but if the Government intend to pursue their policy, with which I do not disagree, of closure of certain uneconomic railway lines, they must provide this alternative transport. As people in the country areas know, though I do not suppose that everyone in the towns appreciates it, what is needed in the rural areas is not just a bus, but an extra bit of accommodation at the back or on the top of the bus for the carriage of goods.

I therefore plead with the Government to consider this subject again to see whether they cannot grant this allowance for something that is so completely essential for the efficient running of the bus services that I hope we shall have in the future and, in particular, for the welfare of the countryside.

Sir Eric Errington (Aldershot)

I should like to add my support to those of my hon. Friends who have spoken of the difficulties and problems facing bus companies. We are fortunate enough in my constituency to have an extremely efficient and well-run organisation, yet I get a very large number of requests for further bus routes and for more convenient arrangements. The question is often posed whether, instead of having the double-decker bus, which is too expensive, we could have the single-decker which takes a less number of people. The bus companies' problems are mounting up. The transport of children to school also needs the most careful consideration.

Investment allowance policy is only one of a number of things that the bus operators have to face, and the only way they can face up to it without cutting off the services—which in the country parts is a very unsatisfactory way of dealing with the matter—is by increasing the fares. Let us have no doubt at all that one of the results of the Government's attitude will be an increase in fares. It will also mean a worse service, as buses, like other motor vehicles, require constant renewal because of the desirability of having up-to-date arrangements. All these things are hitting at a service that is absolutely essential in the countryside.

I have had letters from old people who are desirous of having increased bus services. In certain places there is only one bus service during the daytime. They desire at least two so that they can make journeys at reasonably convenient times. When I put this to the bus company the reply was, "We do our very best, but this is not a viable route. In consequence, money has to be made from other services to meet the situation." I ask the Chief Secretary to look at this matter in a broader way than that merely of a question of abolition of investment allowances. That is only one thing, but the accumulation of things which make it difficult for bus operators to provide a service is very serious indeed. There is little doubt that this will have the result of increased fares being charged or no service being provided.

6.30 p.m.

Mr. Diamond

The hon. Member—

Sir Gerald Nabarro (Worcestershire, South)

On a point of order, Mr. Speaker. Several of my hon. Friends and I have been sitting here for a very long time trying to catch your eye. May we have the assurance of Mr. Speaker that the fact that the Chief Secretary has risen in his place will not curtail in any way our honest endeavours from the Opposition benches?

Mr. Speaker

I can put the hon. Member out of his misery. I called the right hon. Member on the Front Bench on the Government side, but that does not necessarily mean the end of the debate.

Sir G. Nabarro

I am most grateful to you Sir.

Mr. Diamond

The hon. Member for Aldershot (Sir E. Errington) asked me not to regard this matter too narrowly but to deal with it more widely than the Amendment before us does and to deal with investment allowances. Indeed the whole of the debate, with the possible exception of the speech by the hon. Member for Worcester (Mr. Peter Walker) has dealt with matters which are broadly related to the difficulties of bus services in the country and other services. Hon. Members who have suggested that an hon. Member coming into the House and listening for an hour would not follow what the debate was about have been on sound ground, because the number of times in which the matter contained in the Amendment has been mentioned has been minimal.

Mr. Peyton rose—

Mr. Diamond

No, I shall not give way. I hope that the House will allow me to deal with the speech of the hon. Member for Worcester and the Amendment before us. What is being asked is that an exception shall be made from a general policy decision, an exception shall be made in regard to buses from the general policy decision which is to exchange for investment allowances investment grants in appropriate cases with the special application of those grants as a backing to economic policy. The case which is to be made therefore on the Finance Bill is that buses are in such a special category as to be necessarily separated from every other kind of asset in the country so as to continue alone to get investment allowances which are attributable to no other asset in future.

I am bound to say that I have not heard arguments making that case. I have heard arguments making the case for the difficulties of the public service vehicles. I have heard arguments making the case that they should have special treatment and acknowledging that they have had special treatment. Indeed, the basis of the claim for inconsistent treatment is that they have had special treatment from the Chancellor in relation to the rebate of fuel tax.

Mr. Peter Walker

If the right hon. Gentleman will now say that he is willing to exchange investment grants for the new cash grants for buses, I shall withdraw the Amendment.

Mr. Diamond

I thought the hon. Member was going to say that. This underlines how inappropriate the Amendment is to this particular debate because the hon. Member knows, and knows full well—no doubt he has made this argument elsewhere himself—that this is not the Bill which deals with investment grants. He knows that there is no Clause in this Bill dealing with investment grants. There is no power here to deal with investment grants. He is asking me to agree to do what this Bill does not do. There is another Bill in which there will be full opportunity for hon. Members to take—

Sir G. Nabarro indicated dissent.

Mr. Diamond

It is no use the hon. Member shaking his head. He is wrong again. There has been a debate on the White Paper in which the whole policy of investment grants has been discussed. There is a Bill which has been debated on Second Reading and in Committee upstairs dealing with the full details of investment grants. We are now dealing with the Finance Bill under which as a corollary, but only as a corollary—not as a matter of policy, only as a corollary to the other Bill which deals with investment grants—this Bill deals with the withdrawal of investment allowances.

Mr. Peter Walker

This is an extraordinary argument. It is known that it is Government policy not to give the new grants for buses. Therefore, we should discuss on this Clause of the Finance Bill the leaving of buses without any allowance of any description. It is perfectly reasonable that we should continue the discussion.

Mr. Diamond

We are not discussing buses with no allowances at all.

Mr. Peter Walker

What have they got?

Mr. Diamond

I repeat that this is not a debate on general transport policy or even on a limitation of general transport policy as far as it affects buses concerned in the Amendment, public service vehicles. There are many ways in which services mentioned in this Amendment are helped, very many ways. If there is not a sufficient number of ways there are other methods of putting forward requests and appropriate ways in which they can be met. This is not the occasion for doing anything other than establishing that the withdrawal of investment allowances which is accepted—

Sir G. Nabarro

Not on buses.

Mr. Diamond

—by the whole of the House, and the House is now sitting. The withdrawal of investment allowances has been accepted by the whole of the House.

Sir G. Nabarro indicated assent.

Mr. Diamond

It has been accepted on several occasions. The approval of the White Paper was one. The Second Reading of the Bill dealing with investment grants was another. Everyone who voted for acceptance of investment grants knew that he was voting for withdrawal of investment allowances.

Mr. Raymond Gower (Barry)

Will the right hon. Gentleman answer—

Mr. Diamond

Yes, I will answer.

Mr. Speaker

Order. I hope the right hon. Gentleman will not go too wide in the answer.

Mr. Diamond

I hope that I shall go considerably narrower than the points which were put to me. I shall certainly endeavour to follow your Ruling, Mr. Speaker, and deal with them very narrowly indeed. The whole of my argument is to claim that all the arguments put to me are far too wide and I am grateful for your comment and help. What we are concerned with here is the very narrow point as to whether vehicles of this kind are so to be distinguished from every other asset and every single other asset in the country, that they alone should continue to get investment allowance.

Mr. Gower rose—

Mr. Diamond

I have said six times that I am not giving way to the hon. Member. Cannot he hear? I have given way I dare say 50 times—[An HON. MEMBER:" It is a prolonged debate."] The debate has been very much prolonged already. I have noticed hon. Members on the Front Bench opposite collecting speakers to keep it going.

Mr. Peter Walker

Mr. Speaker, I ask the Chief Secretary to withdraw that remark which is completely untrue.

Mr. Diamond

If it is not hon. Members on the Front Bench opposite who have been getting speakers in, it is others who have been collecting speakers to continue the debate.

Hon. Members

Withdraw.

Mr. Walker

On a point of Order, Mr. Speaker. I must ask the Chief Secretary to substantiate that remark or to withdraw it.

Mr. David Webster (Weston-super-Mare)

Withdraw.

Sir G. Nabarro

On a point of order. Is it in order for the First Secretary to indulge in crass mendacity in the House?

Mr. Speaker

I hope the hon. Gentleman will withdraw the word "mendacity".

Sir G. Nabarro

I withdraw "mendacity" and substitute "inaccuracy", Mr. Speaker.

Mr. Speaker

It is in order for any hon. Member to indulge in inaccuracy. It is a common complaint.

Mr. Diamond

I may have been inaccurate in my hearing, Mr. Speaker. However, I do not want to pursue the matter. I thought I heard the hon. and gallant Member for Knutsford (Sir W. Bromley-Davenport) invited to come in and make a speech. If that is not the case, if he was not invited—

Mr. Speaker

Order. I hope that we can get back to the Amendment.

Lieut.-Colonel Sir Walter Bromley-Davenport (Knutsford)

Mr. Speaker, did my own ears deceive me? I wonder whether the right hon. Gentleman who has just referred to me would mind repeating the glowing remarks that he has just made about me.

Mr. Speaker

I think the House had better take my advice and get back to the Amendment.

Mr. Diamond

I accept your advice very readily, Mr. Speaker, and I repeat shortly, therefore, that the only case which could be made out for the exceptional treatment of public service vehicles as being the only asset in the country to be excluded from the withdrawal of investment allowances has not been made out, and therefore I regret that I cannot recommend the House to accept the Amendment.

Mr. Peyton

We have listened to a number of unsatisfactory answers during the course of these debates, and the right hon. Gentleman the Chief Secretary must now be awarded the palm or some more suitable prize. The answer which he has just given is surely the most unsatisfactory, unsympathetic and unfeeling that we have yet had from the Government, and that is saying a lot. The right hon. Gentleman's commencing remarks were quite astonishing. He appeared to be suggesting that investment allowances had no bearing on the general problems of running rural transport.

Mr. Diamond

I did not say that.

Mr. Peyton

The right hon. Gentleman was so generous in giving way and I trust that he will not indulge tonight in the habit of sedentary interruptions. Perhaps he will have other opportunities to explain exactly what he did mean. I am certain that I carry my hon. Friends with me when I say that the right hon. Gentle. man gave us the clear impression that he was conducting a very specious argument by suggesting that the removal of investment allowances had little or no bearing on the difficulties of running rural transport. This seems to me astonishing.

The right hon. Gentleman then capped that amazing piece of speciousness with another suggestion, that all those who had voted for investment grants were auto- matically against investment allowances. A little bit of something is better than nothing at all, but any suggestion that those of us who are speaking on behalf of the Amendment are against investment allowances for buses or anything else is quite wrong and without foundation, and the right hon. Gentleman knows it very well.

I cannot help but believe that the Government are now giving one more indication of their real hostility or callousness where the affairs of the countryside are concerned. When one recollects the crocodile tears which were once shed by some enthusiastic but irresponsible advocates of helping the countryside when the Socialist Party was on this side of the House, one feels some disappointment that those sentiments are not reflected in Government policy now.

6.45 p.m.

It is very sad indeed that we do not have any representative from the Ministry of Transport here. The Treasury Ministers already have quite a load on their shoulders. They cannot be expected to be masters of every aspect of Government policy, even though they think they are. We think it would be unfair to expect it of them. But it is not unfair for the House of Commons to expect the presence of representatives from a Department whose affairs are under discussion on a Bill of this kind. They certainly should be here. I recollect only too well that the Minister of Power was not here during a power debate. But the right hon. Lady the Minister of Pensions and National Insurance does come. Why cannot her example be followed by the Minister of Transport? I observe, Mr. Speaker, that you may be getting restive but I am sure you understand the peat amount of provocation that we have had.

I want to remind the Government not only of the Jack Report but of the series of local inquiries which followed that Report. May I remind the Chief Secretary, or may I tell him because I do not suppose he has heard of it before, of the Report on Rural Bus Services which indicates how marginal was the possibility of rural bus services even surviving, and referred in particular to the help that might be given by a remission of the fuel tax. I shall not read much of it, but I should like to quote from paragraph 84 as follows: The bus operators' representatives in the area emphasised the heavy cost of maintaining rural services. Additional facilities could only be provided if financially supported, whether locally or nationally.

It goes on to consider the advisibility or otherwise of a remission of fuel tax. I am not going to consider that now. I am only raising it because the evidence of the Committee and its inquiries were to one effect, a-at even the most marginal help would be valuable.

What would have been the reaction of this Committee had it been told that the Government contemplated, in Measures such as this, removing investment allowances from the bus companies? I believe those responsible for these inquiries would have thought that the Government or the Treasury which is responsible for such a proposal as this, had gone clean out of their minds. But they were not such pessimists as to anticipate the arrival of right hen. and hon. Gentlemen on the Front Bench opposite.

I do not wish to delay the House from the joys which I expect will come pouring forth from my hon. and gallant Friend the Member for Knutsford (Sir W. Bromley-Davenport). But I want to register my utter disgust at the Government's careless dismissal of the genuine anxieties felt by bus operators and their customers throughout the countryside, and if the Government do not do better than this I shall be driven to the conclusion that Hungarians do not travel in buses.

Mr. Webster

I thought the Chief Secretary was, to say the least, a little irritable and I thought that made up for his lack of argument in replying to this excellent debate.

The point that has been quite clear is the deep strength of feeling among hon. Members on this side of the House who represent every shade and sector of the community. I thought it ill became the right hon. Gentleman to say that people had been inciting my hon. and gallant Friend the Member for Knutsford (Sir W. Bromley-Davenport) to declare his views which he holds very strongly, when we have drawn attention to the fact that not only has there been no Transport Minister on the Government Front Bench through- out the whole of this debate which has last for two hours, but also that there have been very few Government supporters present during almost the last two hours and the Whips had to be sent out to fetch them in.

Every time they came in we cheered them and approved the fact that at last, willy-nilly and reluctantly, they were showing some interest in this matter, which arouses very deep feelings in the House. [Laughter.] The hon. Member for Bilston (Mr. Robert Edwards) is pleased to laugh at this, but he is one of those who supported the Travel Concessions Act, brought in by his former Chief Whip. Concessionary fares will be eroded by the withdrawal of investment allowances.

The former Secretary of State for Scotland, the right hon. Member for Clackmannan and East Stirlingshire (Mr. Woodburn) came in, pushed in by his own Whips, then interrupted, with his hands in his pockets and talked about a tax. We are talking about an allowance, not a tax, and that is something which I hope he will accept.

I reiterate to the Chief Secretary that our purpose is absolute opposition in principle to withdrawal of investment allowances. But if he, as a senior Minister of the Government, will give the assurance that he will give the investment incentive to the bus companies, we shall withdraw the Amendment. We have an absolutely rooted objection to the exclusion of bus companies from both investment allowances and investment incentives. Why are they singled out?

I see that hon. Members opposite are going back now to their cups of cocoa and various things like that, which probably are very tasty. But these are important matters. Why is the industry singled out? I notice that the Chief Secretary was looking unhappy when he came in at the beginning. He had to make an Amendment, which he did with very good grace, to give away Government money, as he said. That is a complete misconception. It is returning to the industry its own money. This is a matter of principle which I hope that the Chief Secretary and his friends will immediately take into account.

Mr. Sheldon

Quibble.

Mr. Webster

It is a matter of principle that the hon. Gentleman would do well to learn.

Mr. Sheldon

I always consider this to be a quibble—the double return of money is the same thing as giving money. These quibbles and semantics impress few people outside the House.

Mr. Webster

I remind the hon. Gentleman that the duty of the House is to withhold the taxpayer's money until we are sure that a grievance is redressed and that the country is properly administered. It is the taxpayer's money, and it is the taxpayer that hon. Members on both sides of the House—and I hope that he will remember this—are here to serve and protect.

We have seen the industry suffer first the 6d. on the gallon fuel duty. Later, it was given a concession, and was grateful, but now it has suffered the loss of investment allowance. Today it has been given a concession, and is grateful, but it is bemused; it is being treated like Pavlov's dog, and at the end of the day the concession is very much less than the original impost. That is what is going wrong with this unfortunate industry.

We have heard statistics from my hon. Friends the Members for Worcester (Mr. Peter Walker) and Manchester, Withington (Sir R. Cary) showing that the bus companies will have to earn 40 per cent. more when investment allowances are withdrawn in order to keep the profit level the same as it is today. With that profit level, they have to plough back money to buy more vehicles, because all the time they are being exhorted by the Minister of exportation and transportation to invest in new equipment and new buses.

What help are they being given in this respect? As we know, the Minister of Transport is not interested in looking after these people. Today she is talking to the N.U.R. She talks about social needs and removing congestion from the streets of the Metropolis and our major cities. Yesterday we had the report of the G.L.C., showing that if something is not done immediately there will be crippling congestion.

What is being done today to assist public transport, to assist in moving the traffic in and out of our cities so that people are encouraged to leave their cars in their garages and go by bus? This is something that the House and the Minister of Transport approves of. But what pressure is the right hon. Lady making on this, and what interest is she taking in it, to ensure that something—not simply lip service—is done to assist in reducing the congestion in our great cities?

There is the problem of regional development. The whole of the development areas lack capital investment, and they are the areas that are, broadly, dependent on the bus services.

Mr. Gower

Hear, hear.

Mr. Webster

I heard a Welsh voice behind me, and I was glad to hear the voice of Wales on this matter. What is being done to help regional development? My hon. Friends have talked today on behalf of the West Country, and will later talk, I hope, on Scotland and Wales. Those are the regions that have been particularly promised regional development, and there is now a Secretary of State for Wales and so on. In all the regional developments, rural transport is a key point that has been totally neglected.

Withdrawal of investment allowances, without the balancing investment incentive about which the Chief Secretary has spoken, proves that the whole of the Ministry of Transport's policy is simply lip-service and exhortation. There is nowhere a case for taking away the investment allowance from the public transport and the bus industry, unless one gives them an investment incentive as well.

I hope that my right hon. and hon. Friends will explore this matter thoroughly in the important debate that still lies ahead of us, and when they have done so I would advise them to divide on behalf of the Amendment so ably moved by my hon. Friend the Member for Worcester.

Sir G. Nabarro

The reason why rural transport has entered largely into our lengthy debate this afternoon, almost entirely from my hon. Friends and myself, is that nearly all the rural constituencies of England are represented on this side of the House, and the Ministers on the Treasury Bench sit almost entirely for industrial and urban seats. They have no appreciation of the influences on the rural constituencies of removal of investment allowances on buses.

The right hon. Gentleman the First Secretary sits for Gloucester. Hm! Not a blade of green grass in Gloucester. The hon. and learned Gentleman the Financial Secretary sits for a Derby seat. Not a blade of green grass in Derby. My hon. Friend who opened the debate, the hon. Member for Worcester (Mr. Peter Walker) sits for a county constituency.

Mr. Brian Walden (Birmingham, All Saints)

Gloucester and Derby pay more in taxes.

Sir G. Nabarro

The hon. Gentleman displays his ignorance of English constituencies. My hon. Friend sits for a constituency comprising 68,000 acres, of which the city of Worcester is the major part and there are vast adjoining rural areas. The Parliamentary Private Secretary should remain quiescent.

Mr. Walden rose—

Mr. Speaker

Order. If the hon. Gentleman who has the Floor does not give way, the hon. Gentleman must keep his seat.

Sir G. Nabarro

I am always generous in these matters, Mr. Speaker. I should be delighted to allow the hon. Gentleman to make his maiden speech as a Parliamentary Private Secretary.

Mr. Walden

I rose simply to inform the hon. Member, as he well knows, that it is a convention that keeps Parliamentary Private Secretaries silent. I have just as much right to speak on this Amendment as the hon. Member has, since he made a comment on what I said. I did not say that Worcester was not a county seat. I said that it is possible that the constituencies of Gloucester and Derby pay far more taxes than the City of Worcester.

Sir G. Nabarro

I should immediately incur your displeasure, Mr. Speaker, if I followed that entirely irrelevant intervention.

I complete the trinity of speakers from the County of Worcestershire this afternoon. My hon. Friend the Member for Worcester opened the debate and my hon. Friend the Member for Bromsgrove (Mr. Dance) spoke a little later.

An Hon. Member

Not many blades of grass there.

Sir G. Nabarro

The hon. Gentleman intervenes—

Mr. Speaker

Order. There are 630 constituencies. I hope that the hon. Gentleman will not mention them all.

7.0 p.m.

Sir G. Nabarro

I have no wish to respond in detail on that point, Mr. Speaker. I am talking of one two hundred and tenth part of the 630, namely, the three contiguous Worcestershire county constituencies, Worcester, Bromsgrove and Worcestershire, South, my own constituency. They are contiguous and they have certain features in common. They cover widespread rural areas and they all return Tory Members. They are largely denuded of rural transport. That is why our three voices have been heard in unison in this important connection.

I turn now to the fiscal technicalities of the Amendment. The Chief Secretary said that he was dealing with a narrow point. So he was, a narrow but critically important point. There are three forms of capital allowance to which the House has become accustomed in the 21 years since capital allowances were first introduced by the late Sir John Anderson at the end of the last war. The three forms of capital allowances are the initial allowance, the investment allowance and the cash grant.

The initial allowance has disappeared almost entirely from the industrial fiscal scene. The investment allowance is in process of disappearing, and in its place we have the cash grant, but with certain important exclusions. Public transport vehicles and goods vehicles are specifically excluded, and the only method which my hon. Friends and I have for securing the retention of a form of capital allowance on the narrow but critically important sector of public service vehicles is by moving this Amendment for the retention of investment allowances for public service vehicles. This is entirely relevant and we are entirely justified in calling in aid three important supporting arguments.

First—we have heard from practically every speaker on this side—that the rural areas are being progressively denuded of transport services. We have practically none left in Worcestershire. There are vast areas of the countryside now where the railway lines have been closed and the stations have disappeared. There is even a threat now to shut the station at Pershore, a famous Worcestershire town the centre of an important horticultural area. There are hardly any bus services left at all, and we fear that added costs resulting from the withdrawal of the investment allowance will sound the death knell of the residual rural bus services.

If anyone challenges me on what the increased costs will be, I respond at once. Does the House understand what an investment allowance, as introduced by former Tory Governments, did? It paid 130 per cent. of the historical capital cost of an asset over the working life of the asset. It gave a premium of 30 per cent. less Income Tax at the standard rate, on the value of the asset purchased. If that investment allowance is removed, it follows that on all capital assets purchased by bus companies there will be a commensurate increase in the cost of operation spread over the life of the working asset, the omnibus. This is critically important in the context of rural bus services. That is the first point.

The second point I cannot do better than emphasise once more on behalf of my hon. Friends the Members for Worcester and for Bromsgrove and myself, in Worcestershire, South—these three widespread, contiguous, and largely rural constituencies.

Mr. Michael Foot (Ebbw Vale)

Not again.

Sir G. Nabarro

The hon. Gentleman sits for Ebbw Vale. Not a blade of green grass there either. No rural bus services in Ebbw Vale. The hon. Gentleman ought to sympathise with me in the plea I am making, for his industrial workers come to my constituency to enjoy good clean fresh air and the Worcestershire countryside.

Mr. Foot

I was not complaining of the anthem. I was inviting the hon. Gentleman not to repeat the chorus every time.

Sir G. Nabarro

It is not a question of a chorus. It is a question of alliteration and of emphasis, both very apposite to these arguments.

I return to the trinity of Worcestershire Members, and I am coming to the second point. The fuel duty was mentioned. The Midland Red Omnibus Company, which covers these three Worcestershire constituencies, has estimated that the fuel duty alone cost it £900,000 in operating rural services in the West Midlands. My hon. Friend the Member for Yeovil (Mr. Peyton) mentioned the Jack Report. He spoke first of the Jack Report on Rural Bus Services in 1959. Bringing the matter up to date, the investigation in 1965, six years later, in four sample areas, again brought out this figure of £900,000 for Midland Red fuel costs. That is the second factor.

The third factor has been mentioned, namely, the export market for buses. I hope that the Chief Secretary will not laugh at this point. It was his Administration which appointed Sir Donald Stokes to promote additional overseas sales, and Sir Donald Stokes, deputy chairman and managing director of Leyland, is the most successful bus salesman, overseas. Leyland earns huge sums in foreign exchange, but if the rate of output of buses for the home market is slowed down, it vitiates and undermines export promotion capability. [Laughter.] Those are the three factors. They should not be treated with levity by my hon. Friend the Member for Knutsford (Sir W. Bromley-Davenport).

Sir W. Bromley-Davenport

I am sorry that my hon. Friend misunderstood. I was not treating what he said with levity. What I like about all his speeches is that they are so tremendously fluent and full of so many facts that the dumb Lobby fodder opposite dare not interrupt.

Sir G. Nabarro

As always, I am grateful to my hon. Friend for his stimulating intervention.

The Chief Secretary inquired whether my right hon. and hon. Friends and I wished to put buses into a special category for capital allowance purposes. My answer is an unequivocal," Yes ". He put buses into a special category in a negative sense by withdrawing the investment allowance and refusing in substitution the cash grant. He unilaterally discriminated against omnibuses.

Mr. Sheldon

Will the hon. Gentleman allow me?

Sir G. Nabarro

No, I will not. I told the hon. Member yesterday that he is a pest.

The right hon. Gentleman discriminated unilaterally against buses by withdrawing the capital allowance upon them and refusing to substitute a cash grant. I seek in my speech, delivered with the utmost seriousness, to restore capital allowances to omnibuses, thereby helping rural services and helping our export trade, and that is the purpose of the Amendment. I hope that all my right hon. and hon. Friends, together with the Liberal Party, will join in the Lobby and vote unanimously and enthusiastically against the retrogressive step taken by the Treasury this day.

Mr. Sheldon

The hon. Member tor Worcestershire, South (Sir G. Nabarro) did not show what I thought he always considered to be his usual courtesy in giving way. Otherwise I should not have risen now to make the only point that I wished to make when he referred to capital allowances and the need for their continuation in the form of investment allowances for buses.

The Industrial Development Bill sought to replace investment allowances by investment grants. In passing the Second Reading of the Industrial Development Bill, the House accepted, as the Chief Secretary tried to make plain, that the two systems could not go side by side, that one cannot have investment grants side by side with investment allowances. Not only is the hon. Member for Worcestershire, South trying to get them going side by side but he is even trying to get them for one special category only, public service vehicles. This makes nonsense of the whole system of the Industrial Development Bill, which has been accepted by the House.

Mr. Gower

Although the Chief Secretary is not primarily responsible for transport and is a Treasury Minister, it was hardly creditable that he should have spoken in reply to the Amendment with an apparent disregard of the plight of the bus services. The position here is in a special category because it is so des- perate. It is desperate in the South-West, in Worcestershire and certainly in the Principality of Wales. It is desperate in the case of rural services. The position is only slightly better in some of the municipal services where the loss-making capacity is much the same as in the rural areas but the position is disguised by rating precepts.

The Chief Secretary must appreciate that we are pressing this point because it is the final straw, the culmination of many things which have made the difficulties of the industry so much greater. I am astonished that he should apparently have been so relatively unconcerned about the survival of bus services in some of the least accessible parts of the country.

Mr. Lubbock

I was tempted to intervene by what was said by the hon. Member for Worcestershire, South (Sir G. Nabarro) and the hon. Member for Ashton-under-Lyne (Mr. Sheldon). The hon. Member for Worcestershire, South asked whether the Liberals would support the Amendment. We expressed our views forcibly on the subject during the Committee stage of the Finance Bill, and I thought that I could save time if I did not reiterate the views that I expressed then.

The hon. Member for Ashton-under-Lyne has missed the whole point of the argument, which is that the Chief Secretary has refused to include buses in the proprosals for the investment grants. That is why some of us on this side are seeking to apply the investment allowance system to them.

We believe that a result of the proposals which the Chief Secretary has brought before us very great harm will be caused to the rural bus industry and also to buses in constituencies such as mine in the outer parts of the big conurbations, where, I am sorry to say, we are not very well served in all respects by the London Transport Board.

So in talking about the Amendment we should not limit our remarks purely to the people who live in rural areas. I believe that the bus companies about which the hon. Member for Manchester, Withington (Sir R. Cary) spoke serve a very large area in the City of Manchester as well as outside it. So we are talking about services which affect perhaps the majority of the inhabitants in the United Kingdom and not just one small section of the population. I wish the Chief Secretary would think again even at this late hour.

Question put, That those words be there inserted in the Bill:—

The House divided: Ayes 138, Noes 204.

