§ Mr. Patrick Jenkin (Wanstead and Woodford)
I beg to move Amendment No. 304, in page 41, line 45, at the end to insert:(3) Paragraph (2)(d) of the said section 28 shall not apply to the receipt of any such consideration as is therein referred to after 6th April 1966.We now come back to one of the more incomprehensible Clauses. For my sins I find myself put up to talk about it. The Clause is designed to amend Section 28 of the 1960 Finance Act. It would be helpful to the Committee if, by way of introducing the Amendment, I were to say something of the background not only to the Clause but also to Section 28 of the 1960 Act.
When I read the Clause I could not help feeling that the Chief Secretary must have approached it with mixed feelings. If I were a betting man—which, unlike my right hon. Friend the Member for Enfield, West (Mr. Iain Macleod) I am not—I would be willing to bet that the Chief Secretary's inclination was to resist the Clause when it was put to him for inclusion in the Bill. That may appear strange, because it is concerned with tax avoidance. Nevertheless, it may well be true.
The Clause is concerned with tax avoidance of a devious and cunning, though legal, nature, such as dividend stripping, bond-washing, forward stripping, stock stripping, the "scissors", and so on—those varieties of tax avoidance devices which, for the most part, are designed to take advantage of the fact that income is taxed as income whereas capital is not subjected to Income Tax. The Clause is 726 aimed at tightening up the law—at closing the loopholes and preventing avoidance.
In those circumstances my hon. Friends may ask why I should suggest that the Chief Secretary might be reluctant in putting this Clause forward. Is it a newfound tenderness for strippers? I hasten to add that I am referring to dividend strippers. Is it perhaps that he has acquired an admiration for their skill? He is qualified to admire their skill, but I do not believe that that is the reason. I believe the reason is that, as the hon. Gentleman will remember, over and over again when he was a Member of the Opposition he told the Committee that under a Socialist Government legislation of this sort would be totally unnecessary.
I want the Committee to cast its mind back six years to the introduction of the Finance Act, 1960, and especially to Section 28 of that Act. In that year the Chancellor of the Exchequer was the right hon. Gentleman's predecessor, Mr. Heathcoat Amory, who is now Lord Amory; the Attorney-General was Sir Reginald Manningham-Buller—now Lord Dilhorne; the Solicitor-General—and I am glad to see the present Solicitor-General in his place; now we shall make great progress—was Sir Jocelyn Simon, who is now President of the Probate, Divorce and Admiralty Division. All these, together with the present Minister without Portfolio and the Chief Secretary, took part in the debate on the Clause which became Section 28. The Clause, which is now Section 28, evoked great discussion and it did so because it represented an entirely new departure in the anti-avoidance legislation. For the first time the Inland Revenue, the Treasury, was taking powers of a general nature to nullify tax advantages on transactions dealing with securities. Hitherto specific devices had been hit at Clause by Clause, and stretching back over many years. Section 28 represented the first attempt to hit at these matters generally.
I have been reading the debates that took place in Committee, on Report and in Third Reading of that Bill, and I have found that one theme came from the Chief Secretary repeatedly, bordering on monotony. I will not bore the Committee with all the quotations, but I must 727 read one or two. On one of the Amendments on 24th May, 1960, the present Chief Secretary said:I have tried prose and I have tried poetry. Whichever way I try I always seem to fail. I now propose to try to be persuasive by irritation "—that has a familiar ring—and, when we come to the Question, 'That the Clause stand part of the Bill', to draw attention to this frightful difficulty and to our inability to deal with the situation simply because we have a tax structure under which capital gains are free of tax.On the next Clause he said:This is the third anti-tax avoidance Clause, and it arises from the fact that we have a tax structure under which capital gains are not taxed and, therefore, all this procedure is necessary to prevent a man turning his income into notional capital and escaping taxation.On this next Clause he said:This will never be a satisfactory method of dealing with attempts at tax avoidance. No doubt in two or three years' time we shall have another Finance Bill dealing with the same sort of problem, unless by that time we have a sensible tax structure, including a capital gain tax."—[OFFICIAL REPORT, 24th May, 1960; Vol. 624, cc. 350, 362 and 365.]The right hon. Gentleman returned to the theme in replying to the debate on the Third Reading of the Bill on 8th July, when he said:Is it too much to hope that soon the Government will match their responsibilities? They can be assured of our support, although I do not suppose that that will be the final argument. Is not the necessary remedy within the modern Tory interpretation of the theory of the electoral mandate? Was not the ending of tax avoidance and the revision of the tax base specifically mentioned in the Labour Party manifesto?"—[OFFICIAL REPORT, 8th July, 1960; Vol. 626, c. 884.]So it went on throughout the debates on that Bill, and on that Clause in particular, ad nauseam. If only we had a Capital Gains Tax, if only we could reform the tax structure, all this complicated anti-tax avoidance procedure would be unnecessary. The weary round, year by year and Clause after Clause, to deal with this problem which beset the Inland Revenue—all this would become a thing of the past.
Well, we have a Capital Gains Tax at a swingeing rate of 30 per cent.—higher than in almost any other country. The Government have entirely reformed the structure of the Corporation Tax and we have a high rate of 40 per cent. coupled with withholding tax under Schedule F at 728 41¼ per cent. We have had fierce new provisions to deal with close companies, and I have no doubt that all sorts of hidden delights are yet to come.
What do we find? In the very first Finance Bill introduced after all these measures, as the Chief Secretary emphasised over and over again, we have a Clause whose only purpose is to close loopholes to tighten the law to prevent avoidance. He must regard this as the shattering of yet one more starry-eyed illusion and bear it with great equanimity as he remembers the high old days of happy opposition. He is now faced with the stern reality that, however embarrassing it may be, he has to continue the pattern which he so roundly condemned when sitting on these benches.
Take the definition of "non-taxable" in Clause 37(6) is:'non-taxable' in relation to a person receiving consideration, means that the recipient does not pay or bear tax on it as income.The pattern will remain, and Clauses of this type will continue. It must be very galling for the Chief Secretary to be faced with this situation.
I say at once that it is not our intention to press the Amendment to a Division. It is a probing Amendment. The purpose of Section 28 of the 1960 Act was to deal with tax avoidance of a particular kind. In the Budget statement of 4th April of that year, the Chancellor of the Exchequer outlined the general intention of this part of the Act. Under the heading "Dividend Stripping" he outlined to the Committee some of the ingenious devices which I have mentioned, whereby tax avoiders could make use of the different methods of dividend stripping. The debate proceeded on the basis that this was the intention of Section 28, that it was aimed primarily at dividend stripping.
The main Government Amendment, which went to the heart of the Clause, and was an attempt to improve and clarify it, was moved on 25th May by the then Attorney-General. He introduced it with these words:I do not want to weary the Committee by going into any great detail of the lamentable history of dividend stripping and bond washing."—[OFFICIAL REPORT, 25th May, 1960; Vol. 624, c. 504.]and went on for some columns of HANSARD to say what the various methods 729 were, and how it was hoped that the Clause, as then being redrafted, would deal with them. My point is that partly by the operation of Section 28 (2, d), which the Amendment seeks to remove, the Section is not so confined in practice. There have recently been cases before the courts, including an important one in which judgment was delivered in the House of Lords, at the beginning of this year— the case of the Commissioners v. Parker, No. 2178 of Tax Cases. Their Lordships reversed the decision of the Court of Appeal and held that the particular transaction came within Section 28, although by no stretch of the imagination could the transaction be held to have anything to do with dividend stripping or bond washing. The transaction bore no remote resemblance to any of the processes which had been described both by Lord Amory and the then Attorney-General, but involved the issue of debentures, or capitalisation of reserves, redeemed eight years later, the main purpose being to raise cash to pay estate duty. The importance of the case, of course, rests in the two dicta which have been quoted frequently since then as representing the real nub of the case. Lord Dilhorne said:I think I should make it clear that, in my opinion, this is taking too narrow a view of Section 28"—this was the view taken by the Court of Appeal, which had held that it was confined to dividend stripping—That Section was, in my view, directed to tax avoidance taking place in certain circumstances and one has to consider whether in a particular case the circumstances specified existed.Lord Wilberforce was even more explicit:One type of tax avoidance transaction at which the Act is evidently aimed at is that generically known as ' dividend-stripping'. This being perhaps the most easily identifiable target, it was contended in the Court of Appeal, and the argument found some favour there, that the Act, or at least Section 28, was confined to this and analogous practices and was not intended to and did not deal at all with the kind of arrangement with which we are concerned. This is an argument which I cannot accept. I do not find it possible to discern in this Act any indication that it was the purpose of the Legislature to limit it to any specific form of tax avoidance.The plain fact is that that decision of the House of Lords has caused very 730 considerable consternation, not only among the tax avoiders. That is a matter on which I am certain that the Chief Secretary and I are at one. We do not want to do anything to encourage tax avoidance. On the contrary, we want to defeat it. It has caused consternation among ordinary business folk contemplating perfectly legitimate transactions in securities.