Gourlay, Harry	McGuire, Michael	Roberts, Gwilym (Bedfordshire, S.)
Greenwood, Rt. Hn. Anthony	McKay, Mrs. Margaret	Robertson, John (Paisley)
Gregory, Arnold	Mackenzie, Gregor (Rutherglen)	Robinson, W. 0. J. (Walth'stow, E.)
Grey, Charles (Durham)	Mackie, John	Rodgers, William (Stockton)
Griffiths, David (Rother Valley)	Mackintosh, John P.	Roebuck, Roy
Griffiths, R t. Hn. James (Llanelly)	McMillan, Tom (Glasgow, C.)	Rose, Paul
Hamilton, James (Bothwell)	McNamara, J. Kevin	Ross, Rt. Hn. William
Hamilton, william (Fife, W.)	MacPherson, Malcolm	Rowlands, E. (Cardiff, N.)
Hamling, William	Mahon, Peter (Preston, S.)	Ryan, John
Hannan, William	Mahon, Simon (Bootle)	Sheldon, Robert
Hattersley, Roy	Mallalieu, E. L. (Brigg)	Shinwell, Rt. Hn. E.
Hazell, Bert	Manuel, Archie	Shore, Peter (Stepney)
Heffer, Erie S.	Mapp, Charles	Short,Rt.Hn.Edward(N'c'tle-u-Tyne)
Herbison, Rt. Hn. Margaret	Mason, Roy	Silverman, Sydney (Nelson)
Hobden, Dennis (Brighton, K'town)	Miller, Dr. M. S.	Skeffington, Arthur
Hooley, Frank	Mitchell, R. C. (S'th'pton, Test)	Slater, Joseph
Houghton, Rt. Hn. Douglas	Morgan, Elystan (Cardiganshire)	Small, William
Hoy, James	Morris, Alfred (Wythenshawe)	Spriggs, Leslie
Hughes, Emrys (Ayrshire, S.)	Morris, Charles R. (Openshaw)	Steele, Thomas (Dunbartonshire, W.)
Hughes, Roy (Newport)	Murray, Albert	Summerskill, Hn. Dr. Shirley
Hunter, Adam	Newens, Stan	Symonds, J. B.
Hynd, John	Noel-Baker, Francis (Swindon)	Thomas, George (Cardiff, W.)
Jackson, Colin (B'h'se & Spenb'gh)	Noel-Baker,Rt.Hn.Philip(Derby,S.)	Thomas, lorwerth (Rhondda, W.)
Jackson, Peter M. (High Peak)	Norwood, Christopher	Thornton, Ernest
Jeger, George (Goole)	Ogden, Eric	Tomney, Frank
Jenkins, Hugh (Putney)	O'Malley, Brian	Urwin, T. W.
Jenkins, Rt. Hn. Roy (Stechford)	Oram, Albert E.	Varley, Eric G.
Jones, Dan (Burnley)	Orme, Stanley	Wainwright, Edwin (Dearne Valley)
Jones, J. Idwal (Wrexham)	Oswald, Thomas	Walden, Brian (All Saints)
Judd, Frank	Owen, Will (Morpeth)	Walker, Peter (Worcester)
Kelley, Richard	Page, Derek (King's Lynn)	Wallace, George
Kenyon, Clifford	Pannell, Rt. Hn. Charles	Watkins, David (Consett)
Kerr, Dr. David (W'worth, Central)	Parkyn, Brian (Bedford)	Wellbeloved, James
Kerr, Russell (Feltham)	Pearson, Arthur (Pontypridd)	Whitlock, William
Lawson, George	Pentland, Norman	Williams, Clifford (Abertillery)
Leadbitter, Ted	Perry, George H. (Nottingham, S.)	Williams, W. T. (Warrington)
Ledger, Ron	Price, Christopher (Perry Bar)	Willis, George (Edinburgh, E.)
Lestor, Miss Joan	Price, Thomas (Westhoughton)	Wilson, William (Coventry, S.)
Lever, Harold (Cheetham)	Probert, Arthur	Winnick David
Lewis, Ron (Carlisle)	Pursey, Cmdr. Harry	Winterbottom, R. E.
Lomas, Kenneth	Randall, Harry	Woodburn, Rt. Hn. A.
Luard, Evan	Rankin, John	Woof, Robert
Lyons, Edward (Bradford, E.)	Redhead, Edward	Yates, Victor
McBride, Neil	Rhodes, Geoffrey
McCann, John	Richard, Ivor	TELLERS FOR THE NOES:
MacDermot, Niall	Roberts, Albert (Normanton)	Mr. Joseph Harper and
		Mr. Walter Harrison.

Mr. Diamond

I beg to move Amendment No. 105, in page 40, line 9, after "expenditure", to insert or be made by virtue of section 332(3) of the said Act of 1952 in respect of a proportionate part of any contribution towards that expenditure". This Amendment deals with a possible defect in the application of Clause 35 to capital allowances which a trader may claim in respect of contributions he makes towards another trader's capital expenditure. The present position is that expenditure in respect of which a relevant grant is paid does not rank for an initial or investment allowance but, as the Clause is drafted, there is nothing to stop one trader getting a grant in respect of expenditure and another contributing to its cost and claiming an initial allowance in respect of his contribution. The reason is that, under Section 332(3) of the Income Tax Act, 1952, a trader who, for the purpose of his trade contributes a capital sum towards another trader's capital expenditure, can claim allowance as if his contribution had been expenditure on the provision of a similar asset.

Of course it follows that the recipient of the contribution is to that extent debarred from claiming allowance himself on his expenditure. But the Board of Trade does not propose to take any account of contributions made by one trader towards another's capital expenditure. The contributor's expenditure under this Clause, therefore, is not expenditure that is taken into account for the purposes of a relevant grant. The duplication must be cured and the Amendment does so by providing that no initial or investment allowance shall be made under Section 332(3) for a proportionate part of any contribution towards the expenditure for which a relevant grant is paid.

Amendment agreed to.

Clause 36.—(TERMINATION OF FREE DEPRECIATION IN DEVELOPMENT DISTRICTS.)

Mr. Higgins

I beg to move Amendment No. 32, in page 41, line 1, to leave out Clause 36.

This is a dramatically worded Amendment, inasmuch as it asks the House to delete the Clause completely. I believe that it is unusual for an Amendment in this form normally to be selected at Report stage, so I am hopeful that the fact that it has been selected may help us persuade the Government that they should accept it.

The main point to be made is that it is not intended to be a destructive Amendment but a constructive one. We believe that the system of free depreciation introduced by the Conservative Government has been extremely successful in encouraging investment in development districts. Indeed, the Minister of State, Board of Trade, replying to the debate on the Clause in Committee, said that the system had been extremely helpful in furthering regional policy.

We on this side—and, I am sure, the House as a whole—are clear that, if we are to solve our economic problems, maintaining a high level of employment and stabilising the cost of living, it is vital in the long run to encourage investment in development districts because only if we do can we hope to keep the economy in balance and avoid deflating it, which would create more unemployment in areas of intrinsically high unemployment or else, as we tried to mop up such unemployment, would create an inflationary situation in the South and the Midlands. It will, therefore, be generally agreed that it is essential to have the right kind of regional policy which will encourage investment in development districts and areas.

7.30 p.m.

We pointed out in Committee that the system of free depreciation which enable people in development districts to write off immediately the assets against tax, as against the situation elsewhere where they can only write off the asset over the life of the asset has been instrumental in encouraging firms to go to the development districts. We on this side feel that this is a preferable system to the system of cash grants which the Government now propose to introduce.

In the debate in Committee, however, we pointed out that the Government's proposals for the Selective Employment Tax have had, or are likely to have, a serious effect upon the distribution of industry between the regions, for the reason that the Selective Employment Tax will have the most favourable effect on the area of the West Midlands, which is the area which tends to overheat whenever the economy begins to gain momentum.

Conversely, I quoted at column 708 on 22nd June the National Institute of Economic and Social Research Report, which pointed out that the effect of the tax, on the other hand, on areas such as Scotland would be far less favourable than on the West Midlands, and similarly for the north of England. Therefore, the Government are introducing in the Selective Employment Tax what is essentially a counter-regional policy. For that reason, we suggested in Committee that there would be a strong case for continuing to maintain the system of free depreciation incentives to offset the Selective Employment Tax.

That, in essence, is why we have tabled the Amendment. It means that if the Government wish to continue the system of free grants, they will continue but, on the other hand, the system of free depreciation will continue alongside it and will do something to offset the adverse effects which the Selective Employment Tax is likely to have on the regions which naturally suffer from a high level of unemployment.

When I made this point in Committee, the Minister of State, Board of Trade, agreed that it was an interesting proposition and that he would certainly pass it on to his right hon. Friend the Chancellor of the Exchequer. I am hopeful that the House will consider the point and agree that it is essential that we should do everything possible to encourage a regional balance and that, for that reason, we should be prepared to continue this existing incentive in addition to the incentives which the Government now propose in their Bill, which will give cash grants.

It is also important to stress that since the Committee stage there have been further developments which make this all the more necessary. We now have a rather clearer idea of the view of the Chancellor of the Exchequer on the state of the economy over the next six months or year. This will have important effects on investment intentions, particularly in development districts, which would be affected by the deletion of the Clause.

It now seems clear that in spite of the fact that the Chancellor was reluctant to give a clear view of the economy in the "regulator" debate, the right hon. Gentleman envisages a situation in which he will introduce measures in the autumn —namely, the Selective Employment Tax —which will take out of the economy £1,100 million. This inevitably will have a serious deflationary effect upon the economy, unless some of it were offset by some other method of increasing credit and easing things up. From the answer given yesterday by the Chancellor, however, it is clear that he has no intention of easing up credit restrictions, so that the interest-free loan which industry will be making to the Government in the period between September and next February will be covered by bank loans. In these circumstances, it is clear that the liquidity of firms will be severely squeezed. This inevitably will have an impact on their investment decisions.

As the Chief Secretary has agreed on a number of points, people making investment decisions are open to be influenced by short-term measures, and this is likely to affect the decisions which they make. If, however, we wish to continue to encourage investment, and particularly in the development districts, I suggest that in the present economic climate, and in view of the prospects now facing the country, we need to take additional measures to offset those which the Chancellor has introduced and, apparently, proposes to introduce during the next year or so.

Unless we do this, there is a grave danger that the country will get the worst of both worlds in the way of stop-go policies. Hon. Members opposite have constantly stigmatised previous efforts by Conservative Governments as stop-go policies, but, at least, in those circumstances, when we felt it necessary to adopt policies to reduce the increases in costs and in prices which were making our exports less competitive and foreign imports more competitive, they had a generalised effect on consumption, on investment and on Government spending, throughout the whole pattern of activity.

The situation which the Government are now pursuing is in danger of having the bad effect which the previous policies had upon investment decisions, for the reasons which I have mentioned. At the same time, it is having very little effect upon consumption, prices or wage increases. This is the worst of all possible worlds. We cannot allow ourselves to be in a position where investment is deterred. Particularly, we cannot put ourselves in a position where investment in the development district is deterred. For this reason, we on this side feel that the Amendment is one which the House should accept.

When we discussed this matter in Committee, we referred to the Press release which had been issued by the Board of Trade on 21st June and which was concerned with investment intentions. This confirmed the view which I have just expressed that industry's intentions with regard to investment are apparently declining. I asked the Minister of State, who replied to the debate, whether he could provide us with figures broken down by regions. He agreed that this was certainly an important point. He had not then had an opportunity of studying other than the Press release made by the Board of Trade, but he said that he would endeavour to ascertain whether such figures for investment intentions by regions were available.

Those figures are clearly relevant to the Amendment and I hope that the Minister of State has been able to provide them for the Chief Secretary. It is only in the light of those figures that the House can fully appreciate the situation concerning development districts. I certainly hope that the figures will be produced. If they are not available, I hope that the Chief Secretary will ensure that the study which is to be taken into 1966 and 1966 intentions on investment will cover this regional problem, because we are very short of statistics in this sector and it is extremely difficult for us to appraise the effect which the various incentive schemes are having if we do not also have corresponding statistical inquiries of the kind which I have just mentioned.

The essential thing here is that investment intentions are likely to be deterred by the Government's present measures and forecasts. Therefore, we need to take measures which will offset that. It may be that the Government feel quite unable to meet the cost of this. If, however, one looked at in terms of the total impact of all the taxation problems of the regions, in terms of the development areas and districts as against other areas, we would find that the development districts are not gaining significantly if one takes into account all the tax changes as a whole. We on this side very much hope that something of this kind can be done to help industry to invest in those areas.

There was some debate in Committee on whether one system of giving incentives was better than the other, whether the system of cash grants was more likely to encourage industry to go to the development districts and invest there. In proposing this Amendment, I want to raise this query with the Chief Secretary. If we have two alternative systems about which the Minister of State said in his reply that it is open to doubt, when one looks at the arithmetic, which is the greater incentive, is there not a case for giving business firms the option as to which system they will adopt? It would seem that if we do that we shall have some real basis for deciding which system is likely to encourage firms to go to development districts and, more particularly, over a period of years which appears to have produced investment which is remunerative and helping the national economy.

I add that point in parentheses, because the main point is that we need to do everything possible to encourage investment in the development districts. It is not sufficient merely to take the measures which are now proposed because of other actions which the Government are taking in the taxation field.

I hope that the House will see fit to approve the Amendment on the lines which I have suggested.

Mr. John Biffen (Oswestry)

I am not an enthusiast for interventionist measures, even when they are sanctified by the description of a balanced regional economic policy. I rise only to ask the Chief Secre- tary if he can give me some information in dealing with an Amendment which seeks to abolish Clause 36, concerning the termination of free depreciation in development districts.

Does the Treasury have any evidence of the effect which free depreciation has had in the past in attracting to development districts investment which would not have taken place there in any case?

One appreciates that this kind of concession of free depreciation is quite expensive, and perhaps the Chief Secretary will be able to give us some figures on that point. But the matter of real interest for all who seek to make up their minds on the cost of our regional policy is the knowledge of how much additional investment has come to those districts on account of this concession, and how many jobs did that represent.

Mr. Diamond

We are at one in our desire to help the development districts, now to be called development areas.

Mr. Higgins

They are the same.

Mr. Diamond

They are not the same, and that is a defect in the Amendment. The hon. Member for Worthing (Mr. Higgins) wants to leave in development districts, and development districts will cease to exist when the new Bill calls them development areas, which are of a larger area. But it does not matter. The point that I want to make is that we are at one in our desire to help.

The only question is, which is the best way of helping as between alternatives? I gather that the alternatives which the hon. Gentleman suggests are two. The first is that we should give a choice of free depreciation as opposed to investment grants in the development areas, and the other is that we should have free depreciation instead of investment grants in the development areas. I was not sure whether at one time he was suggesting that we should have free depreciation as well as investment grants in development areas.

Mr. Higgins

If the right hon. Gentleman reads through the debates on the Committee stage, he will see that we were suggesting "in addition to", in order to offset the counter-regional policy of the Selective Employment Tax.

7.45 p.m.

Mr. Diamond

I am glad to have that clear, because I thought that was what the hon. Gentleman was saying at one point.

He has asked me to indicate the effect of free depreciation in encouraging firms to move into development districts. It is not possible to pinpoint the particular incentives which have had an effect on a particular firm. One can only say that the total effect of our policy and that of previous Governments has been to encourage firms, and the latest figures would indicate that. Recent indications are quite encouraging, particularly in one area. One has to have regard to the totality of all the things which help to make sure that there are not areas where economic resources, human and otherwise, remain unused. That is the purpose that both sides of the House seek to serve.

We have had many debates on White Papers, on Second Readings and on the Bill which specifically deals with the problems as to which is the better method of encouraging investment in and encouraging firms to come to these areas. I have no doubt that free depreciation is an attractive freedom, and I willingly confess that I have made speeches from where the hon. Gentleman is now sitting in favour of the concept, always being told in reply that it cannot be done and that it is much too expensive for the Treasury.

Although I am at one with all those who feel that free depreciation is a great encouragement, nevertheless a greater encouragement is a cash grant, not necessarily in terms of the final arithmetic, though I do not dispute what the hon. Gentleman has said about the final arithmetic; an incentive is not a matter of accountancy alone, although that enters into it. It is the feeling which the potential investor gets and what excites his investing appetite. That may be more than the arithmetic at the end of the discounted cash flow exercise.

My own feeling about a cash grant is that, admittedly, the sooner one is in a position to get the cash grant more nearly in cash than in credit, the more will the incentive be effective.

Mr. Biffen

That is all very metaphysical. Surely what the right hon. Gentleman is saying is that he does not know how much additional investment and how many jobs have gone to these districts on account of free depreciation, although I am sure that he is able to tell the House how much it has cost the Treasury.

Mr. Diamond

No, I have not got the figures. I can perhaps get them for the hon. Gentleman. I have no figures in front of me of the cost of free depreciation as far as it has gone. What I am saying is that I agree entirely with the hon. Gentleman that it is metaphysical. The arguments which have gone on have gone on as to which is the better kind of incentive, and, as I say, incentive is more than a matter of arithmetic.

The view which has been taken by the Government is that the incentive which we are proposing, expounded in the White Paper on Investment Incentives (Cmd. 2874), is the most helpful one that we can provide. It is more helpful than the one which is being forgone, and we believe that the allowance of 40 per cent. in the newly expanded development areas will be a great inducement, together with all the other items that I do not list now which form the Government's development area policy.

The only question which remains is whether there should be a choice and/or, failing that—and I am glad the hon. Gentleman does not pursue the point—whether, in addition to a 40 per cent. cash grant policy, we could afford a free depreciation policy as well. The answer to that is, certainly not. The whole thing has been geared, and the Budget has been balanced, on the basis of the present proposed method of a cash grant, and one does not want to interrupt that.

All the arguments put to us are that we must encourage investors to feel that they are safe in the knowledge that the present encouragement will continue until the investment is not only decided upon but has been made and the relief granted. We could not possibly consider the concession of free depreciation as well as. the very great encouragement which we are giving in the development areas.

I do not hide my feeling that perhaps. this is a matter which is more easily discussed fully on the appropriate Bill. But it certainly has its relevance to the removal of free depreciation. Its removal is a corollary to the White Paper and the Bill which was fully discussed and to which the House agreed. I hope that the House recognises why I am dealing with this matter, although sympathetically, somewhat shortly. I do not want to go over the arguments which we have had many times. We have an established policy which has been fully explained on several occasions and which does not permit of free depreciation in the development districts continuing side by side with cash grants—a most expensive suggestion. I cannot recommend the Amendment to the House.

Mr. John Boyd-Carpenter (Kingston-upon-Thames)

As I was in the Chief Secretary's position when my right hon. Friend the Member for Barnet (Mr. Maudling) introduced the system of free depreciation, I should like to register my protest at what seems to me to be the wanton destruction of a most effective instrument in helping the development disticts. The right hon. Gentleman said very fairly that the question of the correct incentives to stimulate industrialists was not a matter of accountancy or precise calculation but, to some extent, metaphysical. I agree with him. But all the evidence is that this has been a most powerful instrument.

The Chief Secretary and the Government underrate the strong effect of tax concessions of this sort in inducing the business community to make particular arrangements. The stimulus of a tax concession of this kind has always been underrated by right hon. Gentlemen—at any rate when they are in office. The Chief Secretary very fairly wondered whether this proposal was put forward by my hon. Friend the Member for Worthing (Mr. Higgins) as an alternative to the system of cash grants or in addition to it. As my hon. Friend rightly said, it is put forward in addition to the system of cash grants.

The Chief Secretary sought to reject this proposal on the traditional and obvious grounds of expense. His rejection would have carried a good deal more weight if he had been in a position, as he was not, to say what was the cost of the system of free depreciation—in other words, what cost on top of the system of cash grants would be involved in running both these systems together. It is treating the House a little casually for him merely to say that the whole Budget is geared on this basis unless he is able to give the magnitude of the additional cost.

The system of free depreciation has proved a most powerful stimulus and has worked well. This kind of tax concession has been tried not only in this country but somewhat differently in other countries. I do not know whether the Chief Secretary has seen the wonderful work which successive Italian Governments have done through the Caissa di Mezzogiorno in regenerating the south of Italy and dealing with the appalling poverty which used to exist in that part of the world. I have studied it on the spot. It has arrangements, not precisely in this form—this is a unique form—but having broadly this kind of effect which, according to Italian industrialists with whom I have discussed the matter, have been one of the major factors in getting them to invest in the south of Italy and to regenerate almost miraculously what used to be one of the most poverty-stricken areas of Europe.

The question which arises on this Amendment is this: are we so sure that we shall never need this instrument to help our development districts that we can safely allow it to be abolished? I thought that my hon. Friend the Member for Worthing made a very powerful point when he drew attention to the fact that a situation seems to be developing which is likely to raise the same difficulties which the development districts have known in the past.

At Question Time yesterday, the Chancellor of the Exchequer, by what he said and, more significantly, by what he did not say, gave to many of us a very grave impression of his views of the nation's economy and of the restrictive steps he was likely to take in the near future. It is common gossip that Bank Rate is to be raised. Whether tomorrow or the following week is a matter of argument, but it is coming soon. The right hon. Gentleman certainly gave the impression that other severe measures will be necessitated by, among other things, the appalling trade figures which the right hon. Gentleman knew yesterday and which we learned about today.

In those circumstances, if the right hon. Gentleman, rightly or wrongly, is to apply further restrictive measures in the near future, since on every past occasion when they have been applied they have bitten particularly sharply on the development districts, it is a very considerable thing to ask the House to abandon what has been proved to be one of the best instruments—perhaps the best —for helping the development districts.

My right hon. Friend the Member for Barnet was rightly applauded by both sides of the House on a new and imaginative concept in using taxation and fiscal measures to help the development districts when this instrument was produced. There was much reaction in old-fashioned circles against it. It proved a triumphant success in the circumstances in which it was introduced. The question for the House is whether, in view of what the Chancellor of the Exchequer suggested and against the background of these impending measures, this is the moment to abandon an instrument which has proved to be effective in maintaining investment and, therefore, employment, in the most vulnerable districts. We should be acting dangerously rashly so to abandon it.

Mr. Higgins

If I may have the leave of the House to speak again, I must stress that the Chief Secretary has failed completely to answer our points. They were naturally an extension of the debate in Committee. It was abundantly clear from that debate that the Minister of

Division No. 112.]	AYES	[8.0 p.m.
Abse, Leo	Carter-Jones, Lewis	Fletcher, Ted (Darlington)
Allaun, Frank (Salford, E.)	Coe, Denis	Floud, Bernard
Alldritt, Walter	Corbet, Mrs. Freda	Foley, Maurice
Archer, Peter	Craddock, George (Bradford, S.)	Foot, Michael (Ebbw Vale)
Armstrong, Ernest	Crawshaw, Richard	Ford, Ben
Atkins, Ronald (Preston, N.)	Cronin, John	Fowler, Gerry
Bacon, Rt. Hn. Alice	Cullen, Mrs. Alice	Fraser, Rt. Hn. Tom (Hamilton)
Baxter, William	Davidson, Arthur (Accrington)	Galpern, Sir Myer
Beaney, Alan	Davies, Dr. Ernest (Stretford)	Garrow, Alex
Bennett, James (G'gow, Bridgeton)	Davies, G. Elfed (Rhondda, E.)	Ginsburg, David
Bessell, Peter	Davies, Harold (Leek)	Gourlay, Harry
Bidwell, Sydney	Delargy, Hugh	Greenwood, Rt. Hn. Anthony
Bishop, E. S.	Dempsey, James	Gregory, Arnold
Blackburn, F.	Dewar, Donald	Grey, Charles (Durham)
Booth, Albert	Diamond, Rt. Hn. John	Griffiths, David (Bother Valley)
Boston, Terence	Dickens, James	Griffiths, Rt. Hn. James (Llanelly)
Bowden, Rt. Hn. Herbert	Doig, Peter	Hamilton, James (Bothwell)
Braddock, Mrs. E. M.	Donnelly, Desmond	Hamilton, William (Fife, W.)
Bradley, Tom	Dunn, James A.	Hamling, William
Brooks, Edwin	Dunwoody, Mrs. Gwyneth (Exeter)	Hannan, William
Broughton, Dr. A. D. D.	Dunwoody, Dr. John (F'th & C'b'e)	Harper, Joseph
Brown, Hugh D. (G'gow, Proven)	Eadie, Alex	Harrison, Walter (Wakefield)
Brown,Bob(N'c'tle-upon-Tyne,W.)	Edwards, Robert (Bilston)	Hazen, Bert
Brown, R. W. (Shoreditch & F'bury)	English, Michael	Helfer, Eric S.
Buchan, Norman	Ensor, David	Herbison, Rt. Hn. Margaret
Buchanan, Richard (G'gow, Sp'burn)	Evans, Albert (Islington, S.W.)	Hobden, Dennis (Brighton, K'town)
Butler, Herbert (Hackney, C.)	Evans, loan L. (Birm'h'in, Yardley)	Hooley, Frank
Butler, Mrs Joyce (Wood Green)	Fernyhough, E.	Houghton, Rt. Hn. Douglas
Cant, R. B.	Finch, Harold	Hoy, James
Carmichael, Neil	Fitch, Alan (Wigan)	Hughes, Emrys (Ayrshire, S.)

State, Board of Trade would represent to the Chancellor of the Exchequer whether this proposal could be included to offset the counter-regional effect of the Selective Employment Tax in addition to the cash grant system. It is clear that the cost would be comparable with the premiums introduced in the Selective Employment Tax.

But the more important point which we must consider is what is likely to happen to the revenue in the longer run. If we can balance up the regions in the way in which I had suggested, the level of income will go up faster than otherwise and the revenue obtained from that income will be greater because of our progressive system of taxation, and the whole economy will be stronger and better.

Standing in for the Minister of State, Board of Trade, the Chief Secretary might have done the House the courtesy of reading the earlier debates and being quite clear what it was that we were getting at with this Amendment. On those grounds, I hope that my right hon. and hon. Friends will support the Amendment in the Lobby.

Question put, That the words proposed to be left out, to the word "any in line 20, stand part of the Bill:—

The House divided: Ayes 208, Noes 131.

Hughes, Roy (Newport)	Manuel, Archie	Ryan, John
Hunter, Adam	Mapp, Charles	Sheldon, Robert
Hynd, John	Mason, Roy	Shore, Peter (Stepney)
Jackson, Colin (B'h'se & Spenb'gh)	Miller, Dr. M. S.	Short,Rt.Hn.Edward(N'c'tle-u-Tyne)
Jackson, Peter M. (High Peak)	Mitchell, R. C. (S'th'pton, Test)	Silkin, John (Deptford)
Jeger, George (Goole)	Morgan, Elystan (Cardiganshire)	Silverman, Sydney (Nelson)
Jenkins, Hugh (Putney)	Morris, Alfred (Wythenshawe)	Skeffington, Arthur
Jenkins, Rt. Hn. Roy (Stechford)	Murray, Albert	Slater, Joseph
Johnston, Russell (Inverness)	Newens, Stan	Small, William
Jones, Dan (Burnley)	Noel-Baker, Francis (Swindon)	Spriggs, Leslie
Jones, J. Idwal (Wrexham)	Noel-Baker,Rt.Hn.Philip(Derby,S.)	Steel, David (Roxburgh)
Judd, Frank	Norwood, Christopher	Steele, Thomas (Dunbartonshire, W.)
Kelley, Richard	Ogden, Eric	Summerskill, Hn. Dr. Shirley
Kenyon, Clifford	O'Malley, Brian	Symonds, J. B.
Kerr, Dr. David (W'worth, Central)	Oram, Albert E.	Thomas, George (Cardiff, W.)
Kerr, Russell (Feltham)	Orme, Stanley	Thomas, lorwerth (Rhondda, W.)
Lawson, George	Oswald, Thomas	Thornton, Ernest
Leadbitter, Ted	Owen, Will (Morpeth)	Thorpe, Jeremy
Ledger, Ron	Page, Derek (King's Lynn)	Tomney, Frank
Lestor, Miss Joan	Pannell, Rt. Hn. Charles	Urwin, T. W.
Lever, Harold (Cheetham)	Parkyn, Brian (Bedford)	Varley, Eric G.
Lewis, Ron (Carlisle)	Pearson, Arthur (Pontypridd)	Wainwright, Edwin (Dearne Valley)
Lomas, Kenneth	Pentland, Norman	Wainwright, Richard (Colne Valley)
Luard, Evan	Perry, George H. (Nottingham, S.)	Walden, Brian (All Saints)
Lubbock, Eric	Price, Christopher (Perry Barr)	Walker, Harold (Doncaster)
Lyons, Edward (Bradford, E.)	Price, Thomas (Westhoughton)	Wallace, George
McBride, Neil	Probert, Arthur	Watkins, David (Consett)
McCann, John	Pursey, Cmdr. Harry	Wellbeloved, James
MacDermot, Niall	Randall, Harry	Williams, Clifford (Abertillery)
McGuire, Michael	Rankin, John	Willis, George (Edinburgh, E.)
McKay, Mrs. Margaret	Redhead, Edward	Wilson, William (Coventry, S.)
Mackenzie, Gregor (Rutherglen)	Rhodes, Geoffrey	Winnick, David
Mackie, John	Roberts, Albert (Nortnanton)	Winstanley, Dr. M. P.
Mackintosh, John P.	Roberts, Gwilym (Bedfordshire, S.)	Winterbottom, R. E.
McMillan, Tom (Glasgow, C.)	Robertson, John (Paisley)	Woodburn, Rt. Hn. A.
McNamara, J. Kevin	Robinson, W. O. J. (Walth'stow, E.)	Woof, Robert
MacPherson, Malcolm	Rodgers, William (Stockton)	Yates, Victor
Mahon, Peter (Preston, S.)	Roebuck, Roy	TELLERS FOR THE AYES:
Mahon, Simon (Bootle)	Rose, Paul	Mr. William Whitlock and
Mallalieu, E. L. (Brigg)	Ross, Rt. Hn. William	Mr. Charles R. Morris.
	Rowlands, E. (Cardiff, N.)
NOES
Alison, Michael (Barkston Ash)	Fortescue, Tim	Mathew, Robert
Allason, James (Hemel Hempstead)	Galbraith, Hn. T. G.	Mawby, Ray
Astor, John	Gilmour, Ian (Norfolk, C.)	Maxwell-Hyslop, R. J.
Atkins, Humphrey (M't'n & M'd'n)	Glover, Sir Douglas	Mills, Stratton (Belfast, N.)
Awdry, Daniel	Glyn, Sir Richard	Mitchell, David (Basingstoke)
Baker, W. H. K.	Goodhart, Philip	Monro, Hector
Batsford, Brian	Grant-Ferris, R.	Morgan, W. G. (Denbigh)
Beamish, Col. Sir Tufton	Gurden, Harold	Morrison, Charles (Devizes)
Bell, Ronald	Hall, John (Wycombe)	Munro-Lucas-Tooth, Sir Hugh
Bennett, Dr. Reginald (Gos. & Fhm)	Hall-Davis, A. G. F.	Murton, Oscar
Biffen, John	Harris, Frederic (Croydon, N.W.)	Nabarro, Sir Gerald
Birch, Rt. Hn. Nigel	Harrison, Brian (Maldon)	Nicholls, Sir Harmar
Boyd-Carpenter, Rt. Hn. John	Harrison, Col. Sir Harwood (Eye)	Noble, Rt. Hn. Michael
Braine, Bernard	Harvie Anderson, Miss	Orr, Capt. L. P. S.
Brewis, John	Hawkins, Paul	Osborn, John (Hallam)
Brinton, Sir Tatton	Hay, John	Page, Graham (Crosby)
Brown, Sir Edward (Bath)	Heald, Rt. Hn. Sir Lionel	Pearson, Sir Frank (Clitheroe)
Bruce-Gardyne, J.	Heseltine, Michael	Peel, John
Bryan, Paul	Higgins, Terence L.	Peyton, John
Bullus, Sir Eric	Hill, J. E. B.	Pike, Miss Mervyn
Burden, F. A.	Hirst, Geoffrey	Pink, R. Bonner
Campbell, Gordon	Holland, Philip	Pounder, Rafton
Carlisle, Mark	Hordern, Peter	Powell, Rt. Hn. J. Enoch
Cary, Sir Robert	Hunt, John	Pyrn, Francis
Chichester-Clark, R.	Hutchison, Michael Clark	Quennell, Miss J. M.
Clegg, Walter	Irvine, Bryant Cadman (Rye)	Renton, Rt. Hn. Sir David
Cooke, Robert	Jenkin, Patrick (Woodford)	Ridsdale, Julian
Corfield, F. V.	Joseph, Rt. Hn. Sir Keith	Rossi, Hugh (Hornsey)
Costain, A. P.	King, Evelyn (Dorset, S.)	Russell, Sir Ronald
Crawley, Aidan	Kitson, Timothy	Sharpies, Richard
Cunningham, Sir Knox	Knight, Mrs. Jill	Shaw, Michael (Sc'b'gh & Whitby)
Currie, G. B. H.	Lewis, Kenneth (Rutland)	Smith, John
Dance, James	Longden, Gilbert	Summers, Sir Spencer
Dean, Paul (Somerset, N.)	Loveys, W. H.	Talbot, John E.
Deedes, Rt. Hn. W. F. (Ashford)	McAdden, Sir Stephen	Taylor, Sir Charles (Eastbourne)
Dodds-Parker, Douglas	MacArthur, Ian	Taylor, Edward M.(G'gow,Cathcart)
Elliot, Capt. Walter (Carshalton)	Maclean, Sir Fitzroy	Taylor, Frank (Moss Side)
Elliott, R.W.(N'c'tle-upon-Tyne,N.)	Macleod, Rt. Hn. lain	Teeling, Sir William
Errington, Sir Eric	McMaster, Stanley	Temple, John M.
Eyre, Reginald	Madden, Martin	Thatcher, Mrs. Margaret

Turton, Rt. Hn. R. H.	Weatherill, Bernard	Wylie, N. II.
van Straubenzee, W. R.	Webster, David
Walker, Peter (Worcester)	Whitelaw, William	TELLERS FOR THE NOES:
Walters, Dennis	Wilson, Geoffrey (Truro)	Mr. Anthony Grant and
Ward, Dame Irene	Wood, Rt. Hn. Richard	Mr. Peter Blaker.

Amendments made: In page 41, line 20, after" of ", insert: or of any contribution towards".

In line 22, leave out "thereof" and insert "of that expenditure".—[Mr. MacDermot.]

Clause 39.—(CANCELLATION OF TAX ADVANTAGES FROM CERTAIN TRANSACTIONS IN SECURITIES.)

Mr. Harold Lever (Manchester, Cheetham)

I beg to move Amendment No. 108, in page 46, line 6, at the end to insert: (8) Section 28 of the Finance Act 1960 shall be amended by the addition after proviso (ii) to subsection (10) thereof, of the following further proviso:— (iiA) in the event that the Commissioners do not notify him that they are so satisfied as aforesaid, he shall have right of appeal to the Special Commissioners in like manner in all respects (with such modifications as may be required) as provided under subsections (6), (7), (8) and (9) of this section". I should find it most agreeable if the House accepted this Amendment with the same celerity as it accepted the last two. I hope that I shall be forgiven by the House in raising this very complex point if I make a few introductory remarks of explanation. The Amendment intends to add a proviso of benefit to the taxpayer, not in respect of any Clause in this Bill but in respect of Section 28 of the 1960 Act, which deals with tax avoidance and confers upon the Revenue the right to nullify for tax purposes transactions entered into that result in a tax advantage to the citizen.

I ought to start by assuring the House that when a citizen obtains a tax advantage he is not necessarily engaged upon any kind of nefarious or complex duel with the Inland Revenue; he might be conducting his affairs in a quite normal way and still obtain a tax advantage. For example, a man who sells a ground rent obtains a tax advantage, in the sense that he gets the capital, which is tax free, instead of receiving the future income, which is taxable. It is the most innocent thing in the world for people to get tax advantages. A man who gives up smoking obtains a tax advantage.

I hope that when the House examines the proviso it will not start on the assumption that only a certain group of people who are not worthy of the House's sympathy are affected by Section 28 of the 1960 Act. That Act gives the widest power to the Inland Revenue to decide that certain transactions come within the Section, in which case the direst and most penal consequences may follow. When I use the words "penal consequences" I merely echo words used by a learned law lord in a recent decision, where he described the consequences of the decision that he was reluctantly compelled to come to in a case where Section 28 was applied to a taxpayer.

I can assure the House that there are many innocent and wholly acceptable transactions which could come within that Section. This was recognised by the House when those provisions were enacted, and a number of safeguards were put in to assist the taxpayer. One provided that if he was about to enter upon any kind of transaction which could conceivably come within the Section he could go to the General Commissioners of Inland Revenue and submit a statement of the transaction or transactions that he intended to enter into, whereupon the Commissioners would be obliged to tell him within a specified period— after obtaining all the necessary information—whether or not, in their opinion, the transaction came within the provisions of that penal Section.

This was a well-intentioned protection and was received with approval by the House. The trouble is that it is largely nullified in practice, because the very nature of the transactions concerned lead to the Commissioners of Inland Revenue, when cases are submited to them, on most occasions to come to a decision unfavourable to the taxpayer unless the transaction is as innocent as taking over Aunt Millicent's poodle stud. Unless it is as simple as that the Revenue is apt to say "No". The Statute provides that a taxpayer who wishes to be sure that he is not within the penal provisions can apply to the Revenue for a certificate that the transaction was in order, and it was expected by the House that the Revenue, in many cases, would say "Yes" and in some cases "No".

8.15 p.m.

The defect arises from the fact that no provision is made for those cases where the taxpayer finds that the Revenue has said "No" and he is of the opinion that the Revenue is wrong. There should be some provision for this, and my Amendment would provide it. If a taxpayer submits to the Commissioners details of a transaction into which he proposes to enter and they say "No, this is within the Section", and refuse him a clearance, the least right he should have if Parliament's intention is not to be largely frustrated is to appeal to an impartial tribunal of a judicial character to decide whether or not the Commissioners were right in saying that he was entitled to a clearance for his transaction.

The first point is that when a person applies to the Commissioners to have a transaction certified as being outside Section 28 he is not applying to an impartial body. I hope that no words of mine will be held in the least to reflect upon the entirely honourable way in which the Commissioners discharge their functions. On the other hand, they are the trained watchdogs of the Revenue and their natural reflex is to presuppose that almost anything that a taxpayer is getting up to which may conceivably advantage his tax position is something which ought not to be assisted.

Therefore, owing to the present defective words of the Section, the unfortunate taxpayer who applies for the protection that Parliament intended, can apply only to the very people who are, by habit and training, occupationally suspicious of every transaction put to them. It is quite right that they should be, but the least protection that the taxpayer should have if the Section is to have any meaning is a right of appeal to the Special Commissioners of Inland Revenue or to the Board of Referees from a decision of the General Commissioners of Inland Revenue.

The right which I propose to give the taxpayer by the Amendment is exactly the same as that which he receives in connection with another part of the Section. I am not asking for any intoxicating or revolutionary relief for the taxpayer; I am merely asking for the same sort of relief as is already given him in another part of the Section, whereby he is enabled to appeal to the Special Commissioners or to the Board of Referees.

The Special Commissioners are of a judicial character. Although they are employed by the Revenue their habit, training and duties are such that they approach every case in a judicial manner and they do not have the reflexes to which I have referred. Unless we amend the law in the sense that I recommend we are sending the taxpayer who applies for relief before a biassed body, who, if they say "No", leave him without any remedy. With a little thought we can easily test how the protection we intended to give under the Section is valueless, or largely valueless, when we realise that most of these cases are of necessity complicated and perhaps permit of some dubiety.

Obviously, when the Special Commissioners consider a case in which there is any kind of doubt, why should they clear it when they have the simple remedy of saying "No", in the blissful confidence that the taxpayer has no means of challenging their refusal. When in doubt, they must say, "No". They are hardly to be blamed: they cannot be expected to say, "Yes, this is certified for ever as a clear transaction", when they are in some doubt in the matter.

That means that in any case where there is the smallest doubt they understandably turn it down. My hon. Friend shook his head or made some inclinations of his head which I wrongly inferred to be indicating dissent, but I have spoken to many of the leading institutions in the City whose duty it is, often on behalf of clients, to conduct these transactions and they tell me that it is their experience that transactions are often turned down when counsel has advised that, in his opinion, there is little doubt that the Section ought not to apply.

However, if the clearance were not obtained, the citizen would be in great danger if he went ahead. I hope that I may be forgiven for going into some detail, because hon. Members may not be familiar with some of the technicalities on this point. It will be understood that when Parliament enacted this safeguarding proviso, it intended that account should be taken of the very precarious and dangerous situation in which a citizen would find himself if he were about to embark on transactions which may bring Section 28 into operation against him. Once the die is cast and the transaction undertaken, there is no going back and the citizen's tax position can be fraught with immense peril and serious and penal consequences

I am explaining this at some length because I hope that I may be fortunate to catch your eye, Mr. Deputy Speaker, on other Amendments, when it will not be necessary to rehearse the same arguments. The recent case of Parker gave rise to a strange situation. Although we are always hearing complaints by the Revenue about adroit taxpayers who turn income into capital and escape tax, in this case the. Revenue succeeded by the use of Section 28, in turning capital into income and making it liable to Income Tax and Surtax. That shows the dangerous consequences which face a taxpayer who goes ahead with his transaction notwithstanding that he has not had a certificate of clearance.

I am not asking for an alteration by this Amendment of the full rigour of a very rigorous and even dangerous Section —Section 28. What I am asking is that the taxpayer should have a simple ordinary right dictated by common justice. Before he commits himself to the penal liabilities of a transaction in which Section 28 may be invoked against him, he should have the right to go before some form of judicial tribunal—the simplest form, the Special Commissioners of Inland Revenue or the General Commissioners. That right is denied him at the moment.

Another consequence follows. I would invite hon. Members who are restless of night to pass the weary hours of sleeplessness by attempting to read Section 28 in its entirety. Anyone who gave it even a casual glance would soon see the very difficult, intricate and almost incomprehensible nature of its provisions for the average man. The result is that when the Commissioners turn down his application, nothing in the world will make him go ahead with an ordinary, prudent transaction if he is told that this famous Section is likely to be applied to him without his having the opportunity of seeing what a judicial mind says about the transaction which he proposes to undertake.

Another point to be considered, of course, is the numbers turned down. I invite my hon. and learned Friend—as this is of some consequence—to tell us how many applications have been made under this Section and how many turned down. I know of one which was accepted —the Trafalgar House case, I think, which was reported in the newspapers. But that was accepted only because, a few weeks later, the Chancellor intended to enact another Clause in the 1966 Finance Bill which would nullify the transaction.

It would be interesting to know from the Financial Secretary what sort of percentages of refusals occurred to these applications. Nobody makes such applications frivolously. If one is engaged on a blatant form of tax avoidance, one does not go to the immense expense of hiring accountants and lawyers to prepare one's statement of case to put before the Commissioners, because one knows in advance that it will be turned down. I should be interested to hear the percentages of cases which are turned down without appeal.

Most of the cases put up to the Revenue must be, almost ex hypothesi, innocent cases. I am also aware, and have been informed to this effect by leading City institutions and merchant bankers, that transactions which to them and their legal advisers seem completely innocent and without the Section, as long as they cannot give the assurance that the transaction is in order because the Commissioners, being in some doubt for some reason have said, "No", the unfortunate taxpayer is unable to engage in this transaction. This means that, for no good reason, he is intimidated from conducting his affairs prudently and reasonably.

The fatal effect of the Section is that a man is done out of his rights without any judicial mind being applied to the case. Most taxpayers cannot afford to go ahead just the same and say, "When the Revenue assaults ' us for this we will go to the courts and have it decided." Such a man probably does not go through with the transaction, which means that a judicial mind has never been brought to bear on the question of whether the transaction is permissible.

The effect of this subsection, as we thought it was in 1960, was to say," We are enacting a very penal, general and, from the average taxpayer's point of view, very dangerous and costly Section. The least that the citizen is entitled to expect from the House when it enacts such a section is that they will provide him with the mechanism for knowing his rights." This is done in a general way in many other countries.

It would be no loss if we accepted the Amendment. It provides only some elementary justice for a taxpayer, in entitling him to know his rights. It would be far from setting a bad example in other areas of tax law. It might turn the Revenue's mind to the desirable idea that many taxpayers in other sections should have the mechanism for having their rights decided.

In these circumstances, I submit that the case is made out for this modest Amendment to what is admittedly a very unusual innovation by way of tax legislation. I am concerned with the duty of the House. It is the duty of the House to hold the balance between the taxpayer and the Revenue in a fair way. In my submission the balance is at present in favour of the Revenue and against the taxpayer because of the formidable consequences of the taxpayer putting a foot wrong, because of the complexity of the law, because of the difficulty of his knowing his rights, because of the expense of litigation if he has to undertake it and if he cannot get the clearance—and also because of the great consequences to his personal fortune if the transaction comes unstuck and it is held, however reluctantly, by the courts that the Section applied.

This has been held to be the case by the House of Lords. The case which seems to me most persuasive from the point of view of the use of the Section was one in which the taxpayer won by the unanimous decision of three Lord Justices of Appeal. It was held that the Section did not apply to the transaction by three eminent Lord Justices of Appeal, but that decision was revoked in the House of Lords by a vote of three to two. I want the House to bear this in mind as an indication of the difficulty which the taxpayer has in knowing his rights. Can we be doing any harm by this modest assistance to the taxpayer in going about his affairs?

8.30 p.m.

Mr. MacDermot

My hon. Friend the Member for Manchester, Cheetham (Mr. Harold Lever) has developed his argument in favour of the Amendment very clearly and very fully. He is asking for a right of appeal against a refusal by the Commissioners to give a clearance under Section 28 for a proposed transaction.

I begin by reminding the House that this Section has a limited effect. We are not concerned with whether the taxpayer has a general right to ask in advance what the attitude of the Revenue would be to a certain kind of transaction. That does not exist. But Section 28 gives the Revenue the power to counteract a tax advantage which has been obtained in specified circumstances—I admit that it is an involved Section—in consequence of a transaction or transactions in securities.

When that power was given to the Revenue it was thought right, and obviously was right, to give to the taxpayer this right to go to the Commissioners and to inquire in anticipation of a transaction which he was contemplating what the attitude of the Commissioners would be to it. Would they seek to take action under Section 28 or would they not? They have to commit themselves in advance. There was a rather similar clearance procedure in the general Profits Tax anti-avoidance provision in the 1951 Act, and I remind the House that that, too, was unappealable.

What the Amendment seeks to do is to introduce an entirely new concept into our tax administration in this country, aid that is to require the whole appellate machinery from the special tribunals to the courts to pronounce on the tax consequences of transactions that have not been carried out, in other words of a hypothetical situation. We know that in general our courts lean against being asked to decide such questions.

What my hon. Friend asks would have practical implications which I am not sure would be welcomed. One of the great advantages of the present system is that the taxpayer can know, and know quickly, what the attitude of the Revenue would be to a transaction which he is contemplating. He has to have a reply within 30 days from the Revenue or within 30 days of providing any further information which they may call upon him to supply before they can answer his question. When the provision was introduced, as a result of an Amendment proposed by the hon. Member for Walsall, South (Sir H. d'Avigdor-Goldsmid), in 1960, he said, I feel that it is, therefore, all the more important that that clearance should be a procedure which would be liable to work reasonably quickly and efficiently".-[OFFICTAL REPORT, 25th May, 1960; Vol. 624, c. 615.]

Mr. Harold Lever

Could it not work speedily and efficiently if it went to the Special Commissioners or the General Commissioners?

Mr. MacDermot

I was doubtful whether I should give way to my hon. Friend and I see that I was wrong in doing so.

Let me point out the result of what he proposes. First of all, against a refusal of a clearance there would be a right of appeal to the Special Commissioners. Supposing he wins before the Special Commissioners, the Revenue would have the right of appeal—indeed, either side would have the right of appeal—to the special appellate tribunal under this Section. Then, from there, there would be a right of appeal to the courts. It could be carried right up to the courts. One can argue both ways about this and say that it would be a very strong deterrent for anyone to seek to exercise the right of appeal in what was a hypothetical transaction in that he might find that he was taken up with expensive litigation in the courts.

Mr. William Baxter (West Stirlingshire)

If the right of appeal were granted it could be granted up to the Special Commissioners and no further.

Mr. MacDermot

That is not what the Amendment proposes. It proposes to apply the appeal procedure which exists in the case where the transaction has been carried out. All that we can do here is to consider the Amendment and I am pointing out what its implications would be.

However, to take my hon. Friend's point, if it is right to allow the point to be adjudicated upon, with all the implications that that would have—for establishing precedent and helping to build up case law on the subject—I do not see how one could limit that right of appeal.

My hon. Friend the Member for Cheetham suggested that under the present system Parliament's intention was being frustrated and that the Revenue applied this procedure in such a way that it would grant a certificate only if a transaction was as innocent as the disposal of Aunt Millicent's poodle stud. That is not the case. The Revenue's approach is that it will not refuse a clearance unless, having considered the transaction fully and all the circumstances of it, it would itself take action under the Section if the transaction were completed. That is the test which the Revenue applies and I assure my hon. Friend that there is no element of bluff in this. In other words, if, in spite of the decision of the Commissioners, a taxpayer went ahead, he would be confronted with action being taken under Section 28.

About 200 applicants a year have been dealt with since this provision came into effect and, of those, clearance has been refused to about one-fifth. My hon. Friend is, therefore, right in thinking that the majority of applications obtain clearance. It is a large majority, with four-fifths of applications obtaining clearance.

In view of these figures, and hearing in mind the big departure that this would make in our tax administration, I hope, in view of what I have said, that my hon. Friend will not feel it necessary to press the Amendment.

Mr. Harold Lever

I do not wish it to be thought that I do not regard Section 28 as requiring Amendment along the lines I have indicated. However, there is some force in some parts of the argument adduced by my hon. and learned Friend and, on that basis, I beg to ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Mr. Harold Lever

I beg to move, Amendment No. 109, in page 46, line 6, at the end to insert: (8) Section 28 of the Finance Act 1960 shall be amended by the addition, after proviso (ii) to subsection (1) thereof, of the following further proviso:— (iiA) the tax advantage relates to tax which would have been chargeable in respect of any period ending before 5th April 1960". This Amendment also relates to Section 28 of the Finance Act, 1960. Perhaps I should have mentioned earlier that this is not in the least a party matter since it was a Conservative Government who enacted the 1960 Act. Nobody could doubt the enthusiasm for implementing that Measure, particularly Section 28 of it, and I am, therefore, happy to note that the hon. Member for Wanstead and Woodford (Mr. Patrick Jenkin) has attached his name in support of the Amendment. I merely wish to make it clear that I am not seeking to make a party point out of this.

As I said when discussing the previous Amendment, under Section 28 people who gain a tax advantage are, in certain circumstances, brought within the ambit of that Section. Whatever else the House intended, it is clear from the wording of the Section that Parliament did not intend that it should apply retrospectively in any sense to anybody.

A proviso to that effect was inserted in the Section. I am not saying that the Section is retrospective; merely that it is exceedingly ambiguous. And if my hon. and learned Friend the Financial Secretary says that it is not retrospective and does not need amendment, I trust that he will give an explicit assurance that it is not the intention of the Revenue to treat as a tax advantage—to bring a man within that Section—where the tax advantage relates to tax which would have been chargeable before that Section was enacted.

If he intends to give an explicit assurance I will be very happy, because it makes such a refreshing contrast, sometimes, from being quoted as a precedent how other Sections of other Acts have been passed in an oppressive form, so that we can be assured that the same mistakes will be made in all future legislation. If I can have that assurance from my hon. and learned Friend, I will be happy to withdraw the Amendment.

Mr. MacDermot

I suspected that my hon. Friend's Amendment was in the nature of a probing Amendment, and I think that I can give him the assurance for which he is asking. It is our view that the object which the Amendment appears to be intended to achieve is already achieved, and that the Amendment is therefore unnecessary.

As it stands, Section 28 provides that it is not to apply if the relevant transaction, or transactions, in securities was carried out before 5th April, 1960, provided that any change in the nature of a person's activities, being a change necessary in order that the tax advantage should be obtainable, was effected before that date. But also, and this is the specific assurance that my hon. Friend seeks, it does not apply to years before 1960–61—the year in which it became law —and it does not apply to enable the Revenue to take counteraction against avoidance in 1959–60 or any earlier year. I do not think that I can put it clearer than that.

Mr. Harold Lever

Before my hon. and learned Friend sits down, perhaps he will answer explicitly two questions. First, do I take it that what he says means unambiguously that a man who gets a tax advantage relating to tax that would have been chargeable in any period before April, 1960, cannot thereby be brought within the Section on that count? If so, why not remove the ambiguity? Everyone reads the Section; not everyone listens to my hon. and learned Friend's wise and conciliatory words on the point.

Mr. MacDermot

By leave of the House, I can only repeat that I do not think that my hon. Friend's Amendment is necessary; that there is nothing retrospective in the Section, and that the Revenue is not able, under the Section, to take counter-action against a tax advantage at a date earlier than that mentioned in the Amendment, namely, 5th April, 1960.

Mr. Patrick Jerkin

I should like to take issue with the Financial Secretary on his statement that there is nothing retrospective in the Section. It may well be, as he has explained, that it is not open to the Revenue, under the Section as it stands, to make an assessment for any period before 5th April, 1960, but that is a very different thing from saying that there is nothing retrospective in the Section.

The Parker case, to which the hon. Member for Manchester, Cheetham (Mr. Harold Lever) has referred, was an example that many people thought really amounted to a restrospection—

Mr. MacDermot indicated dissent.

Mr. Jenkin

The hon. and learned Gentleman shakes his head, but perhaps he will listen for a moment. What is suggested is that possibly the House of Lords erred. That error cannot be put right judicially, but it can be put right through the Legislature.

The order of events in the Parker case is worth recalling, because it is the retrospective aspect of the Section that has caused such a great deal of disturbance. The debentures were issued in 1953. Five years later, a so-called expert advised those concerned that they would be able to pay the Estate Duty that might become due if they were to redeem those debentures. In April, 1960, the then Chancellor of the Exchequer introduced the Budget and announced this new measure. On 14th July there was a notice to redeem the debentures. On 29th July, the new measure became law, and then, as the only stage after the measure became law, the debentures were actually redeemed, and the cash became payable.

It has been suggested, indeed the House of Lords held, that the last stage was the point at which the tax advantage accrued, but when one has regard to what was said in this House and in Committee while a Bill was going forward on the subject of retrospection, it must be clearly established that the House did not recognise the effect which the legislation would have.

8.45 p.m.

I will make one or two quotations from the Committee stage and the Report stage of the Bill on this particular point. An Amendment was introduced by my hon. Friend the Member for Walsall, South (Sir H. d'Avigdor-Goldsmid) in Committee to deal with the question of retrospection. In his reply the Attorney-General. then Sir Reginald ManninghamBuller, asked my hon. Friend to withdraw the Amendment and indicated that the Amendment in fact would not be wholly effective. The Attorney-General said: The intention of this proviso is to ensure that Clause 26 should be in no way retrospective. There, we are on completely common ground."— [OFFICIAL REPORT, 25th May, 1960; Vol. 624, c. 504.]

At a later stage, on Report, the Attorney-General himself introduced a further Amendment to deal with the subject of retrospection and he said: I hope that this Amendment, which deprives the operation of this Clause of any retrospective effect will be satisfactory to my hon. Friend and to the House."—[OFFICIAT. REPORT, 6th July, 1960; Vol. 626, c. 603.] Any retrospective effect", yet we had the Parker case where it appeared that the issue of the debentures and the decision to use them for Estate Duty avoidance all happened years before the Act became law. It may be said, surely if the transaction was within the Section it was right that it should be caught, but one has to look to see what the Attorney-General said when he dealt with the question of issue of bonus securities and their subsequent redemption.

On 25th May he said: One of the devices aimed at here is, for instance, the creation of bonus shares"—

I emphasise the word "creation"— followed by a corresponding reduction of capital."—[OFFICIAL REPORT. 25th May. 1960; Vol 624, c. 511.]

He went on to make clear that it is not the creation itself which gives rise to tax advantage—of course not, it is the redemption—but the Clause struck at the creation. I cannot believe that the House would have accepted the Attorney-General's assurances which he gave in Committee if it had realised that a creation of bonus debentures seven years before would be the start of a series of transactions which would give rise to liability under the Section.

Mr. Harold Lever

Perhaps the hon. Gentleman will allow me to ask him this. The House can hardly have supposed that that very Attorney-General would give the casting vote in the House of Lords which reversed the unanimous decision of the Court of Appeal.

Mr. Patrick Jenkin

This is a matter to which I have no doubt attention has been drawn in other places, and it would be wrong for me to comment on that. The fact is that the most explicit assurances were given in Committee and to the House that this Section was intended to have no retrospective effect whatever and the leading case, the Commissioners v. Parker, decided in the House of Lords in January this year, is one which clearly by any stretch of language would be regarded by the House at that time as having retrospective effect. Only the final stage of the transaction was completed after the Bill became an Act.