To take a simple case, a transaction involving the purchase and sale of securities may be done in two different ways. One way would land the person doing the transaction in a heavy liability to tax. The other way would land him in a lesser liability to tax. The effect of the dicta which I have quoted is to suggest that if he chooses the latter in preference to the former, one of his motives would be to avoid taxation, and therefore there could be a direction under Section 28. He would have to pay the tax, whichever method he chose.
One is bound to ask if that was the intention of Section 28. It is miles outside dividend stripping or anything like the sort of transaction which comes within the normal understanding of the phrase "tax avoidance". This judgment has undoubtedly introduced a new element of uncertainty among professional men, an element introduced into perfectly genuine transactions, many of which would not escape by the exception which is in Section 28 about being "normal commercial transactions" or "transactions of a bona fide commercial nature".
The question is, are they all to be struck at? Many people believe, as I do, that the judgment in the Parker case, in its extreme interpretation, takes the law outside the scope of Parliament's intention when it passed Section 28. There were fears expressed in the Committee at the time it went through that this would be the interpretation. Those fears were met by the Government. Lord Amory himself, opening the Third Reading debate on 8th July, said:Obviously, the operation of this Clause will want close watching and careful scrutiny as time goes on. If in practice it should prove either too harsh or ineffective it can be discussed on an appropriate occasion in this House with a view to further amendment if any further amendment is required."—[OFFICIAL REPORT, 8th July, 1960; Vol. 626, col. 873.]731 He was a good deal less confident than was the Chief Secretary himself, who at one stage in the Committee proceedings said:I entirely agree with my hon. Friend the Member for Sowerby (Mr. Houghton) when he says that no innocent person conducting an ordinary transaction need have any fear of this Clause at all."—[OFFICIAL REPORT, 25th May, 1960; Vol. 624, col. 522.]That is what the Chief Secretary said then. His confidence was entirely misplaced and, quite frankly, the Parker case proves him wrong. If he doubts that, I would invite him to talk to tax counsel, solicitors, accountants and the hon. Member for Manchester, Cheetham (Mr. Harold Lever), who will no doubt back them up. The right hon. Gentleman will get a picture which is totally inconsistent with the view that he expressed then.
It would be unrealistic to expect the Government to do anything in this Finance Bill, because it will obviously require time. The purpose of the Amendment is to ask the Government to give an undertaking seriously to look at this. We do not want to take such a blind antipathetic view of tax avoiders as to show no concern at all where perfectly innocent transactions are brought into the net, which was not the intention of Parliament.
I hope that the Chief Secretary will take a more responsible view than he sometimes showed on these matters when conducting debates from this side of the Chamber. Of course, he was there to hit hard at the whole process of tax avoidance. But we have now got a Capital Gains Tax and a reformed structure of the Corporation Tax, though reform should never necessarily be confused with progress. It is altered and it is reformed. It is what the right hon. Gentleman was asking for in those debates. Clearly he will have to continue with the legislation and that is a matter of embarrassment which he will no doubt bear with fortitude, but it is damaging to the reputation of the Inland Revenue if honest, ordinary transactions involving dealings in securities are to be struck at. This case of Parker and the Commissioners has opened a new area of doubt and uncertainty. I am quite certain that the Government would be right to undertake to look at it seriously between now and next year and, if they agree with the 732 case I have made, introduce amending legislation next year.
§ 10.45 p.m.
§ Mr. Harold Lever (Manchester, Cheetham)
I must make two apologies to the Committee. One is that the unaccustomed formality of my dress is evidence that I have not been present throughout the sitting of the Committee. I can only plead that I have been engaged in something in the public interest. I see that the Opposition Chief Whip, who was similarly engaged, has resumed his normal dress.
Secondly, I do not want to detain the Committee by going through the Clause, but there are some things which I think should be said. Section 28, to which this Clause relates, was a general provision against tax avoidance. It was drawn in the widest terms, entirely incomprehensible to the layman, to the majority of lawyers, and certainly to the majority of Ministers. We have to ask ourselves to what extent is the House to fulfil its duty as the watchdog of the citizen if it cannot understand the meaning of a Clause which it is asked to pass. When we passed Section 28 we were, as the hon. Member for Wanstead and Woodford (Mr. Patrick Jenkin) rightly said, under the impression that we were authorising the Government to exercise a wide discretion in dealing with complex professional forms of tax avoidance. I am quite certain that the House had no idea at all that the kind of cases now being decided in the courts, in particular the Parker case, would come within the ambit of the Section. I am quite certain that Lord Amory would turn in his seat in another place if he but knew that what he intended in one way was being used so widely to hit at totally unforeseen transactions which seem to me to be of the most innocent nature.
What makes the matter worse is that all we see in the courts is the tip of the innocent iceberg. What we do not see are the thousands of harassed businessmen, investors, lawyers and accountants and those who have responsibilities to advise, now have no certitude of what ought to be done in any given situation. This seems a serious demerit in the Clause and in our tax legislation. If we are to fulfil our duties as a watchdog over the interests not only of the Revenue 733 but of the citizen, it is high time that we insisted on a reformed system of enacting tax legislation.
It is all very well boasting of reformed tax structures; what the House, the Committee and the country urgently need is a reformed system of tax legislation. We need a taxation Act divorced from the irrelevant conjunction of the Chancellor's remedies and plans for redressing the balance of payments. It seems that the Chancellor has to set aside time to deal with the most complex, technical tax questions at the same time as he is planning the economic course of the country. It seems to me that there must arise in this Committee a sustained protest at the antiquated, out of date and unsatisfactory way of enacting tax legislation which prevails at the moment.
§ The Chairman
I hesitate to interrupt the hon. Member, but he is travelling far from the substance of this Amendment.
§ Mr. Lever
I thought that was a sort of introduction to the matter. To tell the truth, Sir Eric, since you ruled after a number of Amendments had been discussed on a perfectly comprehensible Clause that there should be no debate on the Clause standing part, I have been in great terror that on this totally incomprehensible Clause you would make a similar Ruling and I was, therefore, anxious to get in all my speeches on this Amendment and not to trouble the Committee further.
Our duty is to protect the innocent, as was mentioned by the hon. Member for Wantead and Woodford, and I will not weary the Committee by giving further details of the cases mentioned or further cases under the Section of which this is an extension and renewal.
I would like, in passing, to draw attention to subsection (2), and I hope that the Chief Secretary will explain why it is necessary to enact the subsection. The Amendment was not called and I will not go into detail on it. There is another matter which I want to mention, and this might give more comfort to the Chancellor who I am happy to see in his place. All of us here dislike retrospection, but I believe that retrospection is to be preferred to this sort of Clause.
734 At any rate the Committee would have the satisfaction of knowing that retrospection was aimed accurately at the people whom it was desired to hit. The Chancellor would make out his case for it, as I have no doubt he would, in proper form.