Perhaps this aspect of retrospection is not covered by the Amendment in the name of the hon. Member for Manchester, Cheetham (Mr. Harold Lever) and myself. I take what the Financial Secretary said on this but I think it would be right, if he should catch your eye, Mr. Deputy Speaker, that he should give an indication of what the Treasury thinking on that aspect of the matter is having regard to the very clear and explicit assurances given to the House in 1960.

Mr. Harold Lever

In view of the explicit assurances which I take it my hon. and learned Friend has given, I beg to ask leave to withdraw the Amendment.

Amendment, by leave, withdrawn.

Mr. Harold Lever

I beg to move, Amendment No. 111, in page 46, line 6, at the end to insert: (8) Section 28 of the Finance Act 1960 shall be amended by the addition of the following subsection:— 12A. This section shall not apply where it is proved that the result of the transactions relied upon could reasonably have been obtained by transactions to which this section does not apply". The Section to which the Amendment refers is Section 28 which we have been discussing on the two previous Amendments. The intent of the Amendment is to direct Section 28 exclusively to those transactions which were regarded by the House when passing the Section as a mischief to be eliminated by action on the part of the Revenue.

If a man can undertake transaction A or B to the same effect and have the same tax advantage, and if transaction A would not bring him within the Section but, because he happens to do it by transaction B he comes within the Section, under the law as it stands he is caught by this penal Section. This must in all logic be clearly wrong.

What the Revenue is saying is, "You could have got the same tax advantage by taking any other similar commercial step that would not have brought you within the Section. Too bad, you have come within the Section." It should be remembered that we are not playing a game of croquet here where, if people go the wrong side of the hoops, they are penalised. We are dealing with very serious and substantial rights of the taxpayer which are liable to be infringed by the most penal Section of tax which has ever been enacted by Parliament. This House should be very jealous to see that only the kind of transactions and tax advantages which the House is anxious to stop should be stopped.

If a man gets a tax advantage that was open to him in a hundred innocent ways which would not be within the Section, it is ludicrous that the Section should be applied to him because he happens to have made some legal error or has been wrongly advised by his accountants in an area of law where the most skilful advisers are baffled by ambiguity. In those circumstances, the least the taxpayer ought to be able to say is," It is quite by chance that I am within this Section. What I was doing was so fundamentally innocent of the intentions which Parliament was anxious in 1960 to end, that I could well produce the same kind of tax result to myself by a transaction which nobody could complain about." But the Revenue says," We have got him. We want our pound of flesh."

Let me give an example. Leaving aside the retrospective character of what was done, because it would not be proper for me to emphasise it again, take the case of somebody who put herself in possession of a debenture before the 1960 Section came into being to confer these inestimable blessings upon the Inland Revenue and presumably upon the taxpayers as a whole. This lady had a debenture which was in existence before the Act was passed. She could have sold it to an institution or to a third party and got her money for it. She could not conceivably have come within the Section. By no kind of argument could she have come within the Section. That is not only my opinion. That was the express opinion of Lord Justice Salmon, the only judge who made an express comment upon it so far as I know, though other judges said that this was a general mischief.

I am sorry that my argument troubles my hon. and learned Friend the Financial Secretary to a point of tedium, but I cannot help it. I feel it my duty to advance the argument. In the Parker case the Lord Justice said that this lady could quite properly, normally and without any risk, have escaped the penal consequences of this penal Section had she sold the debenture to a third party. The third party could have had it redeemed by the company and there would have been no question of liability under the Section. Because she happened, in innocence, and precisely because she was innocent and thought herself to be outside the scope of the Section, to act in a direct and naive manner, she was caught by the Section and the Inland Revenue, and was penalised to the extent of losing probably the whole of the value of the capital asset that she had in being before the 1960 Act was enacted.

Unless the Section is amended in this way, the Revenue will collect tax that is not avoided by the transactions at which we were aiming but the liability is brought into being simply because of an error of judgment on the part of the legal advisers. The only people who could get any benefit by these transactions are people who have made a mistake of judgment based upon legal advice. In order to come outside the Section they would still have to prove that a perfectly normal commercial transaction would have produced the same tax advantage. I am really saying that the tax advantage must be basically innocent if it could have been obtained without performing any of the transactions hit at by Section 28. In the circumstances, I hope that I may have an encouraging answer from my hon. and learned Friend.

Mr. MacDermot

It is a long time—almost 12 months—since I have found myself in greater disagreement with my hon. Friend the Member for Manchester, Cheetham (Mr. Harold Lever) than I do over the Amendment. Section 28 is an anti-avoidance provision. There is the clearance procedure which we were discussing a short time ago for the innocent kind of person on whose behalf my hon. Friend was speaking. The Section has a limited scope. It is not a general anti-avoidance provision; it operates only in certain specified circumstances, and in consequence of a transaction or transactions in securities. If, as a result of that provision, the Revenue is able effectively to take action against an avoidance measure., it seems to me to be a curious argument to say, "Well, of course, if the person who is indulging in the tax avoidance had been able successfully to achieve—

Mr. Harold Lever

Will my hon. and learned Friend allow me?

Mr. MacDermot

I will not. I shall complete my argument before giving way to my hon. Friend, but I shall give way in a moment.

The effect of what my hon. Friend proposes is that the avoider against whom the Section is aimed, would be able to say of the avoidance results—" result" is the word that my hon. Friend uses in the Amendment—of the transaction, "I agree that you have caught me on this transaction, but if I had only thought of it in time or if my advisers had been sufficiently astute, they might have thought up some quite different, or slightly different, transaction which would have escaped the net of Section 28, and I should have been able to achieve my avoidance purpose in that way".

If, in those circumstances, the Revenue were to be told by the Amendment that it is not entitled to put into operation the power given to it by Parliament under Section 28, it would have to operate it with one hand tied behind its back. I shall now give way to my hon. Friend.

Mr. Harold Lever

I am grateful to my hon. and learned Friend, who is always exceedingly indulgent to me. He keeps using the phrases, "tax avoidance" and "aimed at the tax avoider". He is utterly mistaken. The Section is not aimed at tax avoidance or the tax avoider. One does not have to be a tax avoider to come within the provisions of the Section. It is merely a question of tax advantage, which is a totally different matter. My hon. and learned Friend should look at the definition of tax advantage.

Mr. MacDermot

As my hon. Friend knows, many transactions of this kind are perfectly innocent and the person concerned can approach the Revenue and obtain a clearance beforehand. As I said a short time ago, four-fifths of such transactions obtain the clearance. But this was a power given to the Revenue effectively to prevent transactions being entered into the object of which was avoidance. It is an anti-avoidance provision and it was passed as such by Parliament.

Mr. Patrick Jenkin

That is a very unsatisfactory answer. I do not believe that the Financial Secretary and his advisers have taken account of the difference between the intention of Parliament when it passed the Section and the explanations given to it when it was asked to do so and the interpretation which has been placed on the Section by the courts.

9.0 p.m.

It is apparent that Section 28 opened a Pandora's box of measures to strike at all sorts of transactions, transactions which might be colourable or wholly innocent. To illustrate this, I will read to the House two quotations. The first is from the Attorney-General, on 25th May, 1960: It is wrong to say—some people have said it because they have misunderstood the Clause, which is not easy to understand that it is a wide general power exercisable at the discretion of the Revenue directed against tax avoidance. It does no such thing. Subsections (1) and (2) clearly limit the scope of the Clause to doing what the Chancellor said on 7th April….."—[OFFICIAL REPORT, 25th May, 1960; Vol. 624, c. 5101

There is a case now before the courts, which recently came before the Court of Appeal but which, I understand, is under appeal at the moment, so I shall not refer to it. I shall read only one passage from the judgment of one of the learned lords justices who heard the case

Division No. 113.]	AYES	[9.2 p.m.
Alison, Michael (Barkston Ash)	Dance, James	Johnston, Russell (Inverness)
Allason, James (Hemel Hempstead)	Dean, Paul (Somerset, N.)	Joseph, Rt. Hn. Sir Keith
Astor, John	Deedes, Rt. Hn. W. F. (Ashford)	King, Evelyn (Dorset, S.)
Atkins, Humphrey (M'en & M'd'n)	Dodds-Parker, Douglas	Kitson, Timothy
Awdry, Daniel	Elliot, Capt. Walter (Carshalton)	Knight, Mrs. Jill
Baker, W. H. K.	Errington, Sir Eric	Longden, Gilbert
Batsford, Brian	Fortescue, Tim	Loveys, W. H.
Beamish, Col. Sir Tufton	Gilmour, Ian (Norfolk, C.)	Lubbock, Eric
Bell, Ronald	Glover, Sir Douglas	McAdden, Sir Stephen
Bennett, Dr. Reginald (Gm. & Fhm)	Glyn, Sir Richard	MacArthur, Ian
Bessell, Peter	Goodhart, Philip	Macleod, Rt. Hn. Iain
Bilfen, John	Grant, Anthony	Maddan, Martin
Birch, Rt. Hn. Nigel	Grant-Ferris. R.	Marten, Neil
Blaker, Peter	Gurden, Harold	Mathew, Robert
Boyd-Carpenter, Rt. Hn. John	Hall, John (Wycombe)	Mawby, Ray
Braine, Bernard	Hall-Davis, A. G. F.	Maxwell-Hyslop, It J.
Brinton, Sir Tatton	Harris, Frederic (Croydon, N.W.)	Mills, Stratton (Belfast, N.)
Brown, Sir Edward (Bath)	Harrison, Brian (Maldon)	Mitchell, David (Basingstoke)
Bruce-Gardyne, J.	Harrison, Col. Sir Harwood (Eye)	Monro, Hector
Bullus, Sir Eric	Harvie Anderson, Miss	Morgan, W. G. (Denbigh)
Burden, F. A.	Hawkins, Paul	Morrison, Charles (Devizes)
Campbell, Gordon	Heald, Rt. Hn. Sir Lionel	Munro-Lucas-Tooth, Sir Hugh
Carlisle, Mark	Heseltine, Michael	Murton, Oscar
Cary, Sir Robert	Higgins, Terence L.	Nabarro, Sir Gerald
Chichester-Clark, R.	Hiley, Joseph	Neave, Airey
Clark, Henry	Hill, J. E. B.	Nicholls, Sir Harmar
Clegg, Walter	Hirst, Geoffrey	Noble, Rt. Hn. Michael
Cooke, Robert	Holland, Philip	Nott, John
Corfield, F. V.	Hordern, Peter	Orr, Capt. L. P. S.
Costaln, A. P.	Hunt, John	Osborn, John (Hallam)
Crawley, Aldan	Hutchison, Michael Clark	Page, Graham (Crosby)
Cunningham, Sir Knox	Jenkin, Patrick (Woodford)	Pearson, Sir Frank (Clitheroe)
Currie, G. B. H.		Peel, John

in the Court of Appeal. Lord Justice Danckwerts said: Its objects are clear"—

referring to the section— to enable the Commissioners of Inland Revenue to outmanoeuvre the ingenuity of wealthy taxpayers in arranging their business affairs so as to avoid or minimise tax. How delightful it must be to a taxing officer to have the power to counteract ' a tax advantage ' "—

the words "a tax advantage" are in inverted commas— which a person is in a position to obtain or has obtained by assessments or other adjustments. The section is indeed the tax collector's dream. Gone is the old principle that the citizen is entitled to arrange his affairs so as to minimise his liability to tax".

What would have happened if the Attorney-General had stood at that Box and used those words in describing the Section? What sort of response would it have had from Parliament then? I regard this as a matter of considerable constitutional importance, and I consider that, for those reasons, it is right that the House should register its protest and divide in favour of the hon. Gentleman's Amendment.

Question put, That those words be there inserted in the Bill:—

The House divided: Ayes 132, Noes 193.

Peyton, John	Smith, John	Ward, Dame Irene
Pike, Miss Mervyn	Summers, Sir Spencer	Weatherill, Bernard
Pink, R. Bonner	Talbot, John Er	Webster, Davi
Pounder, Ration	Taylor, Sir Charles (Eastbourne)	Whitelaw, William
Powell, Rt. Hn. J. Enoch	Tayler,Edward M.(G'gow,Cathcart)	Wilson, Geoffrey (Truro)
Pym, Francis	Taylor, Frank (Moss Side)	Winstanley, Dr. M. P.
Quennell, Miss J. M.	Teeling, Sir William	Wood, Rt. Hn. Richard
Renton, Rt. Hn. Sir David	Temple, John M.	Wylie, N. R.
Ridsdale, Julian	Thatcher, Mrs. Margaret
Rossi, Hugh (Hornsey)	TurtOn, Rt. Hn. R. H.	TELLERS FOR THE AYES:
Russell, Sir Ronald	van Straubenzee, W. R.	Mr. R. W. Elliott and
Sharpies, Richard	Wainwright, Richard (Coine Valley)	Mr. Reginald Eyre.
Shaw, Michael (Sc'b'gh & Whitby)	Walker, Peter (Worcester)
NOES
Abse, Leo	Gregory, Arnold	Norwood, Christopher
Alldritt, Walter	Grey, Charles (Durham)	Ogden, Eric
Archer, Peter	Griffiths, David (Rother Valley)	O'Malley, Brian
Armstrong, Ernest	Griffiths, Rt. Hn. James (Llanelly)	Orem, Albert, E.
Atkins, Ronald (Preston, N.)	Hamilton, James (Bothwell)	Orme, Stanley
Bacon, Rt. Hn. Alice	Hamilton, William (Fife, W.)	Oswald, Thomas
Beaney, Alan	Hamling, William	Owen, Will (Morpeth)
Bennett, James (G'gow, Bridgeton)	Hannan, William	Page, Derek (King's Lynn)
Bidwell, Sydney	Harper, Joseph	Parkyn, Brian (Bedford)
Bishop, E. S.	Harrison, Walter (Wakefield)	Pearson, Arthur (Pontypridd)
Blackburn, F.	Hazett, Bert	Pentland, Norman
Booth, Albert	Heifer, Eric S.	Perry, George H. (Nottingham, S.)
Boston, Terence	Herbison, Rt. Hn. Margaret	Price, Christopher (Perry Barr)
Bowden, Rt Hn. Herbert	Hobden, Dennis (Brighton, K'town)	Price, Thomas (Westhoughton)
Braddock, Mrs. E. M.	Hooley, Frank	Probert, Arthur
Bradley, Tom	Houghton, Rt. Hn. Douglas	Pursey, Cmdr. Harry
Brooks, Edwin	Hoy, James	Randall, Harry
Broughton, Dr. A. D. D.	Hughes, Emrys (Ayrshire, S.)	Rankin, John
Brown, Hugh D. (G'gow, Proven)	Hughes, Roy (Newport)	Redhead, Edward
Brown, Bob (N c' tie-upon. Tyne, W.)	Hunter, Adam	Rhodes, Geoffrey
Buchan, Norman	Hynd, John	Richard, Ivor
Buchanan, Ftichard (G'gow, Sp'burn)	Jackson, Cohn (B'h'ss & Spenb'gh)	Roberts, Albert (Normanton)
Butler, Herbert (Hackney, C.)	Jackson, Peter M. (High Peak)	Roberts, Gwilym (Bedfordshire, S.)
Butler, Mrs. Joyce (Wood Green)	Urger, George (Goole)	Robertson, John (Paisley)
Cant, R. B.	Jenkins, Hugh (Putney)	Robinson, W. 0. J. (Walth'stow, E.)
Carmichael, Neil	Jenkins, Rt. Hn. Roy (Stechford)	Rodgers, William (Stockton)
Carter-Jones, Lewis	Jones, Dan (Burnley)	Roebuck, Roy
Coe, Denis	Jones, J. Idwal (Wrexham)	Rose, Paul
Corbet, Mrs. Freda	Judd, Frank	Rosa, Rt. Hn. William
Craddock, George (Bradford, S.)	Kelley, Richard	Rowlands, E. (Cardiff, N.)
Crawshaw, Richard	Kenyon, Clifford	Ryan, John
Cullen, Mrs. Alice	Kerr, Dr. David (W'worth, Central)	Sheldon, Robert
Davidson, Arthur (Accrington)	Kerr, Russell (Feitham)	Shore, Peter (Stepney)
Davies, Dr. Ernest (Stretford)	Lawson, George	Short,Rt.Hn.Edward(N'c'tle-u-Tyne)
Davies, C. Elfed (Rhondda, E.)	Leadbitter, Ted	Silkin, John (Deptford)
Davies, Harold (Leek)	Ledger, Ron	Skemngton, Arthur
Delargy, Hugh	Lester, Miss Joan	Slater, Joseph
Dempsey, James	Lewis, Ron (Carlisle)	Small, William
Dewar, Donald	Lomas, Kenneth	Spriggs, Leslie
Diamond, Rt. Hn. John	Luard, Evan	Steele, Thomas (Dunbartonshire, W.)
Dickens, James	Lyons, Edward (Bradford, E.)	Summerskiii, Hn. Dr. Shirley
Doig, Peter	McBride, Nell	Symonds, J. B.
Donnelly, Desmond	McCann, John	Thomas, George (Cardiff, W.)
Dunn, James A.	MacDermot, Niall	Thomas, lonverth (Rhondda, W.)
Dunwoody, Mrs. Cwyneth (Exeter)	McGuire, Michael	Tourney, Frank
Dunwoody, Dr. John (F'th & C'b'e)	McKay, Mrs. Margaret	Urwln, T. W.
Eadie, Alex	Mackenzie, Gregor (Ruthergien)	Varley, Eric G.
Edwards, Robert (Bilston)	Mackintosh, John P.	Wainwright, Edwin (Deanne Valley)
English, Michae	McMillan, Tom (Glasgow, C.)	Walden, Brian (All Saints)
Ensor, David	McNamara, J. Kevin	Walker, Harold (Doncaster)
Evans, Albert (Islington, S. W.)	MacPherson, Malcolm	Wallace, George
Evans, loan L. (Birm'h'm, Yardley)	Mahon, Peter (Preston, S.)	Watkins, David (Consett)
Fernyhough, E.	Mahon, Simon (Bootle)	Wellbeloved, James
Finch, Harold	Mallalieu, E. L. (Brigg)	Wkliams, Clifford (Abertillery)
Fletcher, Ted (Darlington)	Manuel, Archie	Willis, George (Edinburgh, E.)
Floud, Bernard	Mapp, Charles	Wilson, William (Coventry, S.)
Foley, Maurice	Mason, Roy	Winniek, David
Foot, Michael (Ebbw Vale)	Miller, Dr. M. S.	WinterbOttoM, R. E.
Ford, Ben	Mitchell, R. C. (S'th'ptort, Test)	Woodburn, Rt. Hn. A.
Fowler, Gerry	Morgan, Elystan (Cardiganshire)	Woof, Robert
Fraser, Rt. Tom (Hamilton)	Morris, Alfred (Wythenshawe)	Yates, Victor
Galpern, Sir Myer	Morris, Charles R. (Openshaw)
Carrow, Alex.	Murray, Albert	TELLERS FOR THE NOES:
Ginsburg, David	Newens, Stan	Mr. William Whitlock and
Gourley, Harry	Noel-Baker, Francis (Swindon)	Mr. R. W. Brown.
Greenwood, Rt. Hn. Anthony	Noel-Baker,Rt.Hn.Philip(Derby,S.)

Clause 40.(ESTATE DUTY: INTERESTS LIMITED TO CEASE ON DEATH.)

Mr. MacDermot

I beg to move Amendment No. 112, in page 46, line 42, to leave out from "and" to end of line 5 on page 47 and to insert for the purposes of this subsection the following interests shall be deemed to include an interest limited to cease on a death—

1. (i) an interest enjoyed under two or more titles one of which confers an interest limited to cease on a death,
2. (ii) an interest so related to a death that it cannot terminate before the death, and
3. (iii) an interest so related to a death that, except in contingencies not related to the death, it cannot terminate before the death".

This is a purely drafting Amendment to meet the point raised by the right hon. Member for Stafford and Stone (Mr. Hugh Fraser) in Committee. It makes no alteration in the sense of the subsection but improves its layout and to some extent its clarity. As I explained at the time, this is a highly technical subsection which must of necessity be cast in very technical language.

Mrs. Thatcher

I recognise that this is purely a drafting Amendment but the hon. and learned Gentleman will recollect that a number of points were raised on this Clause in Committee and that the learned Solicitor-General agreed to look into them. Since that time I have sent the Financial Secretary details of a case which I think is caught by this Clause but which is not on all fours with either the Ralli or the Holmden cases, which proves that the Clause goes wider than either of them. I hope that the Financial Secretary will consider that case and the point I have put previously about protection for bona fide purchasers of interests affected by the Clause and let me know his conclusion in due course.

Mr. MacDermot indicated assent.

Amendment agreed to.

Clause 44.—(SELECTIVE EMPLOYMENT TAX.)

Mr. Hirst

I beg to move Amendment No. 45, in page 52, line 27, at end to insert: Provided that in respect to any person who is blind the tax shall be one shilling. I am sure that the House will be grateful to the Chair for selecting this Amend- ment, which I am happy to see is highly supported, although in Committee we discussed—at some length, according to the Chancellor of the Exchequer—a number of Amendments which included this point on the famous night of 29th June and the morning of 30th June by the calendar, even if, in this House, it remained the same day.

It was a vital debate on very important matters but some of us feel that this aspect did not get proper consideration, despite the alleged length of the debate, because a large number of Amendments were taken together. It would not be proper to comment on that circumstance, but it did not allow concentration of purpose and consideration to be given to this group of people in some of the speeches, not least in that of the Financial Secretary, who felt that he could not answer all the points raised. Whatever criticism I may sometimes have of him, I acknowledge the fact that it is an almost impossible task after an eight-hour debate, which itself was a difficulty, to answer all the points made in all the speeches. Therefore, I am not particularly critical that he did not give full attention to the matter on that occasion, although I sincerely hope that the intervening period has given opportunity to the Government to think much more cogently and clearly about how strongly the House as a whole feels about it.

9.15 p.m.

On that occasion the hon. Lady the Member for Wood Green (Mrs. Joyce Butler) made, as the Committee recognised at the time, a very effective speech about disabled people of this character. I mention that only because that debate was somewhat uncharacteristic of some of our discussions on the Finance Bill, because it was, strangely enough, contrary to what has happened at other times, well attended upon the Government benches, and the speeches went on for about seven or eight hours of that debate—until, unfortunately, the Government saw fit to seek the Chair's permission for a Closuretit-for-tat across the Chamber. There was all the way through very strong feeling that particularly in the way that they were proposing to operate the Selective Employment Tax the Government were doing very considerable injustice to large sections of people in special positions, in which those like the blind were very considerably involved.

I was not only available and present throughout every minute of the discussion but I have looked it up again in HANSARD, and I am satisfied that those who spoke in the debate—happily, I was one—jointly and from both sides of the Committee indicated only too well, and proved by their arguments, that the tax would discriminate against a most worthy and wonderfully courageous section of our people. I feel that in an instance of this character no Government should have needed even one debate to point that out.

So we have come back again to this subject. In your temporary absence, Mr. Speaker, I paid a very high tribute to the kindness of the Chair in selecting this important matter for discussion tonight. The interval should have given the Government extra time and opportunity, and I hope that it has been usefully used, to realise that there is a feeling in the country of grave unfairness in this matter and actually one of considerable discrimination.

Far from arguing all the things that we heard on that occasion, the Government, as most hon. Members would have been only too willing to do, should have been leaning backwards to make it easier for these unfortunate people. I mentioned on that occasion, without quoting names, a case in my constituency. That is not unique we all have such cases. I have one at the moment which is causing me the greatest possible difficulty. It concerns a blind person, and I am in great difficulty in placing that person. I find that the Ministry of Labour is very helpful, but, most of all, I have particularly found in my constituency—I am sure that this goes for other places—that, by and large, a number of employers, if not a vast number, are extraordinarily co-operative in endeavouring to give employment to disabled people. When I say "co-operative" I mean way and beyond the statutory limit that applies to firms employing more than 20 people and a 3 per cent. disablement quota. Some firms employ double that proportion. None the less, there is a limit to this when it will involve, as it will, such employers in additional and heavy taxation. It was intended to be so by the Government. It is heavy in many types of industry in which, very often, these people can get employment. Certainly it applies to one or two cases in my constituency.

There will be some danger, inevitably, that there is a limited extent to which this can be carried for someone who, through misfortune, cannot in many instances do the same work as a fully competent person with all his faculties.

The occasion was late, and the Financial Secretary may have been tired. Because of the circumstances of the debate, he certainly had too much to answer. However, I can only think that his attitude can be likened to that of a deep-frozen cold slab, and I hope that tonight he will not approach it in that way. Generally speaking, his arguments were hardly characteristic of a Government which I like to feel have a real appreciation and consideration for social problems of this kind.

In addition, his case was not factually correct. Among other things, he said: Most of these speeches expressed very pessimistic prognostications of the effect of the tax upon the employment of the disabled. Speaking for myself, I feel that many of those fears will prove to have been unfounded.

That is a matter of opinion, and I accept it as a sincere opinion on his part. However, I have been making a number of inquiries since then, and I do not find that that is the reaction. I do not wish to involve members of the Civil Service, but I have been in contact with three people in the Ministry of Labour seeking their private opinions of what the difficulties are likely to be.

The hon. and learned Gentleman was comforted by the thought that we were dealing statistically with a small number of people, and at that time we were dealing with far more people than I am at the moment. He said: In effect, we are dealing with about 200,000 people, all of them still able to enjoy the protection of the quota of designated employment schemes, under the Disabled Persons (Employment) Act."—[OFFICIAL REPORT, 29th June, 1966; Vol. 730. c. 1953.

That is the Act to which I have referred which provides that employers with 20 or more workpeople have to employ 3 per cent. of disabled persons. But that does not by any means get down to the problem. It is only a start towards solving the problem of the employment of disabled people.

The Financial Secretary cannot hide behind cold statistics in judging a new tax of this kind which was described in speech after speech from both sides as acting in an unfair and discriminatory manner on people of this character.

Another argument advanced by the hon. and learned Gentleman was that this is not a case of taxing the disabled but, rather, taxing employers. That, too, was refuted in every speech. I suppose that it was one of his thoughts when he first came to the House that day, and it was obviously still in his mind eight hours later, but he would not have expressed the thought if he had paid attention to the speeches during the debate. Among others, my right hon. Friend the Member for Enfield, West (Mr. Iain Macleod) touched on it at the beginning of the debate. He said: The great danger which I see is this. There is now a tax on the employment of these people."—[OFFICIAL REI'ORT, 29th June, 1966; Vol. 730, c. 1835.]

That is the view which was upheld in speech after speech. That is what the effect of it will be. In his deep-frozen cold slab way of approaching the matter, which was the Financial Secretary's mood on that occasion, it can be argued in that way. It is the way in which the Government first attempted to sell this punitive tax to the nation, but people have now been alerted to what it means. Certainly those who work in the social field have been. No one any longer has the Government's wool pulled over his eyes in the matter. The tax will discriminate against the employment of disabled people such as the blind. That is absolutely cardinal, and it emerged from every one of the speeches made on that occasion.

We are in the difficulty that we are always in owing to the Budget Resolution, namely, that we cannot make ourselves 100 per cent. clear in an Amendment. Therefore, this Amendment proposes to reduce the charge on blind people to a relatively nominal amount. What we really mean is that they should be excluded from this tax. But such a proposal would not be in order and therefore we have attempted to indicate our views in the only way open to us, and that is to propose that the tax should be reduced to 1s.

Throughout the debates on Clause 42 as it was—it is now Clause 44—the Financial Secretary and Government spokesmen in general stressed time after time the difficulty—which the House appreciated—of knowing where to draw the line. In an earlier debate my right hon. Friend the Member for Kingston-upon-Thames (Mr. Boyd-Carpenter) indicated that this is not as difficult administratively as the Government made out for convenience or argument in not meeting reasonable cases. But in this Amendment —and I am very happy that it has been called—the line is very clear indeed.

In past years when I was sitting on the benches opposite I had difficulty in advocating various social requirements of this kind. I was told," We could do this for the blind because they are registered ". It is difficult to say where the deaf begin and end, although in the past the hon. Lady the Member for Wood Green has made a good case for them. But they do not come within this Amendment. We are specifically testing the Government's sincerity and humanitarian attitude towards a section of people in respect of whom that argument is not valid in any way. I trust that we shall have none of those arguments which shame any Government before the nation, because what the nation expects is not arguments which evade the issue but arguments which face up to and meet the social need.

Captain Walter Elliot (Carshalton)

I support the Amendment. It has been said from the Government benches that this tax has been proposed for a variety of reasons—for instance, to raise revenue and redeploy labour. Latterly the emphasis has been on its deflationary impact at the end of this year. One of the main objects which was put forward was the redeployment of labour from the service industries to manufacturing industries.