§ The Chairman
We are not discussing the Question, "That the Clause stand part of the Bill." We are discussing this particular and rather narrow Amendment.
§ Sir Lionel Heald (Chertsey)
I am anxious to keep in order and I hope that I shall be able to do so. I realise that we shall have a further opportunity to go more deeply into the subject which the hon. Member for Manchester, Cheetham (Mr. Harold Lever) has been discussing. I would like to say how glad I am to be, not for the first time—but I am not always—in agreement with him. He has expressed a view which is widely held in this Committee and outside, without any regard to party politics.
In this matter of tax legislation we are in danger of bringing into disrepute not only Parliament but the law and the courts which have to administer the law. The courts are forced to do things which they know are against or would be against justice, law and equity owing to the remarkable provisions enacted in this Committee and the House. I wonder whether the time will not come when we find that this part of our legislation has to be dealt with separately.
I have no doubt that only a tiny minority of the hon. Members of this Committee have any idea what we are talking about when we are enacting legislation which is going to impose the most terrible injustices on people and which compels the courts to do something which revolts them. Worst of all, perhaps, we 735 find the Chief Secretary and others treating objections on these matters with humour. That is something which we must be very careful about, and I hope that we shall have the opportunity shortly, on another Clause, to discuss the matter.
§ Sir D. Glover
Most of the speeches in this interesting debate on tax avoidance have come from lawyers. I shall speak as a non-lawyer. Every Member of the House of Commons or of any assembly wishes to stop tax avoidance There is no division on that. Both sides of the Committee wish to stop tax avoidance. But it seems to me, a non-lawyer, that the law has become far too complicated. I am a trustee of various trust funds, and I find it increasingly difficult to administer them because the lawyers tell me that they are not quite sure whether, if I do this or that, I shall be entering the realm of tax avoidance, which I have no desire to do.
The present Chancellor and his predecessors, of either party, seem in the last few years to have got somewhat hag-ridden by the idea that any of these activities must be stopped. Basically, I agree, but it seems to me that we have developed, as it were, a phobia about tax avoidance. We have become rather like a man who, wishing to protect his strawberries from the birds, puts up not an ordinary strawberry net but a net 500 feet high and kills every bird in the district.
§ The Chairman
On this Amendment, we cannot have a general debate on tax avoidance. I must ask hon. Members to confine themselves to the rather narrow point of the Amendment.
§ Sir D. Glover
I accept your Ruling, Sir Eric. Like the hon. Member for Cheetham (Mr. Harold Lever)—I almost referred to him as my hon. Friend because we have known one another for very many years—I shall have another go on the Question, "That the Clause stand part of the Bill."
§ Mr. Diamond
In view of your anxiety, Sir Eric, that we should restrict the discussion to the point raised by the Amendment, I shall not attempt to respond to the appeal of the hon. Member for Wanstead and Woodford (Mr. 736 Patrick Jenkin) that the rate of Capital Gains Tax should be put up from 30 per cent. to something between 41¼ and 91¼ per cent.
The hon. Gentleman said that he raised the Amendment in order to probe and seek information with regard to a particular case, a case relating to an individual shareholder in a private company which in 1953 made a bonus issue of debentures which were repaid in 1961, the House of Lords holding that Section 28 of the Finance Act, 1960 applied. In view of the heat displayed elsewhere in the Chamber, I may, perhaps, refer to the fact that it is against the Finance Act, 1960, that complaint is being laid. The hon. Gentleman asks both for clarification and whether we would look into the matter.
The answer—the hon. Gentleman may not have expected it—is "Yes, Section 28 of the 1960 Act was intended to catch this sort of arrangement". This is an arrangement under which there was a tax advantage in the terms of the Section. There was a redemption of the debentures in such a way that profits were released in non-taxable form. I wish, therefore, to make clear that this particular transaction was one which was caught by the Section, according to the House of Lords, and was intended so to be caught.
§ Mr. Patrick Jenkin
I wonder whether the right hon. Gentleman has taken the point. Of course, their Lordships interpreted the Section as it stood. They looked at the language, and they held— as the highest tribunal in the land, they cannot be challenged—that the Parker case fell within the terms of the Section. But by just saying that it was so intended, the right hon. Gentleman misses the point. The question here is did Parliament intend that this sort of transaction should be caught? A study of the debates on the matter shows that it must be a matter of doubt. The debentures in question in the Parker case were issued in 1953 with no intention whatever that they should be redeemed. It was an entirely separate transaction, done for an entirely separate reason. It was not until seven or eight years later, as I understand it, in 1961, when the need arose for money to pay Estate Duty, that the shareholder in question was advised that this was a way in which it could be done.
737 11.0 p.m.
This, of course, was only just immediately after the Act had been passed, and I do not suppose for one moment that their advisers felt that this was going to come within the Clause which throughout the debates in the House was said to be dealing with the professional tax avoider, with the dividend stripper, the bond washer and all the devices with which the Committee has become all too familiar. Did Parliament intend that a transaction made for an entirely different purpose, with no intention of avoiding tax, should come within Section 28? I have chosen this particular Amendment to raise this point because it is under the paragraph I am seeking to leave out that the Parker case was decided. That is the question to which the right hon. Gentleman must address his mind. Merely by using the words "it was intended" he is sliding over the point.
§ Mr. Diamond
The hon. Gentleman has made a very long intervention, telling me I have slid over the point. I said I was going to deal with it in two parts. He listened to the first part but did not wait to hear the second. But he has made it all the more clear, and so I am grateful for his intervention.
I think the essence of the second part of the hon. Gentleman's question is whether now the Government are prepared to look at this in the light of the debates and in the light of what was said in the judgments and see whether any adjustment is called for. Without giving any undertaking of any kind as to what the result of such a review would be, we are certainly prepared to accede to the hon. Gentleman's request to give the matter that kind of consideration.
§ Mr. Peyton
I want to ask the right hon. Gentleman two questions. He answered my hon. Friend with these words, "Yes—it was intended", but he has not said by whom. What I and the Committee are anxious to know is what was the intention of Parliament. We are not now talking of the intention as construed by the courts. We are asking whether it was genuinely the intention of Parliament. This is the point on which there is doubt, and I hope the right hon. Gentleman will make his view clear on this. My suggestion is that he has not yet done so.
738 My second point is that it seems to me that my hon. Friend might have been a little restrained and modest in the way he put this point to the right hon. Gentleman. What he said was that he thought it was unreasonable to ask the Treasury to settle this matter quickly within the time-scale of the present Bill. I put it to him that if there were a comparable flaw from a comparable Treasury point of view, would not the matter be immediately remedied during the passage of the Bill through Parliament? If that is so, surely it is incumbent upon the Treasury now to remedy any difficulty there may be. I hope my hon. Friend may see fit to step up his demand and say that if there is anything wrong here it should be remedied during the passage of the Bill.
§ Mr. Diamond
The hon. Gentleman asked me what the intention of Parliament was, but I should have thought that was a question which it was quite impossible to answer except to say that the court interpreted what was the intention of Parliament.[HON. MEMBERS: "Nonsense."] It is all very well to say "Nonsense". I thought I was helping the Committee by dividing the question into its two elements. The first is that Parliament can presumably only be thought to intend what the Statute said. The second part is what is the intention of the present Government, which is a different question and, I should have thought, a much more relevant and practical question.
§ Mr. Diamond
As my hon. Friend says, it is very interesting question as to what would be the intention of the present Government after having considered this and seen whether there is any case for the element of complaints which has crept into the hon. Gentleman's consideration.
I have told the hon. Gentleman that we shall be glad to consider the matter. I understood the time scale. I cannot go farther than that. It is pointless for the hon. Gentleman opposite to consider what might arise if so-and-so came to a conclusion. I promise that we shall look at it very carefully. At the moment there is no reason to say that Parliament's wishes were not faithfully interpreted by 739 the courts. But to go to each Member of Parliament who took part in those debates and ask him what his particular view was would be going a little far.