I would not say that the job of a blind man working in manufacturing industry was imperilled by this tax, be, cause presumably he would be subsidised. But the jobs of blind people in the service industries will be imperilled. I think particularly of a case which I know in my constituency. The owners of a small tobacconist's shop to which I used to go when I smoked trained a blind man to serve behind the counter. It took some time to do it, but they achieved it. I have a strong feeling that if these employers have to pay this tax in respect of that man they will get rid of him. If the Government persist with this tax on the blind, they should tell the House what would be the cost of the concession. if the object of the tax is to raise revenue, we ought to be able to judge whether that is a fair point to make.

9.30 p.m.

Secondly, we have frequently been told by this and earlier Governments that if we make a concession in one case, everybody will ask for it. We ought to stamp on that argument when the blind are concerned, for they have always been regarded as suffering from a special disability. It is my recollection that blindness is regarded as a 100 per cent. disability for disability allowances and both sides of the House agree that that is fair, just and humane. The argument "all or none", which in any case is a sterile argument, is not applicable to the blind.

Above all, it is the object of all of us to keep these people with this great affliction in a job if it is possible, but I doubt whether that will happen if the tax remains.

Dame Irene Ward (Tynemouth)

I merely want to add my support to the Amendment which was moved with great sympathy and clarity by my hon. Friend the Member for Shipley (Mr. Hirst), who completely demolished any arguments which might be put against it by the Financial Secretary.

We have always been told that it is difficult to discriminate and to define a group for whom a concession is asked. That argument has been demolished, for the fact that the blind are in a special category has been recognised in Government policy. The blind have been recognised as being apart from other sections of the disabled community. I do not expect the Financial Secretary to use that argument. Indeed, the case is so strong that I think that the hon. and learned Gentleman will shortly rise and say that without argument he will accept the Amendment. He cannot argue against the Amendment that a concesson given to one section of the community has to be paid for by other people, for such a policy has been embodied in our legislation for many years.

The House seems to have become slightly confused about the reason for the tax. As I understand it, the idea was that those employed in the service industries, as distinct from those in manufacturing, had not made their full contribution to taxation. As we have always recognised the blind as being in a special category, no Government could impose a burden on them. The blind working in the service industries cannot be expected to make an additional contribution to the country's taxation, and we all think that the blind have a sufficient burden to bear with their affliction.

If the Government want to move people from service industries to manufacturing industries—which I understand is one of the basic arguments—the Financial Secretary must realise that the jobs for which the blind can be trained are very limited, and that to apply the general concept of transferring people from the service industries to the manufacturing industries is a ridiculous one when applied to the blind. That fact must stand out a mile.

All the arguments against the Amendment have been demolished. I do not want to help the Government to overcome any of the bad reputation that they have built up for themselves and I must emphasise that there is nothing of any social consequence in the Bill. Even in the 13 years of Tory rule it was always accepted that some progress would be made in some aspect of the social services.

I know that it is exciting to create records and to establish precedents, but it would be most unusual if, in this great Finance Bill, in order to create a precedent the Government were to impose a tax on those employers who make a contribution to social welfare by employing the blind. I cannot think that even the Treasury Front Bench would want to create such a precedent.

I am sure that most Government supporters, as well as my hon. Friends and I, would welcome the Government's acceptance of the Amendment. I therefore look forward with the greatest pleasure to hearing that the Financial Secretary accepts it.

Dr. Reginald Bennett (Gosport and Fareham)

I want to add my support to the arguments put forward by my hon. Friends. I feel sure that when they first heard of the incidence of this tax hon. Members on both sides of the House were thunderstruck at the thought of its being levied on people so completely and utterly handicapped as the blind. I thought that it was a scandalous thing, and I remain scandalised. I can hardly believe that even now the Government intend to levy this tax on blind people. Make no mistake about it: it will be levied upon them, because they will become unemployable.

It is important that we should think of the blind people particularly, because they are in a special category, which can easily be explained by the fact that man depends more completely on the power of vision than upon any of his other senses, and people deprived of this sense are far more savagely handicapped than those who are deprived of any other sense. That is why the blind have a paramount claim upon our sympathy, and why we should act in accordance with that sympathy. The fact that an employer employs a blind man in a production industry means that he has gone out of his way to provide a public service by employing a disabled man. He will not be penalised. But the man who has gone out of his way voluntarily to provide this public service by employing a blind man in a service industry will now be penalised for doing so. This is absolutely fantastic.

If this should be permitted to go through the House, the country will be ferociously angry. I support the Amendment and say with the greatest emphasis that it is worthy of being passed. I trust that the Government will accept it.

Mr. Tim Fortescue (Liverpool, Garston)

I should like to draw the attention of the House to Cmnd. 2639, published on 5th April last year—the White Paper which established the National Board for Prices and Incomes. In that White Paper, it is made mandatory on the Board to have regard to social justice in considering any matters brought before it. Part I of the White Paper, I understand, is to be enshrined in statute law and discussed in this place tomorrow. If this is passed into law, it will be not only mandatory but statutorily mandatory for the Board to have regard to social justice.

Every hon. Member has the most vital and involved regard for social justice in all his dealings with his constituents. I am sure that we shall hear tomorrow that there are many interpretations of social justice and that what one thinks is social justice another may think is injustice. But I am certain that not one hon. Member will think that to tax the blind or make it more difficult for them to be employed is in accordance with the principles of social justice.

No person could be so uncompassionate as to think that it is socially just to tax the employers of the blind. I would urge the hon. and learned Gentleman to take this matter, the policy of his own Government, into consideration when considering the Amendment.

Mr. MacDermot

On a matter which arouses such feelings as anything touching the blind, I do not expect to have much success in persuading hon. Members who are already convinced of the justice of the Amendment that it should not be accepted. Nevertheless, I must state my reasons.

Let us look at the scope of the problem. There are about 11,500 blind employed people in this country. Of that number, about 7,000 are employed in ordinary factories or offices and about 3,500 in special workshops for the blind. About half of these workshops are charities and consequently the employers of the blind who work there would qualify for the refund. Of course, the employers of the blind employed in the manufacturing sector will qualify not only for the refund but for the premium, and there will in that case be an actual incentive to employ people in that area. The employers of people in the neutral sector other than the charities will also get the refund.

We are not dealing with very large numbers—[HON. MEMBERS:" All the easier to accept it."] Hon. Members anticipate. This is, of course, an argument which cuts both ways. I am not arguing this on the basis of cost: the sums involved are not great for the Treasury or for the employers. I have been asked not to argue this on administrative grounds and I do not say that it would be impossible to devise an administrative procedure. As has been pointed out, there is a register of the blind. I do not say that it could be done in time for the proposed date of commencement of the Bill, but I do not argue the matter on that basis. I simply point out the problems that hon. Members may attach such weight to them as they wish. It would require quite elaborate administrative machinery to achieve it, but I have been asked not to argue on these grounds and I will not go into that.

9.45 p.m.

Let us look at the case on its merits. The ho t Lady the Member for Tyne-mouth (Dame Irene Ward) asked me to accept the Amendment without argument. Frankly I feel that that is what I have been asked to do because the argument w'lich has been put to the House in suprort of the Amendment is an assumption which has not been fully argued and in my belief cannot effectively be argued. The assumption quite simply is that which was put by the hon. Member for Shipley (Mr. Hirst) when he moved the Amendment—that this tax would discriminate against the blind. In fact, this, tax will not discriminate against the blind. This tax is imposed on employers in certain sectors in respect of all employees—the blind and the others. The Amendment asks us to discriminate in favour of the blind.

That is quite different from saying that the tax discriminates against the blind. In order to make out the case that the tax should discriminate in favour of the blind, it surely must be shown that the tax as proposed will operate in a way which will be harmful to the blind, and this is the assumption which has not been proved. Let me spell it out to the House: the assumption implies that employers who are finding difficulty in paying this tax and who it is assumed will therefore seek to reduce the number of their employees because of the burden of the tax personally I have a serious doubt as to the extent to which the tax will operate in that way—will choose to discriminate against the blind by dismissing their blind employees.

That involves another assumption which hon. Members have not spelled out in their minds, and it is that for some reason blind persons are economically less useful to their employers than are other employees. If hon. Members will follow this logically, that is the assumption to which they are driven—and it is an erroneous assumption. We have had references to the views of Ministry of Labour experts who are responsible for placing blind persons in employment. I assure hon. Members that the considered view of my right hon. Friend's Department is that quite the opposite is the case and that employers are more than justified on purely economic grounds in employing blind persons.

The Ministry of Labour go to immense pains to ensure with the blind that round pegs go into round holes and square pegs into square holes. In other words, far greater care is taken with the machinery of the D.R.O.'s department—immense care—than in the usual cases to ensure that blind persons are found employment which truly matches their capacities and their talents, in spite of their loss of sight. This is done with great success.

The productivity of blind persons is frequently higher than that of persons who suffer no physical handicap and who are doing like work. It is the experience of that department that when employers need for various reasons to discharge labour, it is not the blind whom they discharge first. Quite the contrary. I am putting it on economic grounds. I may also remind hon. Members of a point which has been made—the great sympathy which a vast number of employers have for the blind and the great consideration which they show to the blind. When that is added to the very real economic arguments which I have put forward, I can only say that I do not believe that the assumption on which this argument has been based is well founded.

Mr. Hirst

The hon. and learned Gentleman has stressed the question of dismissal. I had very much in mind the argument deployed by the hon. Lady the Member for Wood Green (Mrs. Joyce Butler), who referred to people losing their jobs for a number of reasons. I have been informed that some businesses cannot continue because of this tax. Is it not a great disincentive for the reemployment of these people and will not the tax result in employers not wishing to add to their liabilities in such cases, remembering that it is in cases of this sort that hon. Members are often asked to help?

Mr. MacDermot

I do not believe that that argument is any better founded than the other one. Exactly the same considerations apply for the reemployment of blind persons as for their dismissal. In other words, if it is an advantage for an employer to retain a blind person, it is equally advantageous to him to employ him.

Dr. Bennett

Is the hon. and learned Gentleman not aware that the argument which he has so skilfully deployed only ends in establishing one conclusion—that in his mind blind people are not disabled?

Mr. MacDermot

Certainly not. I had completed my remarks and I gave way merely because I thought I could assist the House further.

Miss Mervyn Pike (Melton)

We have listened to one of the lamest arguments we have heard so far from the Financial Secretary. He put it forward with grace and courtesy, but without conviction. He started his logic from the wrong end, although that is a characteristic of the present Government.

I remind the hon. and learned Gentleman that in discussing the Ministry of Social Security Bill, which is going through the House. the Government's argument for giving a special allowance to the blind and for not extending it to other disabled categories has been that the blind are in a very special category and have always received special attention. The assumption that they are at a disadvantage has been enshrined in legislation. We do not have the responsibility of proving that that assumption is right

Division No. 114.]	AYES	[4.55 p.m.
Alison, Michael (Barkston Ash)	Blaker, Peter	Clark, Henry
Allason, James (Hemel Hempstead)	Boyd-Carpenter, Rt. Hn. John	Clegg, W alter
Astor, John	Braine, Bernard	Cooke, Robert
Atkins, Humphrey (M't'n & M'd'n)	Brinton, S.r Tatton	Corfield, F. V.
Awdry, Daniel	Brown, Sir Edward (Bath)	Costain, A. P.
Baker, W. H. K.	Bruce-Cardyne, J.	Crawley, Aldan
Batsford, Brian	Bryan, Paul	Cunningham, Sir Knox
Beamish, Col. Sir Tufton	Bullus, sir Eric	Currie, C. B. H.
Bell, Ronald	Burden, F. A.	Dance, James
Bennett, Dr. Reginald (Cos. & Fhm)	Campbell, Gordon	Dean, Paul (Somerset, N.)
Bessell, Peter	Carlisle, Mark	Deedes, Rt. Hn. W. F. (Ashford)
Biffen, John	Cary, Sir Robert	Dodds-Parker, Douglas
Birch, Rt. Hn. Nigel	Chichester, Clark, R.	Elliot, Capt. Walter (Carshalton)

and certainly the hon. and learned Gentleman did not prove that it is wrong.

It is within our knowledge that these people are at a great disadvantage when presenting themselves for employment and we know the difficulties of training and so on that inevitably accompany this type of disablement. When an employer is making a decision about taking on a disabled person, particularly a blind person, these difficulties must weigh heavily in the balance.

I submit that we have always accepted that the blind have this disadvantage. This has been accepted in legislation in recent years and we are merely asking that this disadvantage shall be offset in some small measure by a reduction in this tax.

The Financial Secretary said that about 7,000 blind people are in open employment. Neither he nor my hon. Friends have the exact figures, but it is fair to assume that a high proportion of them are employed in the service industries, since it is in these industries that they can give of their best and obtain the training which is most suitable for their disablement. These people will be most heavily hit by this taxation. While we have been told that the purpose of the tax is to have more flexibility, there is none for these people.

We have heard arguments of great sincerity and force in favour of the Amendment. I do not wish to delay the House, so I will not repeat them. However, I advise my hon. Friends to press this Amendment to a division, because the Financial Secretary has in no way disproved the case that has been accepted for many years.

Question put, That those words be there inserted in the Bill:—

The House dividedAyes 135, Noes 198.

Errington, Sir Eric	Loveys, W. H.	Quennell, Miss J. M.
Eyre, Regitiald	Lubbock, Eric	Renton, Rt. Hn. Sir David
Fortescue, Tim	McAdden, Sir Stephen	Ridsdale, Julian
Gilmour, Ian (Norfolk, C.)	MacArthur, Ian	Rossi, Hugh (Hornsey)
Glover, Sir Douglas	Macleod, Fit. Hn. Iain	Russell, Sir Ronald
Glyn, Sir Richard	Madden, Martin	Sharpies, Richard
Goodhart, Philip	Marten, Neil	Shaw, Michael (Sc'b'gh & Whitby)
Gurden, Harold	Mathew, Robert	Smith, John
Hall, John (Wycombe)	Mawby, Ray	Steel, David (Roxburgh)
Hall-Davis, A. C. F.	Maxwell-Hyslop, R. J.	Summers, Sir Spencer
Harris, Frederic (Croydon, N.W.)	Mills, Stratton (Belfast, N.)	Talbot, John E.
Harrison, Brian (Maldon)	Mitchell, David (Basingstoke)	Taylor, Sir Charles (Eastbourne)
Harrison, Col. Sir Harwood (Eye)	Monro, Hector	Taylor,Edward M.(C'gow,Catheart)
Harvie Anderson, Miss	Morgan, W. G. (Denbigh)	Taylor, Frank (Moss Side)
Hawkins, Paul	Morrison, Charles (Devizes)	Teeling, Sir William
Hay, John	Munro-Lucas-Tooth, Sir Hugh	Temple, John M.
Heald, Rt. Hn. Sir Lionel	Murton, Oscar	Thatcher, Mrs. Margaret
Heseltine, Michael	Nabarro, Sir Gerald	Thorpe, Jeremy
Higgins, Terence L.	Neave, Airey	Turton, Rt. Hn. R. H.
Hiley, Joseph	Nicholls, Sir Harmer	van Straubenzee, W. R.
Hill, J. E. B.	Noble, Rt. Hn. Michael	Wainwright, Richard (Colne Valley)
Hirst, Geoffrey	Nott, John	Walker, Peter (Worcester)
Holland, Philip	Orr. Capt. L. P. S.	Ward, Dame Irene
Hordern, Peter	Osborn, John (Hallam)	Weatherill, Bernard
Hunt, John	Page, Graham (Crosby)	Webster, David
Hutchison, Michael Clark	Pearson, Sir Frank (Clitheroe)	Whitelaw, William
Jenkin, Patrick (Woodford)	Peel, John	Wilson, Geoffrey (Truro)
Johnston, Russell (Inverness)	Peyton, John	Winstanley, Dr. M. P.
Joseph, Rt. Hn. Sir Keith	Pike, Miss Mervyn	Wood, Rt. Hn. Richard
King, Evelyn (Dorset, S.)	Pink, R. Bonner	Wylie, N. R.
Kitson, Timothy	Pounder, Rafton	TELLERS FOR THE AYES:
Knight, Mrs. Jill	Powell, Rt. Hn. J. Enoch	Mr. R. W. Elliott and
Longden, Gilbert	Pym, Francis	Mr. Anthony Grant,
NOES
Abse, Leo	Dunwoody, Dr. John (F'th & C'b'e)	Jenkins, Rt. Hn. Roy (Stechford)
Alldritt, Walter	Eadie, Alex	Jones, Dan (Burnley)
Archer, Peter	Edwards, Robert (Biloton)	Jones, J. Idwal (Wrexham)
Armstrong, Ernest	English, Michael	Judd, Frank
Atkins, Ronald (Preston, N.)	Ensor, David	Kelley, Richard
Bacon, Rt. Hn. Alice	Evans, Albert (Islington, S.W.)	Kenyon, Clifford
Baxter, William	Fernyhough, E.	Kerr, Dr. David (W'worth, Central)
Beaney, Alan	Finch, Harold	Kerr, Russell (Feltham)
Bennett, James (G'gow, Bridgeton)	Fletcher, Ted (Darlington)	Lawson, George
Bidwell, Sydney	Floud, Bernard	Leadbitter, Ted
Blackburn, F.	Foley, Maurice	Ledger, Ron
Booth, Albert	Foot, Michael (Ebbw Vale)	Lestor, Miss Joan
Boston, Terence	Ford, Ben	Lever, Harold (Cheetham)
Bowden, Rt. Hn. Herbert	Fowler, Gerry	Lewis, Ron (Carlisle)
Bradclock, Mrs. E. M.	Fraser, Rt. Hn. Tom (Hamilton)	Lomas, Kenneth
Bradley, Torn	Galpern, Sir Myer	Luard, Evan
Brooks, Edwin	Garrow, Alex	Lyons, Edward (Bradford, E.)
Broughton, Dr. A. D. D.	Ginsburg, David	McBride, Neil
Brown, Hugh D. (G'gow, PrOvan)	Gourley, Harry	McCann, John
Brown, Bob (N 'c'tle-upon-Tyne, W)	Greenwood, Rt. Hn. Anthony	MacDermot, Niall
Brown, R. W. (Shoreditch & F'bury)	Gregory, Arnold	McGuire, Michael
Buchan, Norman	Grey, Charles (Durham)	McKay, Mrs. Margaret
Buchanan, Richard (G'gow, Sp'burn)	Griffiths, David (Rother Valley)	Mackenzie, Gregor (Rutherglen)
Butler, Herbert (Hackney, C.)	Griffiths, Rt. Hn. James (Llanelly)	Mackintosh, Jchn P.
Butler, Mrs. Joyce (Wood Green)	Griffiths, Will (Exchange)	McMillan, Tom (Glasgow, C.)
Cant, R. B.	Hamilton, James (Bothwell)	McNamara, J. Kevin
Carmichael, Neil	Hamilton, William (Fife, W.)	MacPherson, Malcolm
Carter-Jones, Lewis	Hamling, William	Mahon, Peter (Preston, S.)
Coe, Denis	Hannan, William	Mahon, Simon (Bootie)
Corbet, Mrs. Freda	Harper, Joseph	Matlalieu, E. L. (Brigg)
Craddock, George (Bradford, S.)	Harrison, Walter (Wakefield)	Manuel, Archie
Crawshaw, Richard	Hattersley, Roy	Mapp, Charles
Cullen, Mrs. Alice	Hazell, Bert	Mason, Roy
Davidson, Arthur (Accrington)	Hefter, Eric S.	Miller, Dr. M. S.
Davies, Dr. Ernest (Stretford)	Herbison, Rt. Hn. Margaret	Mitchell, R. C. (S'th'pton, Test)
Davies, G. Elfed (Rhondda, E.)	Hobden, Dennis (Brighton, K'town)	Morgan, Elystan (Cardiganshire)
Davies, Harold (Leek)	Hooley, Frank	Morris, Alfred (Wythenshawe)
Delargy, Hugh	Houghton, Rt. Hn. Douglas	Morris, Charles R. (Openshaw)
Dempsey, James	Hoy, James	Murray, Albert
Dewar, Donald	Hughes, Emrys (Ayrshire, S.)	Newens, Stan
Diamond, Pt. Hn. John	Hughes, Roy (Newport)	Noel-Baker, Francis (Swindon)
Dickens, James	Hunter, Adam	Noel-Baker,Rt.Hn.Philip(Derby,S.)
Doig, Peter	Hynd, John	Norwood, Christopher
Donnelly, Desmond	Jackson, Colin (B'h'se & Spenb'gh)	Ogden, Eric
Dunn, James A.	Jackson, Peter M. (High Peak)	O'Malley, Brian
Dunwoody, Mrs. Gwyneth (Exeter)	Jeger, George (Goole)	Oram, Albert E.
	Jenkins, Hugh (Putney)	Orme, Stanley

Oswald, Thomas	Rodgers, William (Stockton)	Varley, Eric G.
Owen, Will (Morpeth)	Roebuck, Roy	Wainwright, Edwin (Dearne Valley)
Page, Derek (King's Lynn)	Rose, Paul	Walden, Brian (All Saints)
Parkpo, Brian (Bedford)	Ross, Rt. Hn. William	Walker, Harold (Doncaster)
Pearson, Arthur (Pontypridd)	Rowlands, E. (Cardiff, N.)	Wallace, George
Pentland, Norman	Ryan, John	Watkins, David (Consett)
Perry, George H. (Nottingham, S.)	Sheldon, Robert	Wellbeloved, James
Price, Christopher (Perry Barr)	Shore, Peter (Stepney)	Whitlock, William
Price, Thomas (Westhoughton)	Short,Rt.Hn.Edward(N'c'tle-u-Tyne)	Williams, Clifford (Abertillery)
Probert, Arthur	Silkin, John (Deptford)	Willis, George (Edinburgh, E.)
Pursey, Cmdr. Harry	Skeffington, Arthur	Wilson, William (Coventry, S.)
Randall, Harry	Slater, Joseph	W innick, David
Rankin, John	Small, William	Winterbottom, R. E.
Redhead, Edward	Spriggs, Leslie	Woodburn, Rt. Hn. A.
Reynolds, G. W.	Steele, Thomas (Dunbartonshire, W.)	Woof, Robert
Rhodes, Geoffrey	Summerskill, Hn. Dr. Shirley	Yates, Victor
Richard, Ivor	Symonds, J. B.
Roberts, Albert (Normanton)	Thomas, George (Cardiff, W.)	TELLERS FOR THE NOES:
Roberts, Gwilym (Bedfordshire, S.)	Thomas, lorwerth (Rhondda, W.)	Mr. Edward Bishop and
Robertson, John (Paisley)	Tomney, Frank	Mr. Loan Evans.
Robinson, W. 0. J. (Walth'stow, E.)	Urwin, T. W.

Mrs. Thatcher

I beg to move Amendment No. 46, in page 52, line 27, at the end to insert: Provided that the said amount shall be one penny in respect of those persons who are not liable to pay, or who under section 102 of the National Insurance Act 1965 elect not to pay, the employee's insurance contribution ".

Mr. Speaker

With this Amendment I have suggested that we take Amendment No. 49, in page 54, line 7, at end insert: employee's insurance contribution ' means a contribution other than a graduated contribution payable by an employee under the National Insurance Act 1965 or any amendment thereto passed after the passing of this Act'.

Mrs. Thatcher

The purpose of this Amendment is to exclude considerable groups of people from the incidence of Selective Employment Tax. There are two main groups which the Amendment would exclude, those of retirement age and many of the married women who work part-time. It would also exclude other married women. I submit that if the Amendment were accepted it would deal with a very large part of the problem of Selective Employment Tax as it affects retired people and part-time workers.

A great deal of the argument of the Financial Secretary and of hon. Members opposite about this tax has proceeded on the assumption that because we follow th,:, National Insurance stamp system, the groups of people whom we on this side of the House desire to exclude from the tax cannot be excluded. Therefore, in this Amendment I have deliberately attempted to use the National Insurance system in order to exclude those very people. My contention is that if the Government had chosen not to follow the employers' contributions but to levy tax only in those cases where the employers' and employees' contributions were payable, the tax would have been infinitely less damaging in its effect.

I deal first with the case of retired people. Anyone who employs a retired person for more than eight hours a week is liable to pay the employer's part of the National Insurance contribution. So he is already liable to pay 13s. 4d. a week for a man. Because he is liable as an employer, as the Bill stands without the Amendment, he will have to pay in respect of that retired person another 25s. a week. That makes the cost of employing a retired man 38s. 4d. a week before one penny has been paid to the retired person, and he has to pay that even though the retired person works for only a few hours more than eight hours a week. Our contention, therefore, is that the effect of this tax will be to make an employer stand off a number of part-time retired people. Economically those people cannot go elsewhere to work, so it can only redound to their own disadvantage if this tax continues in its present form.

Several things could happen. Either the employer could stand off the person, or he could submit that the man is self-employed. I suppose that if a man goes out to do a bit of gardening for two or three people one can say that he is holding out his services for hire and that he is self-employed. Thirdly, he could be stood off for one or two weeks, and then be employed for a week, and one could cut the incidence of the tax in that way. Fourthly, there could be a large-scale evasion of this tax through people not declaring that they are employing retired people for a few hours or for one or two days a week.

We feel that if the Financial Secretary were to accept the Amendment the way would be eased for retired people to continue in work. We do not feel that they should attract the Selective Employment Tax. I have already said that for a man an employer would have to pay 38s. 4d. a week in National Insurance contributions and Selective Employment Tax, and for a woman the corresponding amount would be 23s. 10d. a week. This is a great deal of money for part-time work, performed by retired people. That is one group of people whom the acceptance of this Amendment would exclude from the operation of the tax.

The second group of people concerned in the Amendment are married women. As the Financial Secretary will know, having undoubtedly been told by the relevant Department, married women can opt whether or not to pay National Insurance contributions. The employer will have to pay those contributions in any event, but the maried woman herself can decide whether or not she wants to pay her part of the contribution. I do not, in common with many other married women. It does not pay many married women to pay National Insurance contributions. Not a lot of them know this. if a lot more knew it, far fewer would pay.

But a married woman gains by paying National Insurance contributions only if she is considerably older than her husband or is separated from him and does not know his insurance record. That means that comparatively few married women themselves pay National Insurance contributions. This is not surprising, because they get very little return in benefit if they pay contributions on their own account. A married woman will not get the full retirement pension if her husband is living; she will get only the difference between what he would have got for them and the single rate. It is a comparatively bad bargain for the ordinary married woman.

I see that the Financial Secretary is getting a good deal of tutoring from the Parliamentary Secretary to the Ministry of Pensions. He need not bother. I shall tell him all he needs to know about it. I reckon that I know a good deal more about the insurance of married women than the Parliamentary Secretary. If the Financial Secretary accepted the Amendment, that would have the effect of excluding from the incidence of the tax married women who opt not to pay contributions, that is, to exclude the large majority.

One of the problems concerned with the tax has been that of married women who do part-time work. The Government have freely admitted that this is one of the strongest cases for asking for some relief from the tax. An example makes this clear. A retailer perhaps cannot get a person to work full time for him. Therefore, instead of having someone to work, say, 36 hours a week, he has to employ three women to work 12 hours a week each. That means that he must pay three times the amount of tax that he would have to pay if he could get one person to do the same amount of work. This is patently unfair on the retailer.

If the Government were to accept the Amendment a large part of their problem would be dealt with. I know that the Financial Secretary will say in reply that this would discriminate unfairly against those warried women who opted to pay the full contribution, or who had to do so. If the employer does not have to pay in respect of the vast majority of married women, he is very much better able to pay for the minority who choose to make their National. Insurance contribution. I admit that there are anomalies, but the main part of the problem would be dealt with.

There is a third group of people who do not have to pay the employee's part of the National Insurance contribution. It is a small group, consisting of people undergoing full-time education or unpaid apprentices. I refer only briefly to this group because it does not comprise a very significant number, but a number of university students who do vocation work. Theoretically, they are undergoing full-time education.

They might go into a factory to do a certain amount of scientific work, and it is very good for them to do it. Perhaps they do not earn a great deal, although they may be paid a certain amount. It would be very helpful if they were excluded from the incidence of the tax, because it would cost the employer quite a large amount to pay for them. Perhaps there is some question that they would not be liable as it is, but perhaps the Financial Secretary can clear that up.

What I am mainly concerned with in the Amendment is to exclude retired people and the vast majority of married women from the incidence of the tax. I hope that the Financial Secretary will accept the Amendment in spirit, because it would solve very many of his problems, and problems which the House as a whole desires to see solved.

10.15 p.m.