I hope that I have answered the hon. Gentleman. I do not think it is possible for me to go further than to say that I have listened very carefully to what he has had to say and have answered his question, I think, in the two relevant parts. The Government will give the matter careful review and consider whether there is anything to be done, though I am not giving the slightest undertaking as to what the result of that review might be.
§ Mr. Harold Lever
Will my right hon. Friend, when considering the matter, bear in mind the most important fact of the two meanings of the words "the intentions of Parliament"? One is the intention from the point of view of the courts, which little concerns us here, because the courts are bound to ignore HANSARD or anything of that kind, for it cannot be admitted to assist the courts to see what the intention was from that point of view. The court is strictly bound to the words in construing the intention of Parliament.
The hon. Gentleman opposite, in considering what was the intention of Parliament in the popular sense—that is, the wishes of the majority of the Members— has only to look at HANSARD and what was said by the Chancellor of the Exchequer, who, after all, introduced the Bill, and by others who have spoken on the Bill, to see what the intention was in the non-legal sense.
I hope that the Chancellor and the Chief Secretary will not think it disrespectful of me if I point out to them that they are not Law Lords in considering this matter, that they are great humanitarian Ministers of State presiding over the economic and financial destinies of our people, and that one of their duties is not merely to protect the Revenue but to protect the will of this House and the intention of this House in the real sense. Perhaps it might assist my right hon. Friends if I tell them in unmistakable terms that I studied the Clause with considerable care when it was brought in in 1960, and I would never have advised that it had the meaning that was put upon it by the House 740 of Lords, nor, incidentally, would a single member of the Committee of Appeal, and it was a unanimous decision of the Court of Appeal that decided it in a contrary sense. So these things are very difficult, complex and technical.
As to the real intention of Parliament, there is little doubt. I for one will testify that, for my part, my intention was precisely as indicated in my previous comments and certainly not to hit at the kind of transaction which was undertaken in the Parker case. Even worse, I little thought that we were enacting a Clause which would work a retrospective effect in part to undo a transaction which had been undertaken many years before the Clause had seen the light of day.
§ Sir D. Glover
As the right hon. Gentleman has based the whole of his argument on the will of Parliament, and if he thinks that Parliament's intention was as he has indicated and not what his hon. Friend the Member for Manchester, Cheetham (Mr. Harold Lever) has indicated, why does he not put down something at Report stage to test the will of Parliament again? After all, each Parliament is different, and we are not bound by the Parliament of 1960. If what has happened is not the will of Parliament, let Parliament test it again.
§ Mr. Patrick Jenkin
I agree with and admire the way in which the hon. Member for Manchester, Cheetham (Mr. Harold Lever) made the distinction of the intention of Parliament. He put it as cogently and succinctly as it could have been put, and I would only add this. Last night, at a late hour, we were considering one year and three year surplus. There is not a shadow of doubt that had that Clause in the form in which it was presented last year gone before the courts, companies and their subsidiaries would have been entitled to take advantage of the surplus in a way that they are now being prevented from doing.
It was not Parliament's intention that they should, and that points to the distinction clearly. Parliament's intentions are what appears in the Act. Parliament's intentions in 1960, when it was considering this may have been something quite different, and the hon. Member for Manchester, Cheetham, says that as far as he was concerned it certainly was.
741 I am grateful to the Chief Secretary for his offer to examine this matter and I hope that he and his staff will examine it sincerely, honestly and fully. It is a point which has very grave implications for people who would not, by the remotest stretch of imagination, consider themselves tax avoiders. Having had that assurance, I beg to ask leave to withdraw the Amendment.
§ Amendment, by leave, withdrawn.
§ Mr. Diamond
I beg to move, Amendment No. 299, in page 42, line 11, at the end to insert:("as defined by paragraph 7(1) of Schedule 11 to the Finance Act 1965)".It may be for the convenience of the Committee if we discuss with this Amendment No. 300 in page 42, leave out lines 38 and 39, and Amendment No. 352, in page 42, line 41, at end insert:and the references in subsection (4) above to the repayment of share capital include references to any distribution made in respect of any shares in a winding up or dissolution of the company".These three Amendments deal with two points. The first is purely a drafting point, which I will go into if the Committee so desires. It relates to the meaning of "security" in the singular and "securities" in the plural. The second is a more substantial point, arising in connection with subsection (4) and deals with the situation when the accumulated profits of one company have been, in effect, transferred to the shareholders of a second company, as a result of a reconstruction. It was thought that the second company's shareholders would be subject to this Clause. It has now been found on further consideration that the words "repayment of share capital" which would be the charging words, have been held to apply to shares which have a prior claim on the assets, such as preference shares, and not to ordinary shares which did not entitle shareholders to any repayment as such but simply to a distribution of what was left in the kitty, the surplus assets. Therefore, this Amendment makes it clear that the words are intended to refer to repayment to ordinary shareholders.
§ Amendment agreed to.742
§ Further Amendments made: In page 42, leave out lines 38 and 39.
In line 41, at end insert:
and the references in subsection (4) above to the repayment of share capital include references to any distribution made in respect of any shares in a winding up or dissolution of the company".—[Mr. Diamond.]
§ Question proposed, That the Clause, as amended, stand part of the Bill.
§ 11.15 p.m.
§ Mr. Harold Lever
I do not want to be guilty of any tedious repetition, but this is a most important Clause and opens up fairly widely a most important subject which we started to discuss on the Amendment, whether our tax system is altogether satisfactory in the way in which we enact our legislation. Dr. Johnson, I believe, used a phrase in defining a net that it was the interstices between the intersections, and in our tax system there appear interstices between intersections which cause all the trouble. It is understandable that the Revenue are anxious to deal with those who are expert in finding the interstices between the intersections.
That is all very well provided that the manner in which it is done is in the general public interest and gives effect to the will of the House. One of the difficulties in making sure that the will of the House is adhered to is that by our system of law—I have no doubt that there are good reasons for it—the courts, in seeking the intention of Parliament, may have regard only to the actual wording of the Statute and may not have regard to anything said in the course of the debate as to the intention of Parliament. The result is that the court cannot protect the citizen from a misapplication of the will of the House because our system of law is geared to the notion that it should pay no regard to what was said in the House. Even if every speaker in the House said, and was recorded as having said, that they wanted a particular section restricted in a certain way, the court could not have regard to anything which was said.
It follows that a very serious burden falls on the shoulders of my right hon. Friend to ensure that the will of the House—the intention of the House, as I have explained it—is respected. I have explained that in my opinion effect was not given to the will of the House in the Parker case. I am not blaming the 743 Revenue because the Revenue no doubt have great difficulty in interpreting this Section, but in my opinion the idea that anybody in the Parker type of case would be hit by the Section was far from the thought of any Chancellor and I suspect of my right hon Friend the Chief Secretary when he was on the Opposition Benches at that time. Most hon. Members passed the Clause on the assurance which was given by Lord Amory at the time as to what its general intention was. It is inevitable in our system that most hon. Members who pass such a Clause accept the gloss put upon it by Treasury Ministers because they themselves cannot understand it, but the unhappy contradiction of the system is that the courts cannot put any such gloss upon the words of the Section. Hon. Members have to rely on what is said from the Government Bench.
I very much hope that we shall put this matter right. I am not sure how much legislation is required and how much Government statement is required as to what the Revenue will do in such circumstances—because the Revenue are not obliged to bring these cases before the Commissioners for adjudication if they choose to operate it in another way. But the only satisfactory remedy is to amend the law. If there is not time and if the Government are not in a position to amend the law, then until we find time to pass a Taxation Act, on which we can consider all these matters closely in Committee, amelioration could result if the Government made a statement of their intention that the Clause should be operated only against what I describe as professional and complex tax avoidance and that it should not be aimed at circumstances such as the Parker case revealed. If my right hon. Friend is to see the kind of difficulties that beset ordinary taxpayers, he must look at this very case.