Mr. Boyd-Carpenter

My hon. Friend the Member for Finchley (Mrs. Thatcher) has made an unaswerable case and, but for the unhappy performance of the Government on the previous Amendment, I should have assumed that the Financial Secretary would rise at once to accept this Amendment. But it seems clear that the Government are adopting a wholly unreasonable attitude irrespective of the case put. If, at the last election, it had been said by any of my hon. Friends that a Labour Government when returned to power would tax the employment of blind people and use some of the money to subsidise the manufacture of bingo machinery, no one would have believed them. But this is precisely what the Financial Secretary's attitude on the last Amendment amounts to.

I am delighted that my right hon. and hon. Friends put down this Amendment. In Committee, I had an Amendment down, which was discussed with some others, to exclude the employment of retired people from the incidence of the tax. In reply, the Financial Secretary said that there were administrative difficulties about it because retired people, though the great majority, were not the only people in respect of whom an employer-only contribution was made. The hon. and learned Gentleman rested a good deal of his argument against my Amendment on that point of administration.

This Amendment is not subject to that argument. The Financial Secretary will not argue that there would be any difficulty of administration in accepting it. The tax is to be collected on the National Insurance stamp, by increasing the value of the stamp to the very large figures which my hon. Friend mentioned. All that would be needed, as I understand it —I hope that the Financial Secretary, with the briefing he is having from beside him, will correct me if I am wrong—is an arrangement whereby those who already pay on a stamp different from the vast majority, that is, those who pay a contribution based on employer-only plus a few pence for industrial injuries, should continue to pay on a different stamp, that is, the present stamp plus Is. That is all that would be needed administratively to implement this proposal framed as it now is. Does the Financial Secretary accept that proposition? Like my hon. Friend, I have had a little experience of these matters, and I shall take it that it is right.

We come, then, to discuss the Amendment on its merits. A week or two ago, I asked the Chancellor of the Exchequer how much it would cost to exempt the employment of retired people from the incidence of this tax, and he said that the amount would be £10 million. That is a substantial sum, and one must add for the purposes of the Amendment something, though a good deal less, in respect of married women opting out and the smaller groups to which my hon. Friend referred. But I do not believe that the Financial Secretary will quarrel with me if I say that the total cost, on the basis of the Chancellor's own figures, would be well below £14 million or £15 million.

Will the Financial Secretary rest his argument on that? Will he say that the state of our economy today is so serious that it could not stand the loss of £14 million or £15 million? If he does, the argument will have to be treated with respect, but, in that event, I shall beg him to raise the £14 million or £15 million in other ways, for example, by reducing the premium of 7s. 6d. paid in respect of employment in manufacturing industries, simply redistributing the cost within the structure of the tax. I am sure that the House will agree that that would be a better and more socially more just way of doing things.

Taking first the most important aspect, surely all parties and all Ministers of Pensions or Ministers of Labour have been desperately anxious to encourage the employment of older people. That is, first of all, in their own interests people rust out so much more often than they wear out because enforced idleness is the worst of all killers of older people. Secondly, it is from the economic point of view, because we have a great shortage of labour, and if older people who are fit can be encouraged to work or continue to work we are adding to the labour pool. On both grounds, therefore, we want to encourage the employment of older people.

The Financial Secretary will say that this tax will not operate to the contrary. I put two points to him. First, the tax is intended to discourage employment in the service industries. That is part of the point of it. It is intended to discourage such employment in order to move labour into manufacturing industries. l will not waste time in arguing whether generally that is true, but it is patently not true in respect of the great majority of the older people whom we are discussing. It is unrealistic to believe that someone who has not worked in a factory up to the age of 65 will be able to adapt himself to factory life after that. Therefore, this will discourage employment in the service industries without affecting redeployment. In so far as it operates at all, it will drive these people from employment into unemployment. What good will that do?

Secondly, we are dealing here with people in many cases on modest wages. The older person doing a job of more than eight hours but a great deal less than the 40-hour week today is generally paid a modest wage. The more modest the wage, the bigger the proportionate incidence of the tax. In other words, the more likely is it to operate on the mind of the employer to make him say," If I have to pay this wage for this kind of work plus this tax, it is not worth my while. I shall get rid of this man."I warn the Financial Secretary that a great deal of the employment of older people. perhaps particularly in the country and perhaps in offices, will be put in jeopardy. If the tax is imposed on top of the rather marginal considerations that cause them to be employed at all, sometimes, to the credit of employers, the semi-charitable motives that cause them to go on employing someone of some age, a great many people who could have been carrying on in work will cease to be in work. That will be the direct and inevitable consequence of this Measure and of the Govern- ment's action in respect of it. Again, what good will that do anybody?

The other main field, as my hon. Friend said, is that of married women The typical married woman is the part-time employee. Again, it has been the policy of all Governments to increase the amount of labour available through part-time married women, many times with skills acquired before marriage, such as teachers, going back into work. If they go into productive industry, the Financial Secretary will say that that is all right and they will get a premium. If they go into Government employment, such as teaching, there is no harm done, but if they want to go into service industries—and to many people service industries, and retail distribution is typical, represent the natural and inevitable field —a very heavy impost relative to their earnings is imposed, and one gets the same effect on their respective employers as one does in respect of the older people.

Therefore, one comes to the fundamentals of this tax by applying it to retirement pensioners and part-time married women. The Government will get a negligible reinforcement of the manufacturing or industrial labour force. They will pay for that by driving a number of people out of work who otherwise would be in work. In return they will get between £10 million and £15 million, but I warn the Government that that figure is gross. In so far as people are driven out of employment and their taxable earnings eliminated, there will be a compensating revenue loss to set against this quite moderate gross figure.

We are at the crunch of the case. If the Government persist in applying this tax in this way they will convince many moderate minded people outside that they do not know what they are doing—that, having decided at the last moment on this tax, they are determined to bulldoze it through regardless of consequences. What effect do they think it will have on the desperately critical opinion, anxious about the state of our economy, if people outside see the economy being directed by a Government who apply a tax of this sort without apparently understanding its direct consequences? Obstinacy by the Government on this Amendment may go in its repercussions a good deal wider than the social damage that it will do.

Mr. Peyton

I am glad to have the opportunity to follow my right hon. Friend the Member for Kingston-upon-Thames (Mr. Boyd-Carpenter), who has made a remarkable speech. I am sure that most of us on this side of the House feel that he has spoken for us fully and with great clarity and has enabled us to cut short our own remarks. Nevertheless there are one or two comments I want to make.

The situation has changed since we discussed this tax in Committee. The Chancellor has told us his intentions. The banks will not be allowed to help. He intends the tax deliberately as a deflationary measure, and as the first victims he is singling out those covered by this Amendment, the part-time workers—retired people and married women.

I appreciate that the Financial Secretary has a difficult job defending the tax. In discussion in the last Amendment, he made a case in suggesting that blind people were amongst the limited number for whom it was possible to make special arrangements. But those covered by this Amendment are among those for whom no special arrangements are possible. My right hon. Friend is right in suggesting that their interests are to be sacrificed and their jobs jettisoned. To do this to them is to achieve nothing. No gain at all will accrue to the Government or to the economy. It will be impossible for the Government to explain to people why they have placed upon employers such a very heavy deterrent before these people's services can be taken up.

There are many occasions during the proceedings on a Finance Bill when it is perhaps possible to take time to tell a Government of their many sins and offences and to stir up strong feelings.

I do not believe that the Amendment is one of those occasions. It is a very serious one, and it will place on the shoulders of the Financial Secretary, for whom I have great sympathy, a very unhappy task. I hope that he will be able to tell his right hon. Friend that the arguments which have been presented tonight, particularly those advanced by my right hon. Friend the Member for Kingston-upon-Thames, are arguments which he cannot answer, does not wish to answer, and that the purpose for which he has sat on the Treasury Bench tonight—to defend the integrity of this tax at all cost—is one which he would rather not discharge.

10.30 p.m.

Mr. Dean

I wish, first of all, to make a plea to the Joint Parliamentary Secretary to the Ministry of Pensions and National Insurance, whom we are delighted to see listening to the debate. I hope that, in the next few minutes, he will quietly and secretly take out the Treasury brief from the Financial Secretary's file and substitute for it a brief from the Ministry of Pensions and National Insurance. Then, at last, we shall see a glimmer of light and get some change.

I want now to put forward one or two arguments based on the points which the Financial Secretary himself made when we last debated this matter on 29th June. The hon. and learned Gentleman's first argument was that it is not possible administratively to grant exemption. His actual words were: It is not possible administratively to grant exemptions which are dependent upon the occupation of the employer or the employee." —[OFFICIAL REPORT, 29th June, 1966; Vol. 730, c. 1948.] He went on to explain that that was because of the National Insurance system.

I suggest that that argument is bogus. We already have a refund for special households and for charities yet in both cases there is no separate National Insurance category. For that reason, the hon. and learned Gentleman's argument does not stand up. It applies in exactly the same way to the refunds which are available for local authorities, for agriculture and other bodies. None of them can be identified with separate National Insurance categories; yet in each of these cases the Government have found a way in which they can be treated differently from the way proposed for part-time workers, married women and the like. In my view, the argument on which the Financial Secretary based that part of his case in the last debate does not stand up.

The second argument which he used is that there has not been time to work out the administrative arrangements. If it can be done for special households and for charities, why can it not be done for retirement pensioners, married women and part-time workers? If the Government have not had time to do their homework, it is monstrously unfair that these sections of the community should be the people who should suffer, owing to the Government bringing forward this proposal at the last minute without taking time to think it out properly.

We all know that, once a proposal finds its way on to the Statute Book, it is exceedingly difficult to change. It is all very well the Financial Secretary saying that the Government will keep these matters carefully under review and that they are sympathetic. But once provisions are put in a Statute it is far more difficult to change them than if the changes are embodied in the legislation while it is going through the House.

I wish to make a special plea to the Financial Secretary about part-time workers. Whatever he may have felt and argued about other categories, he appeared more hopeful about them. In the debate of 29th June, he said: I can see that there is a difference, and very special force, in the argument on part-time workers".-[OFFICIAL REPORT, 29th June, 1966; Vol. 730, c. 1957.] What progress has he made since the Committee stage in finding a way by which part-time workers can have a refund?

If the Government refuse to budge on this and do not act on the powerful arguments put forward, not only by hon. Members on both sides of the House, but by many people outside who know about these matters, they will reap a bitter and well deserved harvest.

Mr. MacDermot

I suspected that these Amendments were, in their form, prompted by what I said in Committee, and that has been confirmed by what the hon. Lady the Member for Finchley (Mrs. Thatcher) and the right hon. Member for Kingston-upon-Thames (Mr. Boyd-Carpenter) said. The hon. Lady ended by asking me to accept the Amendments in spirit. I am not sure what the invitation was or what the limitation is. I cannot advise the House to accept the Amendments, but I have a great deal of sympathy with much of what has been said. I do not propose to repeat the arguments which I put forward in a somewhat lengthy speech in Committee. I shall confine myself to the new points raised by this Amendment.

The Amendment covers a particular and peculiar group of people—on the one hand, retirement pensioners who are employed, and, on the other married women and widows who have not elected to pay the flat rate National Insurance contribution. This obviously is not a collection of people whom anyone would have chosen to single out were it not for the fact that they are people whose employers use a particular and special stamp.

When we were dealing in Committee with the question of the retirement pensioners who are employed, the right hon. Member for Kingston-upon-Thames said that here was a class of people whom we could deal with differently, in spite of the general administrative difficulties, because they had a special stamp. I pointed out that, unfortunately, the stamp was not confined to those people because it was also used for married women and widows who elected to pay the flat rate National Insurance contribution. Consequently, we have these Amendments which say, in effect, "If that is the case, let us include them in the exemption".

Most of the arguments have been based on the particular case of part-time workers in these categories. It is not limited to them; it covers all the workers in these categories, full-time as well as part-time. But the particular arguments are addressed to the supposed effect of this tax upon the employment of part-time workers in these categories. Shortly we shall come to an Amendment dealing specifically with part-time workers, but I am not seeking to take any false point on that.

I appreciate that it is argued that there are more part-time workers in this field, and that bearing in mind the difficulties which the Government say they would have in excluding part-time workers in general, here is a way in which they could exclude some by dealing with this category. But if the Amendments were accepted they would produce a considerable distortion and many anomalies, as the hon. Lady recognised, because they would exempt from the tax not only the employed retirement pensioners and married widows in part-time employment but those in full-time employment, and it would be quite arbitrary and illogical to make the employers' liability for the tax depend on whether or not a woman had ** elected to pay the National Insurance contribution.

Mrs. Thatcher

Very few do.

Mr. MacDermot

The hon. Lady says that very few do, but I did not hear her when she was a Minister in the Ministry—nor did I hear the right hon. Member for Kingston-upon-Thames when he was a Minister—urging women not to pay their full contribution.

Mrs. Thatcher

We did not attempt to impose a Selective Employment Tax. The point therefore was not as important as it is now.

Mr. MacDermot

It is far more important for the woman than it is for the employer who is affected by the S.E.T. I did not hear her put forward that argument when she was employed in the Ministry, and I suppose that the policy of the Ministry under her Administration, as under this Government, is to urge women in this position to secure their full National Insurance rights.

Mrs. Thatcher

No.

Mr. Boyd-Carpenter

I was responsible for this Department for some years, and that is not the case.

Mr. MacDermot

I will accept the right hon. Gentleman's denial. He has far more experience than I do in this field. I was expressing what I thought to be the position. I will revert to my original statement, which is that I do not recall any propaganda being directed to women urging them not to do it. I suggest that an arrangement which would result in the preferential employment—which is what it would be—of married women and widows who had elected not to contribute, as compared with other women, and which would result in a highly prejudicial and undesirable pressure being put on married women and widows to sacrifice their National Insurance interests and elect not to contribute is not something which we should ask the House to accept.

I was asked by the hon. Member for Finchley what the position was in relation to students undergoing full-time education, and also unpaid apprentices. The position is as she surmised—that students receiving full-time education are not obliged to pay contributions except for any period in which they may be in employment, say, during vacations. No tax would be payable in respect of such students.

Mrs. Thatcher

Obviously, while a student is at university no tax is payable either by the employer or the student. The question is, what is the situation where a chemistry student goes to work in a consultant's laboratory during the vacation?

Mr. MacDermot

If he is in paid employment, then of course the tax will be payable. The same applies to the apprentice. If he is unpaid, no tax is payable, but if he is paid he is in Class 1 from the National Insurance point of view and the tax would be payable.

For these reasons, I must advise the House to reject the Amendments.

Mr. F. A. Burden (Gillingham)

The hon. and learned Gentleman must have been swayed by our powerful arguments, but he is in a difficulty because the Chancellor has undoubtedly told him not to give way under any circumstances. He has implied that he will not give way on a later Amendment dealing with part-time workers but I hope that, because of our arguments, even at this late stage, he will find the Chancellor somewhere and get him to give the hon. and learned Gentleman an opportunity of meeting our case.

The way in which the tax will treat elderly people and part-time workers, including women, will not assist in achieving the object of the Selective Employment Tax to release people from the service industries to go into manufacturing. It will often secure the opposite result. Many distributive firms employ two or sometimes three people for a week because they perform a useful service. If those firms have to pay three amounts of Selective Employment Tax for that work, they will get rid of those part-timers and employ one person full-time. This is the opposite result from that which the tax is designed to have.

This will hit most harshly the elderly and those incapable of working long hours. It will keep out of work altogether aged people who work only a few hours a week. My right hon. Friend made an important point when he said that the cost of the Amendment would be about £14 million. Part-time workers made unemployable by the tax will often he thrown on National Assistance, that cost will go up, and the total cost would be much less than £14 million.

There is a good deal of hardship in my constituency among retired service pensioners in part-time work. In many households there are elderly people who are incapable of looking after themselves and yaw are helped by someone coming in for a few hours each week. Many of these elderly people are themselves in straitened circumstances. They will have to pay Selective Employment Tax on

Division No. 115]	AYES	[10.51 p.m.
Alison, Michael (Barkston Ash)	Gurden, Harold	Orr, Capt. L. P. S.
Allason, James (Hemel Hempstead)	Hall, John (Wycombe)	Osborn, John (Hallam)
Astor, Johri	Hall-Davis, A. C. F.	Page, Graham (Crosby)
Atkins, Humphrey (M't'n & M'd'n)	Harrison, Brian (Maldon)	Pearson, Sir Frank (Clitheroe)
Awdry, Daliel	Harrison, Col. Sir Harwood (Eye)	Peel, John
Baker, W. H. K.	Harvie Anderson, Miss	Peyton, John
Batsford, Brian	Hawkins, Paul	Pike, Miss Mervyn
Bell, Ronald	Heald, Rt. Hn. Sir Lionel	Pink, R. Bonner
Bennett, Sir Frederic (Torquay)	Heseltine, Michael	Pounder, Rafton
Bennett, Dr. Reginald (Cos. & Fhm)	Higgins, Terence L.	Powell Rt. Hn. J. Enoch
Bessell, Peter	Hiley, Joseph	Quennell, Miss J. M.
Bitten, John	Hill, J. E. B.	Renton, Rt. Hn. Sir David
Birch, Rt. Hn. Nigel	Hirst, Geoffrey	Ridsdale, Julian
Blaker, Peter	Hordern, Peter	Rossi, Hugh (Hornsey)
Boyd-Carpenter, Rt. Hn. John	Hunt, John	Sharpies, Richard
Braine, Bernard	Hutchison, Michael Clark	Shaw, Michael (Sc'b'gh & Whitby)
Brinton, Sir Tatton	Jenkin, Patrick (Woodford)	Smith, John
Brown, Sir Edward (Bath)	Johnston, Russell (Inverness)	Steel, David (Roxburgh)
Bruce-Gardyne, J.	Joseph, Rt. Hn. Sir Keith	Summers, Sir Spencer
Bullus, Sir Eric	King, Evelyn (Dorset, S.)	Talbot, John E.
Burden, F. A.	Kitson, Timothy	Taylor, Edward M.(C'gow,Catheart)
Carlisle, Mark	Knight, Mrs. Jill	Taylor, Frank (Moss Side)
Chichester-Clark, R.	Longden, Gilbert	Teeling, Sir William
Clark, Henry	Leveys, W. H.	Thatcher, Mrs. Margaret
Clegg, Walter	Lubbock, Eric	Thorpe, Jeremy
Cooke, Robert	MacArthur, Ian	Turton, Rt. Hn. R. H.
Costain, A. P.	Macleod, Rt. Hn. Iain	van Straubenzee, W. R.
Crawley, Aidan	Maddan, Martin	Wainwright, Richard (Colne Valley)
Cunningham, Sir Knox	Marten, Neil	Walker, Peter (Worcester)
Currie, G. B. H.	Mawby, Ray	Walters, Dennis
Dalkeith, Earl of	Maxwell-Hyslop, R. J.	Ward, Dame Irene
Dean, Paul (Somerset, N.)	Mitchell, David (Basingstoke)	Weatherill, Bernard
Deedes, Rt. Hn. W. F. (Ashford)	Munro, Hector	Webster, David
Dodds-Parker, Douglas	Morgan, W. G. (Denbigh)	Whitelaw, William
Elliott, R.W.(N icille-upon-Tyne,N.)	Morrison, Charles (Devizes)	Winstanley, Dr. M. P.
Errington, Sir Eric	Munro-Lucas-Tooth, Sir Hugh	Wood, Rt. Hn. Richard
Fortescue, Tim	Murton, Oscar	Woodnutt, Mark
Gilmour, Ian (Norfolk, C.)	Nabarro, Sir Gerald	Wylie, N. R.
Glover, Sir Douglas	Heave, Airey
Glyn, Sir Richard	Nicholls, Sir Harmar	TELLERS FOR THE AYES:
Goodhart, Philip	Noble, Rt. Hn. Michael	Mr. Francis Pym and
Grant, Anthony	Nott, John	Mr. Reginald Eyre.
Grant-Ferris, R.
NOES
Abse, Leo	Booth, Albert	Buchan, Norman
All dritt, Walter	Boston, Terence	Buchanan, Richard (G'gow, Spiburn)
Archer, Peter	Bowden, Rt. Hn. Herbert	Butler, Mrs. Joyce (Wood Green)
Armstrong, Ernest	Braddock, Mrs. E. M.	Callaghan, Rt. Hn. James
Atkins, Ronald (Preston, N.)	Bradley, Tom	Cant, R. B.
Beaney, Alan	Brooks, Edwin	Carmichael, Neil
Bennett, James (G'gow, Bridgeton)	Broughton, Dr. A. D. D.	Carter-Jones, Lewis
Bidwell, Sydney	Brown, Hugh D. (G'gow, Provan)	Coe, Denis
Bishop, E. S.	Brown,Bob(Nicitle-upon-Tyne,W.)	Conlan, Bernard
Blackburn, F.	Brown, R. W. (Shoreditch & F'bury)	Corbel, Mrs. Freda

the part-time help which assists to make their lives bearable.

I believe that the Chancellor has made up his mind about this Amendment, but in view of the next Amendment on part-time workers, I ask the Financial Secretary to take the opportunity to consult his right hon. Friend, wherever he is, to see whether he will relax this rule, which will cause much hardship and will in no way assist to meet the aim with which, we are told, the Tax has been introduced.

Question put, That those words be there inserted in the Bill:—

The House divided: Ayes 123, Noes 185.

Craddock, George (Bradford, S.)	Hughes, Roy (Newport)	Parkyn, Brian (Bedford)
Crawshaw, Richard	Hunter, Adam	Pearson, Arthur (Pontypridd)
Cullen, Mrs. Alice	Hynd, John	Pentland, Norman
Dalyell, Tam	Jackson, Colin (B'h'se & Spenb'gh)	Perry, George H. (Nottingham, S.)
Davidson, Arthur (Accrington)	Jackson, Peter M. (High Peak)	Price, Christopher (Perry Barr)
Davies, Dr. Ernest (Stretford)	Jeger, George (Goole)	Probert, Arthur
Davies, G. Elfed (Rhondda, E.)	Jenkins, Hugh (Putney)	Randall, Harry
Davies, Harold (Leek)	Jenkins, Rt. Hn. Roy (Stechford)	Redhead, Edward
Delargy, Hugh	Jones, J. Idwal (Wrexham)	Reynolds, G. W.
Dempsey, James	Judd, Frank	Rhodes, Geoffrey
Dewar, Donald	Kelley, Richard	Richard, Ivor
Diamond, Rt. Hn. John	Kenyon, Clifford	Roberts, Albert (Normanton)
Dickens, James	Kerr, Russell (Feltham)	Roberts, Gwilym (Bedfordshire, S.)
Doig, Peter	Lawson, George	Robertson, John (Paisley)
Donnelly, Desmond	Leadhitter, Ted	Robinson, W. 0. J. (Walth'stow, E.)
Dunwoody, Mrs. Gwyneth (Exeter)	Ledger, Ron	Rodgers, William (Stockton)
Eadie, Alex	Lestor, Miss Joan	Roebuck, Roy
Edwards, Robert (Bilston)	Lever, Harold (Cheetham)	Rose, Paul
English, Michael	Lewis, Ron (Carlisle)	Ross, Rt. Hn. William
Ensor, David	Lomas, Kenneth	Rowlands, E. (Cardiff, N.)
Evans, Albert (Islington, S.W.)	Luard, Evan	Ryan, John
Fletcher, Raymond (Ilkeston)	Lyons, Edward (Bradford, E.)	Sheldon, Robert
Fletcher, Ted (Darlington)	McBride, Neil	Shore, Peter (Stepney)
Floud, Bernard	McCann, John	Short,RtHn.Edward(N'c'tle-u-Tyne)
Foley, Maurice	MacDermot, Niall	Silkin, John (Deptford)
Foot, Michael (Ebbw Vale)	McGuire, Michael	Slater, Joseph
Ford, Ben	McKay, Mrs. Margaret	Small, William
Fowler, Gerry	Mackenzie, Gregor (Rutherglen)	Spriggs, Leslie
Fraser, Rt. Hn. Tom (Hamilton)	Mackintosh, John P.	Steele, Thomas (Dunbartonshire, W.)
Garrow, Alex	McMillan, Tom (Glasgow, C.)	Summerskill, Hn. Dr. Shirley
Ginsburg, David	McNamara, J. Kevin	Thomas, George (Cardiff, W.)
Courlay, Harry	MacPherson, Malcolm	Thomas, lorwerth (Rhondda, W.)
Greenwood, Rt. Hn. Anthony	Mahon, Peter (Preston, S.)	Urwin, T. W.
Gregory, Arnold	Mahon, Simon (Bootle)	Varley, Eric G.
Grey, Charles (Durham)	Manuel, Archie	Wainwright, Edwin (Dearne Valley)
Griffiths, David (Rother Valley)	Mapp, Charles	Walden, Brian (All Saints)
Griffiths, Rt. Hn. James (Llanelly)	Mason, Roy	Walker, Harold (Doncaster)
Griffiths, Will (Exchange)	Miller, Dr. M. S.	Wallace, George
Hamilton, James (Bothwell)	Mitchell, R. C. (S'th'pton, Test)	Watkins, David (Consett)
Hamilton, William (Fife, W.)	Morgan, Elystan (Cardiganshire)	Wellbeloved, James
Hamling, William	Morris, Alfred (Wythenshawe)	Whitlock, William
Hannan, William	Murray, Albert	Williams, Clifford (Ahertillery)
Harper, Joseph	Newens, Stan	Wills, Sir Gerald (Bridgwater)
Hattersley, Roy	Noel-Baker, Francis (Swindon)	Wilson, William (Coventry, S.)
Hazell Bert	Noel-Baker, Rt.Hn.Phillp(Derhy,S.)	Winnick, David
Helfer, Eric S.	Norwood, Christopher	Winterbottom, R. E.
Herbison, Rt. Hn. Margaret	Ogden, Eric	Woodburn, Rt. Hn. A.
Hobden, Dennis (Brighton, K'town)	O'Malley, Brian	Woof, Robert
Hooley, Frank	Oram, Albert E.	Yates, Victor
Houghton, Rt. Hn. Douglas	Orme, Stanley
Howie, W.	Oswald, Thomas	TELLERS FOR THE NOES:
Hoy, James	Owen, Will (Morpeth)	Mr. loan Evans and
Hughes, Emrys (Ayrshire, S.)	Page, Derek (King's Lynn)	Mr. Charles R. Morris.

11.0 p.m.

Sir Keith Joseph (Leeds, North-East)

I beg to move Amendment No. 47: In page 52, line 27, at the end, to insert: Provided always that in the cases of persons who worked less than twenty-one hours during that week the following amounts shall be paid:—

1. (a) if that person is a man over the age of eighteen twelve shillings and sixpence.
2. (b) if that person is a woman over the age of eighteen six shillings and threepence.
3. (c) if that person is a boy under the age of eighteen six shillings and threepence.
4. (d) if that person is a girl under the age of eighteen four shillings.

As this Amendment seeks to halve the burden of the tax on part-timers, and as part-timers number between 1¾ million and 2 million persons, it is a very important Amendment both in quantity and, as I shall show, in quality. The range of part-timers covers the whole spectrum of those who are most affected by this Bill—the disabled, the elderly, the married women returning to work, as well as the people who, for one reason or another, cannot take permanent employment.

The Government should be aware without my prolonging the argument that it is deeply in the interests of the country —which, according to the National Plan, is short of labour—to encourage the activity in the labour force of as many part-timers as possible. These comprise one of our reserves of labour, and the Government should be doing all they can to encourage them to return to work rather than discouraging them.

Already, the employment of the part-timers is discouraged by the full National Insurance stamp. Now, this Bill puts another burden on their employment and, as my hon. Friend the Member for Gillingham (Mr. Burden) said in the debate on the previous Amendment, these part-timers are not industrially mobile. Most of them cannot switch from the service trades to manufacture. They can only take a job that offers work in the hours they can manage to be away from home. Most of the work they are offered is essentially in the service industries and trades.

I believe that the Government are trying to maintain that large numbers of part-timers are employed in manufacture, but if the Government will look at their own figures in the May Ministry of Labour Gazette they will find evidence, which I will not now spell out, that, at most, a quarter of part-timers are engaged in manufacturing industry, and three-quarters of them—and probably 95 per cent. of the women part-timers, who are, above all, not mobile as between service and manufacture—are engaged in the service trades.