Until the House of Lords decided otherwise, every lawyer that I know had thought that the Court of Appeal decision, that the Parker type of transaction was not within the Section, was right. Unhappily, the House of Lords, which is always right, for the simple reason that there is no appeal from its decision—in his own way, the Chancellor is always right for the same reason—decided that this was wrong.
744 Imagine the difficulties that beset trustees, lawyers, custodians of other people's property when they are asked to advise. They might very well have advised in the way which the Court of Appeal decided unanimously. If they had done so, they might very well have ruined their clients.
To leave the law in this cloud of hazard and uncertainty is by no means in the interests of the Revenue. I ventured to pay a compliment to the Inland Revenue inspectors and staff, and appeared to cause some amusement in doing so. As I said then, they are unmatched in any other country in decency, integrity and zeal. It imposes an impossible burden on them when we throw the Parker type of case within sections like Section 28 and this Clause, which is an extension of that Section.
As long as he had read HANSARD and his notes from the Inland Revenue on the Court of Appeal decision, every tax inspector was hitherto able to say, "I do not need to look at share transactions to see whether they come within the Section 28 assessment"—unless they were blatantly of the kind which I have described as professional and complex tax-avoidance transactions.
In other words, he was able to leave 99 per cent. of the transactions that came to his notice from detailed surveillance, inspection and assessment. Once one brings in the Parker type of transaction, it follows that the Inland Revenue inspectors will have to look at almost every sale of shares and other securities, and this will impose a ludicrous burden on them. If there is the smallest possible ground for bringing the sale within the excessively wide provisions of the Clause, the inspector in question will be forced to make innumerable fruitless interrogatories to make quite sure that it does not come within them.
It is not to the advantage of the Inland Revenue to leave the Clause in its present state of wideness, hazard and uncertainty. A penal Clause of this kind may be very necessary, but it should be exceedingly clear and sharp so that innocent people are not hit by it.
I wish that a special effort were made, at any rate with our penal Clauses, to write them in English that can be understood by most of the people who will be 745 their victims. With the advantage of plain English, people would know what was coming to them. I do not know why it is always assumed that one cannot express oneself with exact legal effect in plain English. A man can woo his wife in plain English, marry her in plain English, quarrel dramatically, drastically and continuously with her in plain English, and divorce her in plain English, but we cannot have Statutes in plain English because it is thought that this would be too dangerous an experiment.
If it is too much to ask that all Sections of all our Statutes should be in English which the average lawyer can understand, we might at least have these penal Sections in language that could be clearly understood by everybody who might be affected by them, and by more hon. Members than at present.
When I was interrupted by the Chair, very properly, as being out of order, I was taking up the point of whether it is better to oppose the Clause or not to oppose it and make the Chancellor rely on retrospection. If the choice is between this sort of Clause, with the general incomprehensibility, vagueness, sense of danger and difficulty which it brings to ordinary business transactions, or retrospection, much as I dislike it, I go on record as saying that retrospection is to be preferred to this sort of Clause. I know that I shall have the sympathy of my right hon. Friend in this, because he has said that he intends to give effect to retrospection in given circumstances. That was regarded with horror in some quarters. I see far less mischief in accurate and careful retrospection than there is in a Clause of this kind.
I am not satisfied that either retrospection or this kind of Clause is necessary. Neither is desirable if it can be avoided. If we set up a different system for enacting our tax law and divorce it from the annual Budget debates, we shall keep our tax law effective and up to date without the necessity either for this general type of provision or retrospection. My reason for saying that is that not one of the tax avoidance devices aimed at by successive Statutes was not widely known to the Revenue well before the law which abolished it was brought into effect.
746 Every year there is a queue of proposed Amendments to the law which are simply squeezed out because we are busy dealing with the Purchase Tax on toothbrushes, the Selective Employment Tax and matters of that kind. But if we were to establish a proper and sensible system for enacting tax laws separate from the Budget, we should be able to give proper time to these matters, and the moment the Inland Revenue learned of a tax avoidance device it could be legislated out of existence. If the Government would bring into being some such reform in our taxation legislation, which is urgently needed, we might find that we could do without this sort of Clause and retrospection, neither of which is very attractive to hon. Members.
I am sorry that I have troubled the Committee at length, but this seems to me to be a most important matter. I hope that none of my hon. Friends or any hon. Member opposite will go away with the impression that this sort of Clause troubles only people who are engaged in tax avoidance. Nothing could be further from the truth. I can testify that many of the most naive and innocent people are the people who are really hit by this kind of Clause. Immense disturbance is caused to their businesses by this sort of Clause because they do not understand it. The professional tax avoider knows that he has nothing to lose, and he will chance his arm. The more innocent and naive people are, the greater is their anxiety and disturbance.
There is one small point which I should like my right hon. Gentleman to clear up. To my sorrow, I have not studied, as I intended to do, Schedule 12 to the 1965 Act. I should like an explanation as to why subsection (2) is required in Clause 37. No doubt my right hon. Friend will be good enough to enlighten me on that point.
§ Sir D. Glover
I support the theme running through the speech of the hon. Member for Manchester, Cheetham (Mr. Harold Lever), although I do not support what he said about retrospective legislation. I agree with him very strongly that this sort of legislation should be in language which ordinary people can understand. I speak very feelingly on this matter. Being a lawyer, the hon. Gentleman probably understands some 747 of the provisions in our legislation. On the other hand, I am sure that non-legal Members like myself have not the faintest idea what we are passing.
I should like to make a plea to the Chancellor of the Exchequer and my right hon. and hon. Friends on the Front Bench. While I abhor and oppose tax avoidance of the sort we are discussing, we must accept that we live with human beings. We have become hag ridden over tax avoidance in recent years, starting in about 1957 right down to the present Government. Human beings being what they are, there will always be some form of tax avoidance, whatever legislation the Government introduce. The real tax avoider will always find some way around it, and there will always be glaring cases, but if they are within the law then what we are now reaching is a stage where an enormous number of transactions are being inhibited because nobody really understands what is the law.
If we carry this thesis into the whole of our law making, then we shall reach an impossible situation. My flat was burgled last week and I have now put another lock on the door. If it is burgled again. I suppose I shall put locks on all the windows, and eventually I shall reach the impossible situation where I find I shall not be able to get into the flat myself. We are really getting to this state of affairs in the matter of tax avoidance. If we carried on in this way in the matter of ordinary crimes, we should make our whole life completely intolerable. We should find that nobody could leave their premises without dropping the portcullis, fixing steel bars in front of their windows, and generally making it impossible for anybody to get near the place.
We are becoming completely hag-ridden over this matter of tax avoidance, and I speak with some feeling. Because of a very strict upbringing, I suppose that if I found a sixpence in the street I should put it in the first poor-box that I came across, since to do otherwise would give me the strongest feeling of guilt.
§ Mr. Harold Lever
The hon. Gentleman should know that when he finds property of which he is not the owner he is breaking the law to dispose of it in the way in which he suggests.
§ Sir D. Glover
Then quite innocently I have been a criminal for years. I am sure that what I am trying to illustrate is exactly the position into which we are getting in the matter of tax avoidance.
We have to remember that so many things in human life are marginal. If the Treasury, no matter which party is in power, finds something is going on which is definitely against the public interest, then it is right that the Government should come to the House with an Amendment or a separate Bill to close it. At the same time, human nature being what it is, people will try to do something to make an honest or a dishonest penny within the law, or not pay tax if they can avoid it—again within the law—and it is very silly for this Committee not to take notice of human nature.
It is not right to pass a blanket piece of legislation, because we are not thereby stopping a crime. We are stopping the activities of people who are not certain they are committing a crime. We are making it very much more difficult for ordinary honest people to deal, for example, with the money in a trust fund; men of the highest probity, who are not certain what the law is and who will find they have committed some offence against some Statute they do not understand, and which no lawyer understands. We shall never get away from crime while human nature is human nature and human beings are human beings, but it is no part of our duty to pass legislation which is understood by nobody.
We have heard a brilliant speech about the intentions of the House in 1960. What I would say is that the lawyers seem to have taken a different view of what was at that time the view of this House. We in Parliament have a duty to put that right. We may have altered our views since 1960, but if this Committee still holds the same view about this that it held in 1960, and if the courts are now giving rulings which are against the intentions of the Committee and the House, then I think we in Parliament have a very definite responsibility and duty to bring back the law to what the intention of the Committee was when we passed that legislation.
It is not sufficient for the right hon. Gentleman to say he will have an inquiry into this. If in the courts decisions are being given which are contrary to 749 the intentions of the Committee when it passed the legislation, then this Committee and the House have the responsibility to put the law right, so that the intention of the Committee and the House without peradventure is carried out by the courts. It is not sufficient—I know the difficulties—for the Establishment, the Executive, to say, "This is so complicated that we shall never get anywhere with it, and therefore we will pass a blanket piece of legislation", because all they are saying to the great mass of the public is, "We do not know what the law about this is, and we are going to leave it to the courts".
The supreme court of this country is these Houses of Parliament and this Committee and this Chamber. It is not the Law Lords. The supreme law-giving body in this country, with respect to my hon. Friend who is trying to intervene again, is Parliament. It is not for the Law Lords to lay down for ever the law. It is Parliament which lays down the law. If the Law Lords misinterpret our intentions we have the responsibility to alter the law and make it accord with our intentions. That is the whole basis of Parliament. We are the sovereign body in this country, not a group of five judges or the Appeal Court or anybody else. If the courts give decisions which we in this Committee do not think are in line with what our intentions were when we passed the legislation we have the overwhelming responsibility to bring in amending legislation at the earliest possible moment to make certain the Law Lords do not go on misinterpreting our original intentions. It is not sufficient and it is very dangerous for this Committee to pass blanket legislation because we find it too difficult to deal with each individual case.
I disagree with the hon. Gentleman. I apologise: I called him my hon. Friend a moment ago. I will repeat that, because there are in these debates so many things he says with which I agree, and we have been old friends for many years. But I do not agree with him about the retrospective side, because in a very complicated matter we are saying to sub-stational, honest citizens that they may do something which this Committee will afterwards decide they should not have 750 done. I do not think it is right they should be put in that position.
§ Mr. Harold Lever
I was expressing something considerably less than enthusiasm for retrospective legislation. What I did say was that if the choice really is between wide, general Clauses of this kind, badly aimed, hazardous and uncertain, or retrospective legislation, accurate and clear, I would rely on the good sense and alertness of this Committee and the House to protect the public against the retrospective legislation, rather than have these wide, dangerous Clauses.
§ Sir D. Glover
I agree with everything my hon. Friend has said in his interjection, except that I say that we are dealing with human beings who make mistakes. Some may be deliberate, some may be accidental; but there is always a very thin dividing line between the law-keeper and the lawbreaker. Under those conditions, if it was within the law at the time it was done, Parliament should support the person who did it. If we do not agree with it we have an obligation to pass amending legislation to prevent his doing it in future, but we should not say that what an ordinary decent citizen did—which we disapprove of retrospectively—was illegal.
In any case, if one person gets away with a killing of £50,000 by tax avoidance, although that is dreadful when we consider his isolated case, and everybody shudders with horror when it happens, taken against the background of the great fabric of the nation, with its 52 million people, it is a bagatelle. The rule of law is far more precious than the fact that some person has made a killing of £50,000. The House can pass legislation to cover the loophole, but if no such particular legislation is passed it is wrong to pass blanket legislation, because that means that nobody knows what is right and what is wrong, or what was the intention of Parliament. When the House passes legislation it should do so with a clear intention.
I am not supporting law breakers or dividend strippers. To the best of my knowledge I have never stripped anything —[Laughter.]—including dividends. That only shows that after years in the House I am a man supremely lacking in initiative, never seizing the opportunity. That 751 happens to be true. The fact that there was laughter when I said it—and I knew laughter was going to come when I said it; it was not accidental—only shows that people can be misunderstood, and that people can misunderstand legislation. It is wrong for us to give the Executive blanket powers when we do not know what they involve, thereby making it more and more difficult for responsible citizens to carry out their ordinary affairs.
Admittedly this situation increases lawyers' fees, when nearly every legal transaction requires a lawyer to be consulted. But that is not the intention of Parliament. We do not seek to increase the remuneration of lawyers. The ordinary citizen has the right to expect Parliament to pass legislation which is understandable to him, so that he does not need to consult a silk before a quite normal transaction is carried out, and even then run the risk of hearing his counsel say, "The legislation passed in 1966 was so wide that I cannot advise you; I do not know whether it is legal or illegal".
Under those conditions it becomes almost impossible for people to carry out ordinary transactions. We should criticise any Executive, Labour or Conservative, which tries to take power into its hands whereby ordinary citizens and their advisers cannot have any reliable knowledge of what will be the view of the courts. That is what the Government are asking for here, and I hope that we shall vote against it.
§ Mr. William Baxter (West Stirlingshire)
I hesitate to add my voice to those which have been raised in connection with these matters, and I apologise for doing so at this late hour, although I should remind the Committee that I have refrained from entering into some of our other deliberations because I knew that we wanted to make progress. I am in agreement with almost all of what was said by the hon. Member for Ormskirk (Sir D. Glover), especially about retrospective legislation. I agree that it is very bad, and should be introduced only with very great reluctance.
I also agree with my hon. Friend the Member for Manchester, Cheetham (Mr. Harold Lever), who has done a great service to the Committee in adding his plea 752 —with his legal ability, knowledge and qualifications—that the law should be made understandable not only to the layman, such as the hon. Member for Ormskirk and myself, but to the lawyers and professional men.
I should like to draw attention to the fact that in the last month or two I have on numerous occasions sent letters to my right hon. Friend the Chancellor of the Exchequer and the Treasury, in each of which letter I have given the homily that the law should be compiled in such a way that most people can understand it. While it is true that we are anxious to get the best productivity from our people, we should also remember that the productivity of the professional classes is very important. More time has been wasted in the past year by professional people trying to understand the last Finance Act—and Finance Acts in previous years have been difficult enough to understand—that it must add up to a considerable amount of effort. If that effort had been put to good productive purposes, we probably would not have so much taxation in our Budgets. However, that is only an aside.
It is absolutely imperative that Members of Parliament, even lay Members like myself, should understand what the various provisions mean. It is a sad state of affairs when even the best lawyers in the land find great difficulty in giving a clear interpretation of the intent of Parliament on these important matters. I trust that this debate has done something to bring it forcibly home to whoever may be occupying the Government Front Bench in the future, be they Conservative, Labour or Liberal, for it behoves us all to ensure that the law is of such a nature that people can understand it. If we do not do that, it will get into a state of disrepute and we shall get into a considerable mess not only financially but law-wise.
My hon. Friend the Member for Cheetham has done a great service to the nation in drawing the attention of my right hon. Friend to the seriousness of this problem. As I have said, I have written to the Chancellor and to the Treasury about it. Many professional people have approached me because they have not understood the law as we Members of Parliament have sought to pass 753 it. I hope that this homily will be taken to heart.
§ Mr. Peyton
I am sure we are all much indebted to the hon. Member for Manchester, Cheetham (Mr. Harold Lever) for the support that he has given in this debate. Speaking as a rather extinct kind of lawyer, I lack the eloquence and the knowledge adequately to support the plea made by the hon. Member, but I hope that that plea has not fallen on deaf ears. The question that we have got to ask ourselves is whether it is right for Parliament to impose these imponderable patches of fog into the Statute Book and just hope that they are all right.