It is not only in the national interest that these people should be encouraged to work, but very much in the personal interest of the disabled, the elderly, the married women, and others who, because of personal circumstances, cannot take full-time employment—and their employment in jobs which are almost to a dangerous extent dependent on part-time workers. We all have pleas from many industries and service trades that depend to a very large extent on part-time workers—shops of all sorts, stores of all sorts, the invisible export industry of hotels, the leisure industries, and the like, are all heavily dependent on part-time workers. There are the services: cleaning—we are all familiar with the Mrs. Mopp case—laundries, dry cleaning—and a whole host of necessary though not glamorous industries are heavily dependent on part-time workers, and will bear a worrying burden of their wage costs because of this Bill.

Most of these activities are short of labour, and these trades will therefore find it very difficult to reduce the numbers they employ. But it is inevitable that, if they can cut labour, it will be the vulnerable part-time labour—the elderly, the disabled, the married woman—whom they will be most inclined to dismiss if they can manage to reduce their labour force. I repeat—these are the people who, above all, are not mobile, and will not move to manufacturing.

Let not the Government say that all they are charging is another 12s. 6d. a week on the adult woman. Her part-time earnings are much smaller than those of the full-time adult woman worker, and 12s. 6d. represents a very high proportionate increase on the wage costs of that industry. The increased wages cost will have to be passed on to the consumer or reflected in reduced employment of the most vulnerable employees, the elderly, the disabled and married women.

Many of these arguments have emerged in part on other Amendments. I draw them together in this whole Clause to deal with part-timers. We should like if possible to abolish altogether the tax as it affects part-timers. The Government should be encouraging, not discouraging, these people to work. We all recognise that the Chancellor wants to protect the bulk of his payments, so we put this reasonable Amendment down to save half the burden. We have defined the part-time worker in the same way as in the Redundancy Payments Act as one who works for less than 21 hours a week. I am sure that the Amendment will have the sympathy of many hon. and right hon. Members opposite. We appeal to the Government, even at this late hour to be reasonable and constructive. In no other way than by accepting this Amendment can they put right so many of the damaging results which this Bill has introduced.

Mr. Burden

My right hon. Friend referred to right hon. Members opposite, but has he noticed that there is not one right hon. Member opposite listening to this debate?

Sir K. Joseph

It is sadly true, as my hon. Friend has observed, that the Front Bench opposite when this important Amendment is being discussed is very empty. I am glad to see the Financial Secretary is studying his paper seriously while I speak. I ask him to recognise that by one blow he can help so many groups and provide for the disabled, the elderly and part-time women workers who, because of obligations at home, cannot go into full-time work.

Mr. Hirst

I rise almost rapidly to support my hon. and right hon. Friends in this Amendment—[HoN. MEMBERS: "Friends?"]. Hon. Members opposite need not worry, for these are still my hon. and right hon. Friends. If hon. Members opposite imagine that they are to gain anything by my personal disaffection shown by the fact that I have moved a few feet from my normal seat they will be quickly disillusioned. That is enough to say about that, and I return to the Amendment before the House. It is one which I think you, Mr. Deputy-Speaker, will remember was argued very strongly in Committee, on both sides of the Committee. There was no question of one-way traffic such as there may have been in some of our discussions. Indeed, some of the strongest arguments came from hon. Members opposite. I recollect what was said by the hon. Lady the Member for Wood Green (Mrs. Joyce Butler).

I was impressed by the instance which she quoted on that occasion. The difference between that and our Amendment is very noticeable. She mentioned the case of a shop which employed three part-time workers and suggested that there was a great strain on their employment as the cost would be 300 per cent. above what it would be if the shop could employ one full-time worker. By the proposition of my right hon. Friend the cost in a similar instance would be 18s. 9d., 50 per cent. more. This was argued very strongly by hon. Members in the cooperative movement. The Government were given a strong warning.

No doubt, Mr. Deputy Speaker, since there were so many Amendments from which to make a selection the strength of feeling on both sides of the House, since one assumes that the interests of the House are safeguarded by the Chair, must rightly have caused this Amendment to be selected for further discussion on Report.

I trust that the time taken between then and now has improved the Government's reflection on this particular matter. It was a great sadness to find that that was not the case on an Amendment which we have just disposed of, and I sincerely hope that this time we shall have almost the one and only concession of any worthwhileness, apart from one technical Clause on backgammon, that we have had all through the progress of this Bill. There may have been one on betting, but this is something which concerns us all in our constituencies, and I find it is very keenly felt in my own.

The suggestion that a large proportion of these people are employed in the manufacturing industries has been completely demolished by my right hon. Friend, and I can endorse every bit of what he said from my own personal knowledge. As we have had to point out, so grotesque is the tax system of S.E.T., so ridiculous in its incidence, so contrary to the Government's aim, that in fact many sections of employment in this country which are adding tremendously to the effort to meet our need for exports are not included either in the rebate or in the premium. So they are not concerned in this field at all, yet they employ part-time workers and, if the hon. Gentleman does not know that, I will ask him to come to Shipley this weekend with me. I cannot invite him to my association meeting, but I will rub his nose in these cases where many part-time workers are employed in vital industries which are not to get these alleged benefits.

I hope that this Amendment, which has ben pushed and pressed and argued so much on both sides of the House, will get the recognition it deserves, because the Government owes it to their own supporters. The Government are lucky not to have more rebellions on their side in view of the way they have handled this business. I could give hon. Members opposite some lessons from past Finance Bills on how to tease up the Government on matters of this sort. In all seriousness, I must invite the Financial Secretary to realise that this is really important to many people in all our constituencies. It is not fair, or a genuine argument, to say that these people are very substantially employed in industries which will get some money back or benefit from this tax. It just is not true, and it cannot be defended upon that basis.

Many of the competitive industries in my constituency cannot continue to employ a string of part-time people with this tax attached to them. Many are married women, prepared to go out for a limited period of hours to do a job for which they have had past training, but they are not going to get that work in highly competitive industries, especially some I have in mind which are already suffering from the difficulties arising from the Tariff situation on the Continent, and this certainly applies to the clothing business.

This is not something which can be dismissed lightly, and I warn the hon. Gentle man that he must not come to the Dispatch Box and imagine that he can get away with the type of argument he put forward on the Committee stage. If he does it will be rightly thrown out by this House and by the country.

Mr. David Steel (Roxburgh, Selkirk and Peebles)

This Amendment, which would have the effect of reducing by 50 per cent. the tax payable on part-time workers, is very similar to one tabled on the Committee stage by the Liberal Party and supported by the Opposition. I take the opportunity of speaking to this Amendment tabled by the Opposition because I have received further examples since the Committee stage of the effect the proposed tax will have on part-time workers.

11.15 p.m.

There are two specific examples which I should like to draw to the attention of the Financial Secretary. The first is the case of the small hotels in the smaller communities. In both my examples I am concerned with the smaller communities and not with the large cities. There are in many parts of the country small hotels which are run, perhaps, by a married couple whose sole employment force consists of a number of part-time people. The wage level is not high, but the incidence of this tax will be severe on these people in small hotels, many of whom are already in difficulties. The investment allowances do not apply to them and they will be severely hit by this tax.

Mr. Archie Manuel (Central Ayrshire)

Will the hon. Gentleman not agree that these types of hotels to which he refers employ casual labour which is thrown bare-facedly on to the labour market during the winter?

Mr. Steel

I do not accept that suggestion. That may be so in some parts of the country; the hon. Member may have a point, but I am talking about the small hotels which exist not to exploit the tourist trade but which render a service to the community in many parts of the country.

I should like to come to my second example. A concrete example was given to me in my constituency this week. There are in some of the smaller communities shops which are dependent upon part-time labour not only for serving in the shops but for jobs like van deliveries and newspaper deliveries. It may be argued by the Government that in the city this kind of employment is precisely what they wish to discourage and that, therefore, it is no bad thing if some of these jobs cease to exist. But I submit that in the rural communities the effect of this tax has a different complexion because there the service is a genuine one. Very often it is a service given by a small shopkeeper—not a profitable service, but nevertheless a service which is rendered to the community, and the charges that the shopkeeper can make to his customers do not cover the wages paid to these part-time workers.

I have been told of some specific instances where the effect of the tax is the last straw in the difficulty of maintaining these services, and that they will cease. This cannot have been the intention of the Government, and these implications cannot have been considered when the tax was proposed. I hope, therefore, that we shall have a concession and that employers of part-time workers will be allowed to pay only 50 per cent. of the tax.

Mr. MacDermot

The right hon. Member for Leeds, North-East (Sir K. Joseph) said that he and his hon. Friends would like to see the tax abolished for part-timers, and that is something which we discussed at some length in Commit.. tee. I pointed out then that, apart from the reasons why on merit and on principle we do not think that it is necessary to do such a thing, administratively it would not be possible for us to do it.

I must say straight away that exactly the same administrative difficulties would apply to trying to impose a 50 per cent. tax on part-timers as would apply to imposing no tax at all. I would refer anyone who is interested in the details to the explanation which I gave in Committee. The difficulties would be exactly the same.

The only way in which we could deal with this problem would be by exemption in a form which I do not think any hon. Member would like to see, which would be by raising the present eight-hour limit below which employers do not have to pay any National Insurance contributions to a 21-hour limit. That would be the only way in which it could be done. [An HON. MEMBER:" Why not? "]

I am asked, why not? There are very good reasons. Not only would it mean a very substantial loss of contribution income to the National Insurance Fund, but, more important, it would take a very large number of people— some 800,000-out of full National Insurance cover.

They would lose, for example, their rights to industrial injury benefit and unemployment benefit. I do not think that anyone would feel that we should seek to relieve the employers of the burden of the tax at that cost to the employees.

Sir D. Glover

The right hon. Gentleman is saying that the Government, having produced a tax which is complete nonsense, cannot amend it because that would make it even more complete nonsense.

Mr. MacDermot

The Government are saying what they have said all along, having produced a very good new tax, which broadens the tax base in a way that has been badly needed for very many years. The choice was between doing that in a form which, admittedly, is capable of refinement in future years while introducing it now, and having to wait before introducing such a tax, while imposing a heavy tax burden in one of the old ways in which tax increases have been made in the past. The choice had to be made, and the general feeling in the country and among the vast majority of hon. Members, including many hon. Members opposite, was that this was the right thing to do.

If it was right, then it was right at the price of having to put up for a time with lack of refinement in the tax. My right hon. Friend has made this clear right from the start, and he has said that he will watch most carefully how the tax operates and introduce, as he is able, such changes as he can.

What is the risk about which hon. Members opposite are so concerned? It is feared that the tax will lead to the dismissal of many part-time workers. The right hon. Member for Leeds, North-East (Sir K. Joseph), in moving the Amendment, put his argument very skilfully on this point, because he conceded that the places where part-timers are employed are places where employers are heavily dependent on part-time employees.

Let us face it. Unless they were heavily dependent on getting the services of part-timers, they probably would not already be employing part-timers. There are already disincentives in the employers' National Insurance contribution. If an employer were able to employ one full-time worker instead of three part-timers he would be doing so now. It does not need the Selective Employment Tax to point out to him that there are advantages in having one full-timer in the place of three part-timers.

Therefore, as I indicated on an earlier Amendment, this is not the way in which the tax will have its economic effect. Its economic effect will be long-term. I do not think that anyone believes—certainly no hon. Member on this side of the House believes—that the effect will be immediate. Hundreds of thousands of part-time workers will not be suddenly thrown out of work in the service industries and re-employed in manufacturing.

I believe that by putting additional pressure on employers in the service industries the tax will lead to their being more careful in their recruitment. It is on recruitment that there will be the economic effect. In addition, not only will there be the encouragement of the premium, but the pressure of demand for labour will lead to an increase in part-time employment in the manufacturing sector. That is the economic effect which we hope to achieve.

I again remind the House that the very large majority of part-time workers are married women and other women in respect of whom the rate of tax paid is much lower than it is for adult males. This also is a reason why we think that the fears which have been expressed about the effect of the tax upon part-timers are grossly exaggerated.

Sir D. Glover

I have rarely heard a more unsatisfactory reply. Let me deal first with the hotel trade. I do not accept all the arguments put from this side of the House. I do not think that a great many hotels will close down as a result of this tax, but, nevertheless, I am quite certain that there will be a serious damaging effect on our hotels. The House w ill remember that the Chancellor exhorted us to take our holidays in Britain rather than spend foreign currency. The effect of the tax will be this. Someone arriving at a hotel in Scotland and asking for tea to be brought at 7.30 a.m. will be told by the proprietor, "I am very sorry, but because of the burden of this tax"—[HoN. MEMBERS: "0h."] Certainly. He will say," We are not able to serve tea in the morning now ". People arriving at a small hotel at 8 in the evening will be told than: dinner goes off at half-past 7 and they can have a cold meal.

Next year, instead of going to Scotland, people will go abroad where they can have all the facilities for a good holiday, and that will be quite contrary to what the Chancellor has exhorted us all to do.

I come now to a totally different aspect of the matter which I have not heard mentioned yet from either side. Of course, hon. Members opposite have been so moribund since this debate started that it has been a completely one-sided discussion. Hon. Members opposite have either been muzzled or they are so cretinously stupid that they cannot realise the dangers of the Bill and have not sought to intervene.

What worries me is that the Chancellor of the Exchequer is only too likely to come to the Box in 1967 or 1968—

Mr. Boyd-Carpenter

If they are still there.

Sir D. Glover

Yes, and if they are, I shall pray for the future of the nation. But, if he is still there, he is only too likely to say that his Selective Employment Tax has been a brilliant success"I can report to the House that 50,000 additional people have been engaged in manufacturing and 50,000 fewer are employed in services, which proves my whole thesis in 1966". What will have happened in fact? It is time the House of Commons realised what modern industry and commerce is about.

In nearly every major city today, there are large firms which have organised a large body of workers, almost entirely part-time workers, in taking on the job of cleaning our factories. Before the Ford, B.M.C. or Pressed Steel factory opens, a squad of women, nearly all married part-timers who probably do 20 hours a week, will descend on it and clean up the floor, windows, toilets and so on. They are employed by a contractor, and under the Bill the contracting firm is a service industry. For every part-time woman that the contractor employs he has to pay the Treasury 12s. 6d. for the privilege of employing her.

11.30 p.m.

What will happen as a result of the Act? The contracting firm will probably go out of existence. Then Ford, B.M.C. and all the other major industrial organisations will go back to the system that existed 20 years ago. The employees of Midland Cleaners Ltd. or Birmingham Cleaners Ltd. will get the sack. Then they will be taken on by B.M.C., Ford or Vauxhall or another of the great industrial empires to do exactly the same job as they have been doing for the last 10 years.

If they continue with their present employer, he has to pay 12s. 6d. to the State for the privilege of employing each one. If he gives them the sack and they are then engaged by M.B.C. or Pressed Steel, the State in its wisdom does not exact 12s. 6d. from B.M.C. or Pressed Steel for the privilege of employing each of them but pays them 16s. 3d. each for doing so. Yet those cleaners will use the same brooms and mops and clean the same floors, windows and toilets, doing exactly the same job as they have been doing for 10 years.

In twelve months' time the Chancellor will say "Here is the triumph of my proposals. There are now 50,000 more people in manufacturing industry and 50,000 fewer in the service industries." The hon. Member for Manchester, Cheetham (Mr. Harold Lever) knows that that is true and beyond argument. It is so obvious to anybody who knows how the commercial and industrial life of the country works that I am appalled that this point has not been made from either side until now.

This is the result of the Chancellor's proposals. It will cost 3s. 9d. in direct cost for every part-time worker. Yet these people will still go on doing exactly the same job as they have been doing for the last 10 years. As I said, if they remained with their present employer he would have to pay the State 12s. 6d. for each one, but if they do the same job with the same broom and the same mop, doing the same toilet and the same floor, for another employer the State will pay the employer 16s. 3d. for each one.

Mr. Burden

I hate to correct my hon. Friend, hut the new employers will still pay 12s. 6d. in respect of each employee and then get 16s. 3d. back.

Sir D. Glover

Yes, they will, of course, pay the 12s. 6d. It is part of the forced loan. But they will get 16s. 3d. back again. So the difference for the same girl doing the same job—

Sir G. Nabarro

With the same broom.

Sir D. Glover

—with the same broom—

Sir G. Nabarro

With the same mop.

Sir D. Glover

—with the same mop—

Sir G. Nabarro

Doing the same toilet and the same floor.

Division No. 116]	AYES	[11.36 p.m.
Alison, Michael (Barkston Ash)	Fortescue, Tim	Marten, Neil
Allason, James (Hemel Hempstead)	Gilmour, lan (Norfolk, C.)	Mawby, Ray
Astor, John	Glover, Sir Douglas	Maxwell-Hyslop, R. J.
Atkins, Humphrey (M't'n & M'd'n)	Glyn, Sir Richard	Mitchell, David (Basingstoke)
Awdry, Daniel	Goodhart, Philip	Monro, Hector
Baker, W. H. K.	Grant-Ferris, R.	Morrison, Charles (Devizes)
Balniel, Lord	Gurden, Harold	Munro-Lucas-Tooth, Sir Hugh
Batsford, Brian	Hall, John (Wycombe)	Murton, Oscar
Bell, Ronald	Hall-Davis, A. C. F.	Nabarro, Sir Gerald
Bessell, Peter	Harrison, Brian (Maldon)	Nicholls, Sir Harmar
Biffen, John	Harrison, Col. Sir Harwood (Eye)	Noh:e, Rt. Hn. Michael
Birch, Rt. Hn. Nigel	Harvie Anderson, Miss	Nett, John
Boyd-Carpenter, Rt. Hn. John	Hawkins, Paul	Orr, Capt. L. P. S.
Brinton, Sir Tatton	Heald, Rt. Hn. Sir Lionel	Osborn, John (Hallam)
Brown, Sir Edward (Bath)	Heseltine, Michael	Page, Graham (Crosby)
Bruce-Gardyne, J.	Higgins, Terence L.	Pearson, Sir Frank (Clitheroe)
Bullus, Sir Eric	Hill, J. E. B.	Peel, John
Burden, F. A.	Hirst, Geoffrey	Pike, Miss Mervyn
Carlisle, Mark	Hunt, John	Pink, R. Bonner
Chichester-Clark, R.	Hutchison, Michael Clark	Pounder, Rafton
Clark, Henry	Jenkin, Patrick (Woodford)	Powell, Rt. Hn. J. Enoch
Clegg, Walter	Johnston, Russell (Inverness)	Pym, Francis
Cooke, Robert	Joseph, Rt. Hn. Sir Keith	Renton, Rt. Hn. Sir David
Crawley, Aldan	King, Evelyn (Dorset, S.)	Ridsdale, Julian
Currie, G. B. H.	Kitson, Timothy	Rossi, Hugh (Hornsey)
Dalkeith, Earl of	Knight, Mrs. Jill	Shaw, Michael (Sc'b'gh & Whitby)
Dean, Paul (Somerset, N.)	Longden, Gilbert	Smith, John
Deedes, Rt. Hn. W. F. (Ashford)	Loveys, W. H.	Steel, David (Roxburgh)
Dodds-Parker, Douglas	Lubbock. Eric	Summers, Sir Spencer
Elliott, R. W. (N'c'tle-upon-Tyne, N)	MacArthur, Ian	Talbot, John E.
Errington, Sir Eric	Macleod, Rt. Hn. Iain	Taylor, Edward M.(G'gow,Cathcart)
Eyre, Reginald	Maddan, Martin	Taylor, Frank (Moss Side)

Sir D. Glover

Is my hon. Friend the Member for Worcestershire, South (Sir G. Nabarro) supporting me or opposing me? I should like to know.

Sir G. Nabarro

I am cheering you on, dear boy.

Sir D. Glover

Purely on a point of administrative nonsense, for the same employee, doing the same job—

Mr. Manuel

The hon. Gentleman is saying the same thing again.

Sir D. Glover

The hon. Member for Central Ayshire (Mr. Manuel) has been saying the same thing, and equally boringly, for the last 20 years. I understand from one of the great national newspapers that they have decided that he is an old bore.

This is a serious point, because the Chancellor is claiming that the tax will be a great change in moving employees from services to manufacturing, out a great deal of it will be facade. The only reality is that this will cost the Treasury 16s. 3d. for a person who may change his employment but will go on doing the same job. If that is how the Government view things, the sooner we get a new Government the better.

Question put, That those words be there inserted in the Bill:—

The House divided: Ayes 112, Noes 169.

Teeling, Sir William	Walker, Peter (Worcester)	Winstanley, Dr. M. P.
Thatcher, Mrs. Margaret	Walters, Dennis	Wood, Rt. Hn. Richard
Thorpe, Jeremy	Ward, Dame Irene	Woodnutt, Mark
Turton, Rt. Hn. R. H.	Weatherill, Bernard	Wylie, N. R.
van Straubenzee, W. R.	Webster, David	TELLERS FOR THE AYES
Wainwright, Richard (Coins Valley)	Whitelaw, William	Mr. Peter Blaker and
		Mr. Anthony Grant.
NOES
Anse, Leo	Greenwood, Rt. Hn. Anthony	Morris, Alfred (Wythenshawe)
Allaun, Frank (Salford, E.)	Gregory, Arnold	Murray, Albert
Alldritt, Walter	Grey, Charles (Durham)	Newens, Stan
Archer, Peter	Griffiths, David (Rother Valley)	Noel-Baker, Francis (Swindon)
Armstrong, Ernest	Griffiths, Will (Exchange)	Norwood, Christopher
Beaney, Alan	Hamilton, James (Bothwell)	Ogden, Eric
Bennett, James (G'gow, Bridgeton)	Hamilton, William (Fife, W.)	O'Malley, Brian
Bidwell, Sydney	Hamling, William	Dram, Albert E.
Bishop, E. S.	Hannan, William	Orme, Stanley
Booth, Albert	Harper, Joseph	Oswald, Thomas
Boston, Terence	Hattersley, Roy	Parkyn, Brian (Bedford)
Bowden, RI. Hn. Herbert	Hazell, Bert	Pentland, Norman
Braddock, Mrs. E. M.	Heffer, Eric S.	Perry, George H. (Nottingham, S.)
Bradley, Tom	Herbison, Rt. Hn. Margaret	Price, Christopher (Perry Barr)
Brooks, Edwin	Hobden, Dennis (Brighton, K'tOwn)	Probert, Arthur
Brown, Hugh D. (G'gow, Proven)	Hooley, Frank	Redhead, Edward
Brown,Bob(N'c'tle-upon-Tyne,W.)	Howie, W.	Reynolds, G. W.
Brown, R. W. (Shoreditch & F'bury)	Hoy, James	Rhodes, Geoffrey
Buchan, Norman	Hughes, Emrys (Ayrshire, S.)	Richard, Ivor
Buchanan, Richard (G'gow, Sp'burn)	Hughes, Roy (Newport)	Roberts, Albert (Normanton)
Butler, Mrs. Joyce (Wood Green)	Hunter, Adam	Roberts, Gwilym (Bedfordshire, S.)
Callaghan, Rt. Hn. James	Hynd, John	Robertson, John (Paisley)
Cant, R. B.	Jackson, Colin (B'h'se & Spenb'gh)	Robinson, W. 0. J. (Walth'stow, E.)
Carmichael, Neil	Jackson, Peter M. (High Peak)	Rodgers, William (Stockton)
Carter-Jones, Lewis	Jeger, George (Goole)	Roebuck, Roy
Coe, Denis	Jenkins, Hugh (Putney)	Rose, Paul
Conlan, Bernard	Jenkins, Rt. Hn. Roy (Stechford)	Ross, Rt. Hn. William
Crawshaw, Richard	Jones, J. idwal (Wrexham)	Rowlands, E. (Cardiff, N.)
Cullen, Mrs. Alice	Judd, Frank	Ryan, John
Dalyell, Tarn	Kelley, Richard	Sheldon, Robert
Davidson, Arthur (Accrington)	Kenyon, Clifford	Shore, Peter (Stepney)
Davies, Dr. Ernest (Stretford)	Kerr, Russell (Feltham)	Short,Rt.Hn.Edward(N'c'lleu-Tyne)
Davies, Harold (Leek)	Lawson, George	Silkin, John (Deptford)
Delargy, Hugh	Leadbitter, Ted	Slater, Joseph
Dempsey, James	Ledger, Ron	Small, William
Dewar, Donald	Lessor, Miss Joan	Spriggs, Leslie
Diamond, Rt. Hn. John	Lever, Harold (Cheetham)	Steele, Thomas (Dunbartonshire, W.)
Dickens, James	Lewis, Ron (Carlisle)	Summerskill, Hn. Dr. Shirley
Doig, Peter	Lomas, Kenneth	Thomas, George (Cardiff, W.)
Donnelly, Desmond	Luard, Evan	Urwin, T. W.
Dunwoody, Mrs. Gwyneth (Exeter)	Lyons, Edward (Bradford, E.)	Varley, Eric G.
Eadie, Alex	McBride, Neil	Wainwright, Edwin (Dearne Valley)
Edwards, Robert (Bilston)	McCann, John	Walden, Brian (All Saints)
English, Michael	MacDermot, Niall	Walker, Harold (Doncaster)
Ensor, David	McGuire, Michael	Wallace, George
Evans, Albert (Islington, S.W.)	McKay, Mrs. Margaret	Watkins, David (Consett)
Evans, loan L. (Birrn'h'm, Yardley)	Mackenzie, Gregor (Rutherglen)	Wellbeloved, James
Fletcher, Raymond (Ilkeston)	Mackintosh, John P.	Willis, George (Edinburgh, E.)
Fletcher, Ted (Darlington)	McMillan, Tom (Glasgow, C.)	Minn, William (Coventry, S.)
Floud, Bernard	McNamara, J. Kevin	Winnick, David
Foley, Maurice	Mahon, Peter (Preston, S.)	Winterbottom, R. E.
Foot, Michael (Ebbw Vale)	Mahon, Simon (Bootle)	Woodburn, Rt. Hn. A.
Ford, Ben	Manuel, Archie	Woof, Robert
Fowler, Gerry	Mapp, Charles
Fraser, Rt. Hn. Tom (Hamilton)	Mason, Roy	TELLERS FOR THE NOES:
Darrow, Alex	Miller, Dr. M. S.	Mr William Whitlock and
Ginsburg, David	Mitchell, R. C. (S'th'pton, Test)	Mr. Char'es R. Morris.
Gourley, Harry	Morgan, Elystan (Cardiganshire)

Schedule 3.—(SUPPLEMENTARY PROVISIONS AS TO DUTIES RELATING TO BETTING AND GAMING.)

Amendment made: In page 65, line 5, leave out" on ".—[Mr. MacDermot.]

Schedule 5.—(AMENDMENTS OF CORPORATION TAX ACTS.)

11.45 p.m.

Mr. Diamond

I beg to move, Amendment No. 113, in page 79, line 6, to leave out from "effect" to the end of line 20.

The Deputy Chairman

We can discuss at the same time Amendment No. 54, page 79, line 9, leave out from "and" to end of paragraph and insert: the words ' or from general annuity business at the end of that subsection shall be omitted"; Amendment No. 55, page 79, line 26, leave out "franked investment income" and insert: distributions of companies resident in the United Kingdom". and Amendment No. 56, page 79, line 40, at end insert: (5) In section 69(5) of the Finance Act 1965 the word" them "in line 10 shall be omitted and the words" franked investment income "inserted.

Mr. Diamond

This Amendment and the associated Amendments relate to relieving measures affecting life insurance companies. Of all the complexities one comes across in taxation, insurance companies are without question the most complex. I would therefore deal with the major principle and then, if the House wishes, make a quarter-of-an-hour speech explaining the technicalities.

The normal arrangement with regard to dividends paid by a subsidiary company to the parent company is that the subsidiary company pays its Corporation Tax, and there is no further tax paid on the income transferred to the parent company so long as it remains within the parent company and is not further distributed by that parent company to its shareholders. What is proposed with regard to life annuity business of insurance companies is that the same principle should apply. It does not apply at the moment. I hope that the House will agree that it should apply.

Mrs. Thatcher

I am glad that the Government have brought forward this series of Amendments. They have been urged on them for some time. They were on the Notice Paper in Committee in the names of my right hon. Friends and myself, and they have been on the Notice Paper for the Report stage. They substantially meet the point that there should not be a double charge to Corporation Tax on companies doing general annuity business.

Amendment agreed to.

Further Amendments made: In page 79, line 27, after" income"insert" and group income".

In page 79, line 38, leave out subparagraph (4) and insert: (4) Any franked investment income which is taken into account under the said section 69(3)(b) to enable annuities referable to general annuity business to be treated as charges on income shall be left out of account under section 48 of the Finance Act 1965, except that for the purposes of this sub-paragraph there shall be deducted from the amount of the franked investment income of the company arising in any accounting period and taken into account under the said section 69(3)(b)—

1. (a) the amount of any profit arising in that accounting period to the assurance company from general annuity business and computed under the said section 24 of the Finance Act 1956, and
2. (b) the amount of any group income arising in that accounting period to the company and referable in accordance with the said section 24 to its general annuity business.