I do not want to detain the Committee long, but I should like to draw attention to one subsection of this Clause, subsection (4), which reads:So far as the paragraph (e) added to the said section 28 (2) by subsection (3) above relates to share capital other than redeemable share capital, it shall not apply unless and except to the extent that the share capital is repaid (in a winding-up or otherwise), and where the said section 28 applies to a person by virtue of the said paragraph (e) on the repayment of any share capital any assessment to tax under subsection (3) of the said section 28 shall be an assessment to tax for the year in which the share capital is repaid.Even the learning of the Solicitor-General will not be adequate to explain the intention of Parliament in letting that sort of rubbish go through. I defy anyone on the Government Front Bench to say what that subsection means, accurately and concisely. It is monstrous to impose on the courts the duty to construe this sort of thing. We are shirking our duty to say what we mean, and it is a monstrous injustice to ask the courts to turn this sort of unleavened nonsense into intelligible law.
I would remind the Committee of the distant episode of Roman history when the secession of a section of the people took place because the law was not clear. I cannot help feeling that if we go on imposing tax legislation of this kind a secession of some other people will be called for and will probably happen.
§ Mr. Patrick Jenkin
The debate has shown that deep issues of principle are involved in legislation of this kind. Many hon. Members have a basic dislike of legislation which is cast in not only an inscrutable form but in a form as sweep- 754 ing and pervasive and uncertain as this kind of legislation is. In view of the strong feelings expressed from both sides of the Committee, it is not right that we should let pass a Clause cast in this form without expressing our protest. I would therefore ask my right hon. and hon. Friend to divide against it.
§ Mr. Harold Lever
This is a Clause of some complexity. I asked a question about the need for subsection (2) and we ought to have some answer. I am sad to hear that it is the intention to divide the Committee on this matter. I thought that we had received an earnest assurance from my right hon. Friend that this would be considered. The Parker case is very recent. I ask hon. Gentlemen opposite, who have hitherto spoken in a non-party fashion, to reconsider whether it is wise, creative or desirable to produce a division on a Clause which, on their own showing, they do not understand.
§ Mr. Diamond
I understood the hon. Member for Wanstead and Woodford (Mr. Patrick Jenkin) to say that they would divide not against the meaning of the Clause but against its lack of comprehensibility.
My hon. Friend asked me the reason for subsection (2). The reason is that it is necessary to guard against a double setoff of franked investment income received by the company. There might be two kinds of set-off, the first against an assessment under Clause 37(1), and the second a further set-off by the company for the same income against its Schedule F liability for dividends paid out of other profits. The subsection is necessary to avoid the possibility of an offset being used twice.
The hon. Member for Yeovil (Mr. Peyton) asked what was the meaning of subsection (4). This is a much more straightforward subsection, providing that, where the consideration received consists of non-redeemable shares in the second company, Section 28 will apply only if those shares are repaid——
§ Mr. Peyton
The right hon. Gentleman has not answered the question put by my right hon. and learned Friend the Member for Chertsey (Sir L. Heald). If the 755 meaning is as simple as that, why not express it in those terms?
§ Mr. Diamond
I can only say that that is how I understand the Section. I have tried to put it in my own lay terms. As every lawyer knows, it would be wholly unsatisfactory for imprecise terminology to be used for definition in the courts.
As the hon. Member for Yeovil has been good enough to say that he understands what the subsection means, I hope that we may now be able to make a little progress.
§ Mr. Harold Lever
Just to establish on the record the will of the Government, may I take what my right hon. Friend has said to mean that it is not the intention by subsection (2) that, when an assessment is made, the Revenue will get more tax out of the transaction than if the transaction had not been engaged in?
If the company would have had a setoff against Income Tax by reason of the fact that, for example, it had franked investment income, is there any reason why that benefit should not accrue to the shareholder who is being surtaxed on the income as a result of the operation of Section 28 and Clause 37?
Can I have an assurance from my right hon. Friend that the purport of the subsection cannot result in a gain to the Revenue by upsetting the transaction, other than by frustrating the tax avoidance?
§ Mr. Diamond
I can most readily answer my hon. Friend by drawing his attention to the fact that the subsection is permissive. In appropriate cases, it will be possible to allow a set-off against the assessments on the shareholders; provided always that the Revenue can be safeguarded in a subsequent claim to set off the same income against dividends paid.
§ Mr. Harold Lever
I am sorry to press the point. What I am asking my right hon. Friend is, can we have an explicit assurance that the subsection will not be operated so as to cause an accrual to the Revenue of Income Tax which could not have accrued except by the operation of the subsection against an avoidance transaction?
§ Mr. Diamond rose ——
§ Mr. Harold Lever
If my right hon. Friend wants to give an express assurance on the matter, I will sit down at once.
§ Mr. Diamond
I do not want to give an express assurance in my hon. Friend's words, but in my own. I can give an express assurance that the subsection is intended to counteract a tax advantage, and no more.
§ Sir D. Glover
The hon. Member for Manchester, Cheetham (Mr. Harold Lever), if he would listen for a moment, has criticised the fact that my right hon. and hon. Friends intend to divide the Committee. Speaking for myself, I am going into the Division Lobby tonight not as a Conservative but as a Member of the House of Commons. This is not a party matter, but a matter where the Committee has the right to insist that the Executive do not ask for this kind of blanket legislation.
§ Mr. Harold Lever
May I give the hon. Member for Ormskirk (Sir D. Glover) and his right hon. and hon. Friends this warning? If they intend to vote against every Clause which they do not understand, there is going to be precious little legislation got through the House.
§ Question put, That the Clause, as amended, stand part of the Bill:—
§ The Committee divided: Ayes 184, Noes 105.759
|Division No. 51.]||AYES||[11.59 p.m.|
|Abse, Leo||Bennett, James (C'gow, Bridgeton)||Brown, R. W. (Shoreditch & F'bury)|
|Albu, Austen||Binns, John||Buchan, Norman|
|Allaun, Frank (Salford, E.)||Blenkinsop, Arthur||Buchanan, Richard (C'gow, Sp'burn)|
|Alldritt, Walter||Boardman, H.||Callaghan, Rt. Hn. James|
|Anderson, Donald||Booth, Albert||Cant, R. B.|
|Archer, Peter||Boyden, James||Carmichael, Neil|
|Armstrong, Ernest||Bradley, Tom||Coleman, Donald|
|Atkins, Ronald (Preston, N.)||Brooks, Edwin||Conlan, Bernard|
|Baxter, William||Brown, Rt. Hn. George (Belper)||Crawshaw, Richard|
|Beaney, Alan||Brown, Hugh D. (G'gow, Provan)||Cullen, Mrs. Alice|
|Benn, Rt. Hn. Anthony Wedgwood||Brown, Bob (N'c'tle-upon-Tyne, W.)||Dalyell, Tarn|
|Davidson, Arthur (Accrington)||Howell, Denis (Small Heath)||Newens, Stan|
|Davidson, James (Aberdeenshire, W.)||Howie, W.||Noel-Baker, Francis (Swindon)|
|Davies, G. Elfed (Rhondda, E.)||Hughes, Hector (Aberdeen, N.)||Oakes, Gordon|
|Davies, Harold (Leek)||Hughes, Roy (Newport)||Ogden, Eric|
|Daviee, Ifor (Gower)||Hunter, Adam||Oram, Albert E.|
|de Freitas, Sir Geoffrey||Jackson, Colin (B'h'se & Spenb'gh)||Orbach, Maurice|
|Dell, Edmund||Jay, Rt. Hn. Douglas||Orme, Stanley|
|Dempsey, James||Jeger, George (Coole)||Oswald, Thomas|
|Dewar, Donald||Jeger, Mrs. Lena (H'b'n&St. P'cras, S.)||Page, Derek (King's Lynn)|
|Diamond, Rt Hn. John||Jenkins, Hugh (Putney)||Pardoe, J.|
|Dickens, James||Johnson, Carol (Lewisham, S.)||Park, Trevor|
|Doig, Peter||Johnston, Russell (Inverness)||Parkyn, Brian (Bedford)|
|Donnelly, Desmond||Jones, Dan (Burnley)||Pavitt, Laurence|
|Dunnett, Jack||Jones, Rt. Hn. Sir Elwyn (W. Ham, S.)||Perry, George H. (Nottingham, S.)|
|Dunwoody, Mrs. Gwyneth (Exeter)||Judd, Frank||Price, Christopher (Perry Barr)|
|Dunwoody, Dr. John (F'th C'b'c)||Kelley, Richard||Price, William (Rugby)|
|Eadie, Alex||Kenyon, Clifford||Redhead, Edward|
|Edwards, Robert (Bilston)||Kerr, Mrs. Anne (R'ter & Chatham)||Rhodes, Geoffrey|
|Edwards, William (Merioneth)||Kerr, Russell (Feltham)||Roberts, Gwilym (Bedfordshire, S.)|
|English, Michael||Lawson, George||Rose, Paul|
|Ennals, David||Leadbitter, Ted||Rowlands, E. (Cardiff, N.)|
|Evans, Ioan L. (Birm'h'm, Yardley)||Ledger, Ron||Shaw, Arnold (Ilford, S.)|
|Faulds, Andrew||Lee, Rt. Hn. Jennie (Cannock)||Sheldon, Robert|
|Fletcher, Ted (Darlington)||Lestor, Miss Joan||Shore, Peter (Stepney)|
|Foot, Michael (Ebbw Vale)||Lever, Harold (Cheetham)||Short, Rt. Hn. Edward (N'c'tle-u-Tyne)|
|Forrester, John||Lever, L. M. (Ardwlck)||Short, Mrs. Renée (W'hampton, N. E.)|
|Fowler, Gerry||Lewis, Arthur (W. Ham, N.)||Silkin, John (Deptford)|
|Fraser, Rt. Hn. Tom (Hamilton)||Lewis, Ron (Carlisle)||Silkin, S. C. (Dulwich)|
|Freeson, Reginald||Lomas, Kenneth||Silverman, Julius (Aston)|
|Gardner, A. J.||Lubbock, Eric||Steele, Thomas (Dunbartonshire, W.)|
|Garrett, W. E.||Lyon, Alexander W. (York)||Stonehouse, John|
|Ginsburg, David||Lyons, Edward (Bradford, E.)||Summerskill, Hn. Dr. Shirley|
|Gourlay, Harry||MacDermot, Niall||Urwin, T. W.|
|Gray, Dr. Hugh||Macdonald, A. H.||Varley, Eric G.|
|Gregory, Arnold||McGuire, Michael||Wainwright, Edwin (Dearne Valley)|
|Grey, Charles||Mackenzie, Alasdair (Ross&Crom'ty)||Walden, Brian (All Saints)|
|Griffiths, David (Rother Valley)||Mackenzie, Gregor (Rutherglen)||Walker, Harold (Doncaster)|
|Griffiths, Will (Exchange)||Mackie, John||Watkins, David (Consett)|
|Grimond, Rt. Hn. J.||Mackintosh, John P.||Wellbeloved, James|
|Hale, Leslie (Oldham, W.)||Maclennan, Robert||Wells, William (Walsall, N.)|
|Hamilton, William (Fife, W.)||MacMillan, Malcolm (Western Isles)||Whitaker, Ron|
|Hazell, Bert||McMillan, Tom (Glasgow, C.)||Whitlock, William|
|Heffer, Eric S.||McNamara, J. Kevin||Williams, Alan (Swansea, W)|
|Henig, Stanley||Mahon, Peter (Preston, S.)||Williams, Alan Lee (Hornchurch)|
|Herbison, Rt. Hn. Margaret||Mahon, Simon (Bootle)||Williams, Mrs. Shirley (Hitchin)|
|Hobden, Dennis (Brighton, K'town)||Manuel, Archie||Wilson, William (Coventry, S.)|
|Hooley, Frank||Mapp, Charles||Winstaley, Dr. M. P.|
|Hooson, Emlyn||Miller, Dr. M. S.||Woodburn, Rt. Hn. A.|
|Horner, John||Morgan, Elystan (Cardiganshire)||Woof, Robert|
|Howarth, Harry (Wellingborough)||Morris, Charles R. (Openshaw)||TELLERS FOR THE AYES:|
|Howarth, Robert (Bolton, E.)||Neal, Harold||Mr. McCann and Mr. Alan Fitch.|
|Allason, James (Hemel Hempstead)||Gresham Cooke, R.||Maginnis, John E.|
|Awdry, Daniel||Grieve, Percy||Maxwell-Hyslop, R. J.|
|Baker, W. H. K.||Hall, John (Wycombe)||Maydon, Lt.-Cmdr. S. L. C.|
|Batsford, Brian||Hall-Davis, A. G. F.||Mills, Peter (Torrington)|
|Bell, Ronald||Heald, Rt. Hn. Sir Lionel||Mitchell, David (Basingstoke)|
|Biggs-Davison, John||Heseltine, Michael||Monro, Hector|
|Birch, Rt. Hn. Nigel||Higgins, Terence L.||More, Jasper|
|Bossom, Sir Clive||Hiley, Joseph||Morrison, Charles (Devizes)|
|Bryan, Paul||Hill, J. E. B.||Munro-Lucas-Tooth, Sir Hugh|
|Buchanan-Smith, Alick (Angus, N&M)||Hirst, Geoffrey||Neave, Airey|
|Buck, Antony (Colchester)||Hobson, Rt. Hn. Sir John||Nicholis, Sir Harmar|
|Carlisle, Mark||Holland, Philip||Page, Graham (Crosby)|
|Clark, Henry||Hordern, Peter||Pearson, Sir Frank (Clitheroe)|
|Clegg, Walter||Hornby, Richard||Peel, John|
|Cooke, Robert||Howell, David (Guildford)||Percival, Ian|
|Cooper-Key, Sir Neill||Hunt, John||Pike, Miss Mervyn|
|Dalkeith, Earl of||Hutchison, Michael Clark||Pink, R. Bonner|
|Deedes, Rt. Hn. W. F. (Ashford)||Jenkin, Patrick (Woodford)||Pounder, Rafton|
|Digby, Simon Wingfield||Jopling, Michael||Powell, Rt. Hn. J. Enoch|
|Doughty, Charles||Kaberry, Sir Donald||Pym, Francis|
|Eden, Sir John||King, Evelyn (Dorset, S.)||Renton, Rt. Hn. Sir David|
|Elliot, Capt. Walter (Carshalton)||Kitson, Timothy||Ridsdale, Julian|
|Elliott, R. W. (N'c'tle-upon-Tyne, N.)|
|Farr, John||Knight, Mrs. Jill||Rossi, Hugh (Hornsey)|
|Fortescue, Tim||Langford-Holt, Sir John||Scott, Nicholas|
|Giles, Rear-Adm, Morgan||Lloyd, Rt.Hn. Geoffrey (Su'nC'dfield)||Sharples, Richard|
|Gilmour, Sir John (Fife, E.)||Macleod, Rt. Hn. Iain||Shaw, Michael (Sc'b'gh & Whitby)|
|Glover, Sir Douglas||McMaster, Stanley||Sinclair, Sir George|
|Gower, Raymond||Macmillan, Maurice (Farnham)||Smith, John|
|Grant, Anthony||Maddan, Martin||Stodart, Anthony|
|Summers, Sir Spencer||Walker, Peter (Worcester)||Wilson, Geoffrey (Truro)|
|Taylor, Frank (Moss Side)||Walker-Smith, Rt. Hn. Sir Derek||Woodnutt, Mark|
|Thatcher, Mrs. Margaret||Wall, Patrick||Worsley, Marcus|
|Tilney, John||Weatherill, Bernard|
|Turton, Rt. Hn. R. H.||Webster, David||TELLERS FOR THE NOES:|
|van Straubenzee, W. R.||Wells, John (Maidstone)||Mr. George Younger|
|Vickers, Dame Joan||Whitelaw, William||and Mr. Reginald Eyre.|