(5) Subject to sub-paragraph (6) below

1. (a) the exclusion by section 47(1) of the Finance Act 1965 from the charge to corporation tax of franked investment income shall not prevent such income being taken into account as part of the profits in computing under section 24 of the Finance Act 1956 the profits arising to an assurance company from pension annuity business.
2. (b) notwithstanding anything in section 48 of the Finance Act 1965 a company resident in the United Kingdom and carrying on life assurance business shall be entitled to repayment of income tax in respect of franked investment income of the company's annuity fund in so far as it is referable in accordance with the said section 24 to pension annuity business and
3. (c) any franked investment income on which income tax is so repayable shall be left out of account under the said section 48.

(6) If for any accounting period there is, apart from this sub-paragraph, a profit arising to an assurance company from pension annuity business and computed under the said section 24, and the company so elects as respects all or any part of its franked investment income arising in that period, being an amount of franked investment income not exceeding the amount of the said profit, sub-paragraph (5) above shall not apply to the franked investment income to which the election relates.

If an accounting period falls partly in one income tax year of assessment, and partly in another such year, the power of making elections under this sub-paragraph may be exercised separately for the respective parts of the accounting period as if they were separate accounting periods, and an election under this sub-paragraph shall be made by notice in writing given to the inspector not later than two years after the end of the accounting period, or part of an accounting period, to which the election relates, or within such longer period as the Board may by notice in writing allow.

(7) In computing under the said section 24 of the Finance Act 1956 the profits arising to an assurance company from pension annuity busine—

1. (a) group income shall not be taken into account as part of those profits,
2. (b) section 53(5) of the Finance Act 1965 shall not prevent annuities paid by the company being deductible.

(8) In section 69 of the Finance Act 1965, in subsection (5) the words from "and the exclusion" to the end, and in subsection (7) the words from "but notwithstanding" to the end (which are superseded by this paragraph) shall cease to have effect.—[Mr. Diamond.]

Mr. Harold Lever

I beg to move Amendment No. 117, in page 81, line 16, at the end to insert: (6) Paragraph 9(1)(a) of the 11th Schedule to the Finance Act 1965 shall not apply to any interest payable by a close company which carries on a bone fide banking business to which section 200 of the Income Tax Act 1952 applies in respect of a deposit accepted by that company in the ordinary course of such business. The non-party nature of this Amendment is indicated by the fact that it is supported by the hon. Member for Wan-stead and Woodford (Mr. Patrick Jenkin).

The gist of the Amendment is that interest paid in the ordinary course of a banking business to a depositor shall not be subject to the penalties that interest payments attract when the loan is from a member of the banker's family. I do not want to go into a long exposition about the pangs of last year's Finance Bill, but under the present law, when a close company is a banking company and one of the depositors who is a member of the banking family—for example, the wife of a controlling shareholder, or something of that sort—banks with the banking company, any interest paid on those bank deposits, unlike other bank deposits, will be treated as a distribution for tax purposes and consequently will not he allowable as a trading expense like other deposits.

There is no obvious reason for this, and my Amendment, like most of the Amendments that I have sought to move, will not cost the Chancellor a penny. When representations on this matter came from the City the answer was that there was no reason why banks should be treated differently from dressmaking businesses. I suggest that one reason is that banks do not make dresses, and that the dressmaker's object is to make dresses—although the lower part of his activities are currently carried out on a minute scale—whereas the banker's business is to attract deposits, and it does not make sense that when a man is carrying on a banking business we should so construct our tax system that a member of his family cannot bank in the family firm.

When a member of a banker's family banks in his bank and receives interest he does not enjoy some special exemp- tion from tax on that interest; he pays Income Tax and Surtax at the not inconsiderable rates we have arranged, without any further intervention. We are forced to ponder why it should be thought necessary to place such a penalty upon the family.

I know that my right hon. Friends on the Front Bench are anxious to heal the rift that exists between them and the City, owing to the unfortunate misunderstandings that occur from time to time. Here is a cost-free way of doing it. When Dr. Johnson—like the members of the Treasury Bench—insisted on saying "No" against the opinion of everybody else, Boswell said to him, admiringly. "That, Sir, must have shown great fortitude of mind". "No, Sir", said Dr. Johnson, "Stark insensibility." I can only say that this is such a useful and commonsense Amendment that even I, affectionately disposed as I am to the Treasury Bench, would regard it as open to criticism if it does not accept it.

Mr. Diamond

My hon. Friend has moved his Amendment with persuasiveness and moderation, but with slight inaccuracy. He says that he cannot understand why the Treasury takes the view it has taken, and which every Government has taken for a long time in relation not only to this tax but to its predecessor, or its similar predecessor, Profits Tax, namely, that interest paid in those circumstances shall not be treated in the same way as interest paid to a stranger, but as part of a distribution to the owner of the business.

The answer is that it is costly to treat it in the way in which my hon. Friend has in mind. His proposal is that the recipient should pay the normal Income Tax and Surtax which is attributable to him on receipt of income— [Interruption.] Certainly, but what he proposes is that the interest should be deducted for Corporation Tax purposes. That would not be the case if it were a dividend paid to a shareholder—[Interruption.] I hope that two or three sentences will be allowed without an echo. There are echoes in the walls of this House, one realises that.

I am not arguing whether it is the same or is not the same. If it were different and my hon. Friend secured that it were different, he must recognise that the reward would be a cost to the Treasury in the sense that the Revenue would be losing 40 per cent. on the loan interest—

Mr. Harold Lever

I ought to make it clear that when I said that it would not cost a penny, I did not mean that that would be the case if anyone were foolish enough to deposit in the family bank. I suggest that this leads people not to bank in the family bank, so the Revenue get no tax but merely causes inconvenience to members of the banker's family.

Mr. Diamond

We are getting nearer and nearer to the simple point of difference between my hon. Friend and myself, which is a point of fact and not one of law—whether, in the present circumstances, members of the family do bank in the family bank and so provide part of the capital. The answer is that they provide a small part of the capital, so small a part that the bank is well able, out of its profits, to provide an adequate margin to pay the Corporation Tax. But there ought to be included in the profits made the interest paid to a depositor who is, for these purposes, treated as a contributor.

In these circumstances, I am sure that my hon. Friend will realise that I am unable to go all the way with him and accept the Amendment.

Amendment negatived.

Sir Lionel Heald (Chertsey)

I beg to move Amendment No. 58. in page 82, line 5, at the end to insert: 15.—Paragraph 9(1Xc) of Schedule 11 to the Finance Act 1965 shall not apply to so much of any royalty or other consideration paid or given by the company to a participator for the use of a patent within the meaning of the Patent Act 1949 (or any corresponding right under the law of a country to which that Act does not extend) as represents a reasonable commercial consideration, provided—

1. (a) the amount of that royalty or other consideration is calculated by reference to the extent to which the invention the subject of the patent is made, used, exercised or vended, during the period in respect of which that royalty or other consideration is paid or given, or
2. (b) the participator is the inventor or a joint inventor of the invention the subject of the patent, or is the personal representative of such inventor or joint inventor

It will be remembered that this subject was discussed both last year and this year in an attempt to persuade the Government to remedy what appeared to be a serious hardship. When the profits of a close company are computed for Corporation Tax purposes, no deduction can be made in respect of any patent royalties paid to any participator in such a company or to any associate participant.

That is a situation which applied last year to copyright as well as to patent royalties, and it was recognised by the Government last year that relief should be given in respect of copyright. It seemed last year that the authors had managed to secure some attention to their requirements and that the inventors had not been so fortunate. We discussed the reasons why that might have happened. This year there is no excuse for that and we raised the matter in Committee.

This is not simply a question of repeating the same Amendment which was objected to and refused in Committee. We have carefully considered the arguments put forward against the Amendment in Committee by the Chief Secretary and, although we did not agree with his answers, we have taken every step we can to meet all the points which he raised. We believe that we have produced a form of words which will meet the point on which the right hon. Gentleman relied by way of objection and will deal with the most important aspect of the matter.

12 p.m.

I can summarise it briefly. It was pointed out that there was a danger in the broad wording which we originally proposed that arrangements might be made under which a close company and the participator entered into an agreement whereby use was made of an invention simply for the purpose of covering a financial arrangement which was advantageous. It was suggested that he might even buy up some old patent which was advantageous. It was suggested that he might even buy up some old patent and use it as a structure on which to build a financial advantage. We thought that that was rather an unreal supposition, but we have inserted words—I need not read all of them—which would exclude these artificial arrangements and by which the amount of the royalty or other consideration is calculated by reference to the extent to which the invention the subject of the patent is made, used, exercised or vended

—that is to say, the royalty would be dependent on the actual use; it would be a percentage of the receipts or something related to quantities of use which can be examined carefullly and checked.

The other alternative we have suggested is the participator is the inventor or a joint inventor of the invention the subject of the patent, or is the personal representative of such inventor or joint inventor".

That seems to dispose of the contention that it would be far too indefinite, and those with great experience who have considered the matter are satisfied that if it is dealt with in this way there should be no difficulty in arriving at a reasonable commercial arrangement, the idea being that anything beyond a reasonable commercial reward should not qualify for relief.

It is interesting that this failure to exempt patent royalties does not apply to the recent Double Taxation Relief Agreement with the United States. Despite the great difficulties said to be involved in the valuation of these royalties in the Double Taxation Agreement negotiated with the United States in March, this very point, dealt with in the Amendment, was accepted between the two Governments. The other day an American lawyer with great experience in this matter was over here and I asked him, "How did it come about that this relief which we cannot get our Government to give appears in the Double Taxation Agreement?". He replied, "In the United States we will not stand for this odd kind of Treasury argument by which you seem to be bound down in England."

One of the ingenious arguments of the Chief Secretary on the last occasion was that copyright was different because it dealt only with books and everybody knew what a royalty on a book was. I was surprised to hear that and, because I thought that copyright went a good deal beyond books, I checked up. I have found that copyright extends far beyond books. It covers rude limericks, Bradshaw's Railway Guide and many other things, including industrial drawings— and it would be wrong to say that for each one there is a recognised market value.

While there may have been some justification for the Chief Secretary saying that the wording of the original Amendment was too wide—because it would have allowed the possibility of ingenious arrangements which were not genuine patent royalty agreements—we have now drafted a clearly stated, moderate and reasonable Amendment and I trust, therefore, that we will receive a more helpful reply from the right hon. Gentleman than on the previous occasion.

Although this appears a complicated and technical matter, it is a subject of real importance, since we wish to encourage inventions, particularly by small companies. History shows that many of today's successful industries originated by someone starting in a very small way. If, in the early stages of such a development, we place a burden on the inventor, we may strangle the future development of an excellent idea.

I need not remind the Chief Secretary that when we discussed this matter last he indicated that the Government were anxious to be of help and that they would consider any suggestion which my hon. Friends and I might make. I trust that he has considered this one and will respond in a more helpful way than he did last time.

Mr. Diamond

There is a great deal of common ground between the right hon. and learned Member for Chertsey (Sir L. Heald) and myself on this whole question. My information is that by far the majority of inventions these days come from the research departments of large organisations. Nevertheless, I entirely share with him the view that there are individual inventions which might be deterred by tax arrangements which, shall we say, are not the most helpful that could be designed to that end. One would therefore wish to remove any deterrent of that sort.

I recognise that the right hon. and learned Gentleman has gone a long way towards removing the difficulties which previously existed and that all that is left is the one major difficulty, which he recognises and with which I will deal without needing to refer to any others: the difficulty of arriving at what is a fair market price, or however else it is described.

In this connection, the right hon. and learned Gentleman drew attention to the recent Double Taxation Agreement, in which the principle of arriving at a reasonable figure between parties at arms length has been incorporated. Any double taxation agreement is necessarily a matter of give and take.

Lieut.-Colonel Sir Walter Bromley-Davenport (Knutsford)

Mainly take.

Mr. Diamond

Each side accepts provisions which it regards as disadvantageous because of the benefits it obtains under other provisions. I do not think that I can say more on that score.

The right hon. and learned Gentleman said that I had indicated that I would look into the matter, and I have done so. He was very helpful in indicating sources, amongst others, to which inquiries might be directed. Those inquiries have taken place, but I must say that on the essential problem of finding out what would be a reasonable figure one is confirmed in the position one previously took up. I said—and it is not very reliable evidence for a Minister to go on—that my own experience confirmed the difficulty of arriving in a simple way at a figure which would be acceptable all round as the appropriate market price—a reasonable figure, which is a necessary precondition of adopting the right hon. and learned Gentleman's proposal. The information we have, and the further inquiries we have made, all confirm the difficulty of arriving, even in the terms of the much narrower Amendment that the right hon. and learned Gentleman has now moved, at a reasonable figure.

It is quite open to experts and knowledgeable people to have totally different, or considerably different, views of what a fair figure is. The Revenue have no doubt that this proposal would lead to extreme difficulty in settling matters. There would be a good deal of litigation. I am therefore afraid that I cannot say that I am persuaded that this proposal is something we can accept.

I recognise that this still leaves a problem. I do not think that the comparison with books is a difficult one at all. I recognise that the right hon. and learned Gentleman is quite right in saying that copyright applies to more things than books alone, but books are its major content; and just because it is perhaps difficult, as he rightly says, to deal with other matters, such as designs, it does not mean that one should deny the ease of dealing with things like books. So one has accepted books, and I am sure he would not seek to persuade the House to the contrary. The right hon. and learned Gentleman seeks to persuade us that inventions are of a similar commonplace character. But they are not. They are by the nature of things, unique, and therefore it is difficult to find a market price.

I can only say that I am sorry that I cannot recommend the House to accept the Amendment but we shall certainly continue our review of the matter in the course of the coming year. We shall look at any difficulties to inventors that may arise. We do not think that there are likely to be many, but we shall look at them if they arise in the working of the Act as it now exists, and we shall certainly see whether there is any method by which we can meet without going too far, part, at all events, of what he would like us to meet I am afraid I cannot go further.

I do not want the words I use to be taken as any kind of commitment, except a commitment undertaken in good faith to look at the matter in the course of the next year in order to see whether there are any difficulties to inventors which justify going much further than one has done, and to see whether, in view of those difficulties, there is good reason to go further.

Sir L. Heald

Before the right hon. Gentleman sits down, he has spoken again of the difficulty of administration which he considers justifies penalising British inventors in this way. Is it not rather extraordinary that those difficulties can be overcome or disregarded, under double taxation, in the case of American inventors? Does not that suggest that there is something wrong somewhere?

12.15 a.m.

Mr. Diamond

No, there are many differences between the tax practices of the two countries. It is very enlightening to go, as I did a short time ago, to listen to an American tax expert giving a lecture over here and explaining that we live in the land of freedom while they are burdened by a tyrannous Treasury which treats them infinitely worse than we are treated in this country. It is quite refreshing to attend such a lecture. It is reasonably right to say that there are differences between the two countries.

I do not want to put it too high, there is obviously a point in what the right hon. and learned Member has said. Double taxation is there for everyone to see, but we are not persuaded that there is any penalty of the kind to which he referred. If there were, one would be moved to deal with it even at some difficulty. We shall consider during the coming year any case which comes before us where there is anything approaching a penalty on an inventor. In those circumstances, I hope that the House will agree to let the matter rest for a year.

Mr. Harold Lever

I hesitate to intervene, however briefly, but since my right hon. Fr] end is to consider the matter, I offer him some stimulus in doing so.

I understand that he has rejected the claim of the right hon. and learned Member for Chertsey (Sir L. Heald) exclusively on the line that it would be difficult to value the royalty for the purpose that the Amendment would require. If my right hon. Friend takes that view, it is difficult to see how he can hope to administer any Estate Duty upon such royalties which are inherited. I wonder if he would consult the Estate Duty Department and find how it manages to solve this difficult problem when it is at the receiving end of the Revenue.

If this is denied, not on the ground of fact but on the impossibility of evaluation, it is an impossibility which does not appear to exist when it comes to a question of Estate Duty or if the question of Capital Gains Tax arises. The argument does not stand up. If that is the only objection to this proposal, and my right hon. Friend said that it is, the case of the right hon. and learned Member is conclusively proved.

Mr. Higgins

I support my right hon. and learned Friend the Member for Chertsey (Sir L. Heald), who moved this Amendment in an admirable way. Like the hon. Member for Manchester, Cheetham (Mr. Harold Lever), I cannot accept the argument put forward by the Chief Secretary I take issue on one point he raised. He said that most inventions nowadays come from the research laboratories of large organisations. If he will consult the only really authoritative work on the sources of invention, by Professor Jewkes, Sawyer and Stillman, he will find that they discovered that most of the significant inventions in the post-war era have probably come from the small man. They stress at great length the difficulty he has in forming his own company and making it a close company and exploiting the invention. This is why the Amendment is so important in the present context for our country. On both sides, we must do all we can to encourage the utilisation of inventions and encourage the formulation of inventions themselves.

In Committee the Chief Secretary relied on a quite different argument from the one he has put forward this evening. He employed the loophole argument and suggested that if the Amendment were accepted there would be an enormous loophole which would enable people in close companies to use royalties or patents as a means of getting round taxes which otherwise they would have to pay. The right hon. Gentleman has not relied on that argument this evening, but if it were based on the Amendment we have before us it would not work anyway. He would have to argue that the close company would say to someone it wanted as a director or shareholder," We want to employ you without paying more tax than we otherwise would. Invent something which is marketable and profitable patent and licence it. We will manufacture and sell it, make a profit, and then be able to pay you a tax-free royalty."

The Amendment, as we have phrased it, eliminates any question of tax avoidance of that sort. As my right hon. and learned Friend pointed out, we have two clear qualifications. The royalty would be paid only if it is a reasonable sum related to the fact that the patent is actually used, whereas on the previous formulation it might have been a patent which was not used and was a nominal way of getting round taxation. Secondly, we have said that he must be an actual inventor or associated with an invention.

Given those two points, it seems to us clear that we have provided adequate safeguards, and the only argument that the Chief Secretary can put up is this question of valuation. As the hon. Gentleman who has just sat down has pointed out, valuations of this kind are carried out for other purposes and carried out for the purposes of copyright and so on, which have already been conceded by the Government.

In conclusion, we really must take issue with the Chief Secretary when he argued during the Committee stage when asked by my hon. Friend the Member for Barry (Mr. Gower) to consider whether there was any real difference between a novel, for example, "The Moon and Sixpence", and someone who had invented a safety razor blade, that these were not comparable. This is the real crux of the matter.

The Chief Secretary said: Yes, I aver that there is a total difference between the two kinds of cases. The book is something which is produced, and it matters

Division No. 117.]	AYES	[12.22 a.m.
Alison, Michael (Barkston Ash)	Harrison, Brian (Maldon)	Page, Graham (Crosby)
Allason, James (Hemel Hempstead)	Harrison, Col. Sir Harwood (Eye)	Pearson, Sir Frank (Clitheroe)
Astor, John	Hawkins, Paul	Peel, John
Atkins, Humphrey (M't'n & M'd'n)	Heald, Rt. Hn. Sir Lionel	Pike, Miss Mervyn
Awdry, Daniel	Heseltine, Michael	Pink, R. Bonner
Baker, W. H. K.	Higgins, Terence L.	Pounder, Rafton
Balniel, Lord	Hill, J. E. B.	Powell, Rt. Hn. J. Enoch
Batsford, Brian	Hirst, Geoffrey Hunt, John	Pym, Francis
Bell, Ronald	Hutchison, Michael Clark	Renton, Rt. Hn. Sir David
Bitten, John	Jenkin, Patrick (Woodford)	Ridsdale, Juliar,
Birch, Rt. Hn. Nigel	Johnston, Russell (Inverness)	Rossi, Hugh (Hornsey)
Blaker, Peter	Joseph, Rt. Hon. Sir Keith	Shaw, Michael (Sc'b'gh & Whitby)
Boyd-Carpenter, Rt. Hn. John	King, Evelyn (Dorset, S.)	Smith, John
Brinton, Sir Tatton	Kitson, Timothy	Steel, David (Roxburgh)
Bromley-Davenport,Lt.Col.Sir Walter	Knight, Mrs. Jill	Summers, Sir Spencer
Brown, Sir Edward (Bath)	Longden, Gilbert	Talbot, John E.
Bruce-Gardyne, J.	Loveye, W. H.	Taylor, Edward M.(G'gow,Cathcart)
Chichester-Clark, R.	Lubbock, Eric	Taylor, Frank (Moss Side)
Clark, Henry	MacArthur, Ian	Teeling, Sir William
Clegg, Walter	Macleod, Rt. Hn. lain	Thatcher, Mrs. Margaret
Cooke, Robert	Madden, Martin	Turton, Rt. Hn. R. H.
Crawley, Aidan	Marten, Neil	van Straubenzee, W. R.
Dalkeith, Earl of	Mawby, Ray	Walker, Peter (Worcester)
Dean, Paul (Somerset, N.)	Maxwell-Hyslop, R. J.	Walters, Dennis
Deedes, Rt. Hn. W. F. (Ashford)	Mitchell, David (Basingstoke)	Ward, Dame Irene
Dodds-Parker, Douglas	Monro, Hector	Weatherill, Bernard
Elliott, R.W.(N'c'tle-upon-Tyne,N.)	Morrison, Charles (Devizes)	Webster, David
Fortescue, Tim	Munro-Lucas-Tooth, Sir Hugh	Whitelaw, William
Gilmour, Ian (Norfolk, C.)	Murton, Oscar	Winstanley, Dr. M. P.
Glover, Sir Douglas	Nabarro, Sir Gerald	Woodnutt, Mark
Glyn, Sir Richard	Nicholls, Sir Harmar	Wylie, N. R.
Goodhart, Philip	Noble, Rt. Hn. Michael
Grant-Ferris, R.	Nott, John	TELLERS FOR THE AYES:
Gurden, Harold	Orr, Capt. L. P. S.	Mr. Anthony Grant and
Hall, John (Wycombe)	Osborn, John (Hallam)	Mr. Reginald Eyre.
Hall-Davis, A. G. F.
NOES
Ahse, Leo	Archer, Peter	Bidwell, Sydney
Allaun, Frank (Salford, E.)	Armstrong, Ernest	Bishop, E. S.
Alldritt, Walter	Bennett, James (G'gow, Bridgeton)	Blackburn, F.

little what the title is or what the length of it is. There is a regular market price for books. As one would expect, for inventions which are so varied and unique—otherwise they are not inventions—the patent royalties and the terms for them are of immense variety."—[OFFICIAL REPORT, 21st June 1966; Vol. 730, c. 394.]

Of course, there is just as much variety in books as there is in inventions, and the crucial thing is not what the price is but how much of it is sold. This point is entirely covered by our Amendment, and I would submit to the House, as indeed the hon. Gentleman opposite did, that the two cases are very closely related indeed and that if the Government are prepared to give way on the one then they should give way on the other.

We appreciate that the Chief Secretary is coming round to our viewpoint, but we cannot accept the arguments he put forward on Committee stage, nor can we accept those he has put forward tonight. I would therefore advise my hon. Friends to divide the House on this Amendment.

Question put, That those words be there inserted in the Bill:—

The House divided: Ayes 103, Noes 156.

Booth, Albert	Hattersley, Roy	Norwood, Christopher
Boston, Terence	Hazell, Bert	Ogden, Eric
Braddock, Mrs. E. M.	Hefter, Eric 8.	O'Malley, Brian
Bradley, Tom	Herbison, Rt. Hn. Margaret	Oram, Albert E.
Brooks, Edwin	Hobden, Dens (Brighton, K'town)	Orme, Stanley
Brown, Hugh D. (G'gow, Provan)	Hooley, Frank	Oswald, Thomas
Brown,Bob(N'c'tle-upon-Tyne,W.)	Howie, W.	Parkyn, Brian (Bedford)
Brown, R. W. (Shoreditch & F'bury)	Hoy, James	Pentland, Norman
Buchan, Norman	Hughes, Emrys (Ayrshire, S.)	Perry, George H. (Nottingham, 8.)
Buchanan, Richard (G'gow, Sp'burn)	Hughes, Roy (Newport)	Price, Christopher (Perry Barr)
Butler, Mrs. Joyce (Wood Green)	Hunter, Adam	Probert, Arthur
Caltaghan, Rt. Hn. James	Hynd, John	Redhead, Edward
Cant, FL B.	Jackson, Colin (B'h'se & Spenb'gh)	Reynolds, C. W.
Carter-Jones, Lewis	Jackson, Peter M. (High Peak)	Rhodes, Geoffrey
Coe, Denis	Jeger, George (Goole)	Richard, fear
Crawshaw, Richard	Jenkins, Hugh (Putney)	Roberts, Gwilym (Bedfordshire, S.)
Cullen, Mrs. Alice	Jenkins, Rt. Hn. Roy (Stechford)	Robertson, John (Paisley)
Dalyell, Tam	Jones, J. Idwal (Wrexham)	Robinson, W. O. J. (Walth'stow, E.)
Davidson, Arthur (Accrington)	Judd, Frank	Rodgers, William (Stockton)
Davies, Dr. Ernest (Stretford)	Kelley, Richard	Roebuck, Roy
Davies, Harold (Leek)	Kenyon, Clifford	Rose, Paul B.
Dewar, Donald	Kerr, Rusell (Feltham)	Ross, Rt. Hn. William
Diamond, Rt. Hn. John	Lawson, George	Rowlands, E. (Cardiff, N.)
Dickens, James	Leadbitter, Ted	Ryan, John
Doig, Peter	Ledger, Ron	Sheldon, Robert
Donnelly, Desmond	Lester, Miss Joan	Shore, Peter (Stepney)
Dunwoody, Mrs. Cwyneth (Exeter)	Lewis, Ron (Carlisle)	Silkin, John (Deptford)
Eadie, Alex	Lomas, Kenneth	Slater, Joseph
Edwards, Robert (Bilston)	Luard, Evan	Small, William
English, Michael	Lyons, Edward (Bradford, E.)	Steele, Thomas (Dunbartonshire,W.)
Ensor, David	McCann, John	Summerskill, Hn. Dr. Shirley
Evans, loan L. (Birm'h'm, Yardley)	MacDermot, Niall	Thomas, George (Cardiff, W.)
Fletcher, Raymond (Ilkeston)	McGuire, Michael	Urwin, T. W.
Floud, Bernard	McKay, Mrs. Margaret	Varley, Eric G.
Foley, Maurice	Mackenzie, Gregor (Rutherglen)	Wainwright, Edwin (Dearne Valley)
Foot, Michael (Ebbw Vale)	Mackintosh, John P.	Walden, Brian (All Saints)
Ford, Ben	McMillan, Tom (Glasgow, C.)	Walker, Harold (Doncaster)
Fowler, Gerry	McNamara, J. Kevin	Wallace, George
Fraser, Rt. Hn. Tom (Hamilton)	Mahon, Peter (Preston, S.)	Watkins, David (Consett)
Garrow, Alex	Mahon, Simon (Bootle)	Wellheloved, James
Courlay, Harry	Manuel, Archie	Willis, George (Edinburgh, F.)
Greenwood, Rt. Hn. Anthony	Mapp, Charles	Wilson, William (Coventry, S.)
Gregory, Arnold	Mason, Roy	Winnick, David
Grey, Charles (Durham)	Miller, Dr. M. S.	Winterbottom, R. E.
Griffiths, David (Rother Valley)	Mitchell, R. C. (S'th'pton, Test)	Woodburn, Rt. Hn. A.
Griffiths, Will (Exchange)	Morgan, Elystan (Cardiganshire)	Woof, Robert
Hamilton, James (Bothwell)	Morris, Alfred (Wythenshawe)	TELLERS FOR THE NOES:
Hamilton, William (Fife, W.)	Murray, Albert	Mr. William Whitlock and
Hamling, William	Newens, Stan	Mr. Neil McBride.
Hannan, William	Noel-Baker, Francis (Swindon)
Harper, Joseph

12.30 a.m.

Mr. MacDermot

I beg to move Amendment No. 59, in page 82, line 9 to leave out" but "and to insert: which is constituted under any Act, Royal Charter or Letters Patent or is". The Amendment is designed to implement an assurance which I gave in Committee to meet a point raised in an Amendment -moved by the hon. Member for Finchley (Mrs. Thatcher). I hope that she will agree that it meets the point.

Amendment agreed to.

Mr. MacDermot

I beg to move Amendment No. 60, in page 82, line 13 at the end to insert: