HC Deb 11 July 1978 vol 953 cc1354-77

'(1) In section 258 of the Taxes Act (group relief)— (a) after subsection (2)(a) there shall be inserted— (aa) where the surrendering company is a member of a consortium and the claimant company is a trading company which is owned by the consortium and which is not a 75 per cent. subsidiary of any company"; (b) after subsection (2)(b) there shall be inserted— (bb) where the surrendering company is a member of a consortium and the claimant company is a trading company—

  1. (i) which is a 90 per cent. subsidiary of a holding company which is owned by the consortium, and
  2. (ii) which is not a 75 per cent. subsidiary of a company other than the holding company";
(c) After subsection (2)(c) there shall be inserted— (cc) where the surrendering company is a member of a consortium and the claimant company is a holding company which is owned by the consortium and which is not a 75 per cent. subsidiary of any company".

(2) In consequence of subsection (1) above, the Taxes Act shall be amended as follows— (a) at the end of the proviso to subsection (2) of section 258 (group relief) there shall be added the words "and provided that no claim may be made by a company which is owned by a consortium or which is a 90 per cent. subsidiary of a holding company owned by a consortium either if a profit on a sale of the share capital of the claimant or holding company which is owned by the surrendering company would be treated as a trading receipt of that company or if the surrendering company's share in the consortium in the relevant accounting period of the claimant or holding company is nil"; (b) in section 259 of the Taxes Act (kinds of group relief) after subsection (8) there shall be inserted— (9) In applying any of the preceding subsections in the case of a claim by a company which is owned by a consortium or by a company which is a 90 per cent. subsidiary of a holding company owned by a consortium where the surrendering company is a member of the consortium, the loss referred to in subsection (1) above or the excess referred to in subsection (2) or (3) or (6) above, as the case may be may be set off against only a fraction of the total profits of the claimant company, and that fraction shall be equal to the surrendering company's share in the consortium, subject to any further reduction under section 261(2) below."; (c) in subsection (5) of section 263 (exclusion of double allowances etc.) after the words "as respects a claim for group relief made by a company as a member of a consortium" there shall be added the words "or as a company owned, or a 90 per cent, subsidiary of a holding company owned, by a consortium"; (d) in subsection (2) of section 264 (claims and adjustments) after the words "a claim for group relief by a company as a member of a consortium" there shall be added the words "or as a company owned, or a 90 per cent. subsidiary of a holding company owned, by a consortium".

(3) In consequence of subsection (1) above the Finance Act 1973 shall be amended as follows—

  1. (a) in subsection (3) of section 28 (group relief: qualifications for entitlement) after the words "surrendering company" where those words first occur there shall be inserted the words "in the case of a claim for group relief made by a company as a member of a consortium, or the claimant company in the case of a claim for group relief made by a company owned, or a 90 per cent. subsidiary of a holding company owned, by a consortium" and in each of paragraphs (a), (b) and (c) there shall be inserted after the words "surrendering company" the words "or claimant company, as the case may be.";
  2. (b) at the end of subsection (4) of section 28 there shall be added the words "and in any case where the claimant company is a subsidiary of a holding company which is owned by a consortium, for references in subsection (3) above to the claimant company there shall be substituted references to the holding company';
  3. (c) in subsection (2) of section 29 (group relief: effect of arrangements for transfer of company to another group, etc.)—
    1. (i) in paragraph (a) after the words "the trading company" there shall be inserted the words "or a member of the consortium" and
    2. (ii) for the words "(as the surrendering company) fall" onwards there shall be 1356 substituted the words "fall within any of paragraphs (a) to (cc) of subsection (2) of section 258 of the Taxes Act (the cases where group relief is allowed for a consortium)".

(4) This section applies to accounting periods ending after 11th April.'.—[Mr. Cope.]

Brought up, and read the First time.

Mr. Cope

I beg to move, That the clause be read a Second time.

This new clause proposes to introduce a consortium group relief. It is one which was introduced in Committee in much the same form and which led to a tied vote when it was debated on 27th June. On that occasion there were 15 votes in each direction, hence the reappearance of the same new clause on Report.

I think that it is well understood by those hon. Members who served on the Committee, but perhaps for the benefit of those who did not I should explain briefly what it is about. It emanates primarily from the shipping industry, although it does not apply only to it. The fact is that at present group relief can operate only between members of a group where there is a 75 per cent. relationship in the shareholding of the group. When it does operate, losses can be surrendered in any direction. That is to say, if a parent or subsidiary company makes a loss, whereas the others in the group make a profit, the tax which those profitable companies would make is reduced by the amount of tax which is allowed for the losses made by the other companies in the group.

But in the case of a consortium this relief does not apply. In some cases the shipping industry uses the consortium form of organisation, and one particularly well-known example—Overseas Containers Ltd.—is mentioned in connection with this new clause. That is also the prime reason for the new clause being put forward, because it is a particularly hard case as things stand at present.

When we discussed this matter in Committee, the Minister of State, Treasury, undertook that the Government would in due course look at this, but he did not give any undertaking as to what would happen. He emphasised the difficulties and said that they would look at it in the course of the next year in what the Committee took to be a rather relaxed and not very positive fashion. At the time it seemed to me, and to some of my hon. Friends, that the principal criterion to be adopted in looking at this was whether only this one company was affected or whether a large number of companies were affected. It seemed to me then, and still does now, that even if only one company is affected that in a sense emphasises the need to introduce this new clause, because it means that it is even more of a hard case than if a large number of companies were in the same position.

Of course, if in the interval since 27th June the Treasury has discovered that a large number of companies are affected, that strengthens the argument for this provision. I accept that the interval between 27th June and now is not a very long interval. But that is not our fault. The Government have been determined to push this Bill along. That is part of the reason, but another part of the reason is the quirk of parliamentary procedure which dictates that new clauses should be taken last in Committee and first on Report. This inevitably increases the gap where two new clauses are involved by comparison with two amendments. Nevertheless, this is not a complicated matter, although the new clause appears to be complicated. I hope that we shall hear something a little more positive from the Financial Secretary—

Mr. Cronin

As the new clause seems to affect entirely Overseas Containers Limited, will the hon. Gentleman be a little more specific, for the benefit of those hon. Members who did not serve in the Committee, and say exactly what the grievance is in regard to this company?

Mr. Cope

I apologise if I did not explain it adequately. Let us suppose that there are two companies in a group. If one makes a loss and the other makes a profit, the two are looked at together in order to arrive at the taxation liability. In the case of a consortium, and Overseas Container Limited is one example. although there may be others, if one company makes a loss and the other makes a profit they are looked at separately and tax is payable, even though there may he a big loss. Overseas Containers Limited has been profitable and its parents have not always been profitable. But in other cases the reverse might apply. The difficulty of the tax law as it stands at present is that the losses cannot be offset against the profits in the other parts of what is to all intents and purposes a group, except that it is organised in a consortium.

It is true that there may be a way out in terms of adjusting the organisation of a consortium which is affected in this way by turning it into a partnership or something such as that. But that has other consequences as well. The argument which we put forward in Committee not only on this new clause but on others as well was that the tax law of itself should as far as possible not force people to set up their businesses in one way or another in order to minimise their tax liability.

To put it the other way round, there should be no accidental tax penalty because a business is organised in one way instead of another. Businesses should be free to take the decision about which way they organise their affairs, and which way they set up their groups, as may be best for their own commercial success. Of course, shipping companies in particular at present operate in very difficult world markets, and the last thing they need is to have behind them ail kinds of tax complications which hobble them in the way in which they can set up their structures. This is another important point which underlies the new clause.

Therefore, I commend the clause to the House, and I hope that it will commend itself to the Government.

Mr. Graham Page (Crosby)

There seems to be an injustice here between those who set up a consortium and those who merely come together in simple groups.

We have been discussing the example of the shipping companies because this is perhaps the largest case of which we know at present and, indeed, the most successful. A consortium occurs when a number of companies, which I call the parent companies, give birth to a trading company, the consortium company, the share capital in which is owned by the parent companies but none of them owning more than 75 per cent. of the consortium company.

If there is a loss by the consortium company, that can be transferred to the parent companies. That was very satisfactory when the consortium started. The shipping companies in the one which we are considering thought that perhaps the consortium might not be as successful as it has been, and the transfer of losses from the consortium to the parent companies was a reasonable method of grouping their trading.

What has happened, however, is that the consortium has been extremely successful in its container traffic, whereas the business of the parent companies has dropped off. I do not say that there is failure or anything of that sort, but general shipping for the ordinary liner company is not as good as it was when the consortium was formed.

This is of special concern in my constituency, where we have the biggest container dock in the country—the Royal Seaforth—which is proving a great success. But it would not have proved such a success, I believe, had the companies had to rely on mere grouping. In grouping, they can pass the losses one way and another without restriction. There is no question of not passing them from one company to another. They can go either way amongst the companies in the group. But the disadvantage of mere group trading is that there is not one firm company like the consortium company with sufficient resources in itself to carry on such a substantial trade and, of course, the container traffic trade is capital intensive. It has had to be to get the container traffic going.

I cannot see that there can be an opportunity here for tax avoidance. The clause is merely recognising the movement of losses between companies which are trading very closely together. It is a recognised practice where they are merely joining in groups and carrying on group trading, and there seems no reason why that practice should not be recognised when the form of grouping is by means of a consortium in which the parent companies own the shares but none more than 75 per cent.

There is in the clause a provision to prevent tax avoidance by the fact that the movement of losses can be only the amount of the interest of the parent companies in the consortium. I think that that is a complete protection against a flood of tax avoidance.

If this consortium practice spreads amongst other trading, nothing but benefit can come of it. It is used outside the shipping world at present, but not to the extent that it is in the shipping world. If the clause is accepted, it may be that it will be of advantage to other traders to form consortia of this kind. There will be no loss to the Revenue over it, but there will be justice between the consortium system and the simple group.

I hope that the House will accept the clause.

8.15 p.m.

Mr. Pardoe

The clause is identical to one which I moved in Committee. The fact that my name is not appended to it does not mean that I do not support it now. It is merely because there are six names there already, and there is no room for a seventh. I support the clause fully, and I think that the arguments for it which were put forward in Committee and those which have been adduced today are unanswerable.

The main question which the Government have to answer is whether they want consortia to be formed and whether they believe that it is a reasonable way of conducting business. Certainly I do. Do they want to force consortia which now exist into forming partnerships or groups for the sole reason not of business efficiency or of winning more world trade but simply that they have to take advantage of existing tax provisions? That is the nub of the issue.

If the consortium which we are discussing—and as far as I know there is only one—were to form itself into a partnership, it would have certain business consequences which might not be good for the future of British shipping. However, it may be forced to do so unless some such clause as this is put into the Bill.

In Committee, we had a sort of half-undertaking from the Government to look at the clause again and possibly to try to meet the arguments in support of it next year. As I remember it, the Government said that the concession which this clause sought for consortia was greater than the allowances given to groups. That was never my intention in moving the clause. Therefore, we suggested to the Government that they should come back on Report with their own amendment to solve the problem. The Government have had to time to do that, and I hope that we shall hear a rather more forthcoming response to the clause on this occasion than we had in Committee.

Mr. Eric Ogden (Liverpool, West Derby)

The arguments of the hon. Member for Gloucestershire, South (Mr. Cope), the right hon. Member for Crosby (Mr. Page) and the hon. Member for Cornwall, North (Mr. Pardoe) have followed each other and, as I understand them, have extended the case in support of the clause.

The hon. Member for Gloucestershire, South concentrated almost exclusively on the shipping interests. When he used those three magic letters "OCL"—the successor to a shipping company to which I once belonged, the Blue Funnel Line of Liverpool, which will be familiar to the right hon. Member for Crosby—he did a great deal more to persuade me to support his clause than his long and complicated argument did.

Then the right hon. Member for Crosby said that the clause was not only about shipping. He said that it was about consortia and trading companies and that perhaps it should be carried into other spheres of activity. Finally, the hon. Member for Cornwall, North said that of course it should be carried into other spheres of activity.

The case seems to have been developed, not only as an argument for shipping, and not only as an argument for shipping and possibly for other activities, but finally, most certainly, for other activities.

I am wholly in favour of trying to help shipping companies in this legislation. I am not certain at this stage how far that ought to go into other activities.

Mr. Brooke

The argument deployed by my hon. Friend the Member for Gloucestershire, South (Mr. Cope) and supported by my right hon. Friend the Member for Crosby (Mr. Page) and the hon. Member for Cornwall, North (Mr. Pardoe) arose because the case for rejecting the new clause in Committee was that it applied only to shipping. Today, I think that we have tried to demonstrate that the case can go beyond shipping even though shipping was the example which my hon. Friend the Member for Gloucestershire, South urged most strongly.

Mr. Ogden

That is helpful, yet unhelpful. If I could be persuaded to support a limited degree of help for shipping, I might not want to be open then to helping many other industries which did not need it so much. If I am told that there is a case for shipping, and if we can find the right form of words to help shipping but at the same time ensuring that until the following case is proved it is for shipping only, I shall be inclined to support the clause.

Mr. Cope

I am sorry if any impression which I gave damages the hon. Member's support for the clause. I am sorry if the impression gained by the hon. Member was that I intended the new clause to apply only to shipping or to OCL. That was the example given in Committee, and I adopted that example because it was a very good one. But I do not propose this clause purely as a means of helping one company or the shipping industry as a whole. The case for the clause is a wider one than that and, if the shipping industry is in need of assistance, I should prefer it not to get assistance in this backhanded way through the tax system. I should prefer it to be done in a more direct way. However, that is another matter.

Mr. Ogden

But the only alternative to us tonight is this way by this amendment. It is that or nothing. Shipping needs help and if the Minister possibly can I hope that he will find himself able to help it in this way.

Mr. Ian Stewart

I do not want to repeat the points that have been made already, but we should be aware of the nature of this problem.

It is true that in the debates upstairs in Committee one of the points that the Government made for not accepting our new clause was that only one case—that of OCL—had come to the notice of the Inland Revenue. I am advised that OCL is only one example of the need for a change in the law. I believe that there are at least four other consortia in the shipping industry in the United Kingdom. These encompass the entire range of the British liner fleet which is the largest and most competitive in the world. Therefore, this is of enormous importance to our economy and to us as a trading nation.

The point of the new clause is, as my hon. Friend the Member for Gloucestershire, South (Mr. Cope) said, that of principle rather than actual cases. I believe that the CBI has also pressed this matter on a number of occasions during the past few years because it believes that the problem could apply to other industries such as oil and nuclear power. For that reason, I believe that the Government should firm up their willingness to show sympathy for this case.

Why does a consortium of this kind come about? Probably because there have been major changes in technology and scale in the industries concerned. This makes it necessary for more than one and possibly several of the major operators in a particular field to combine their resources, experience, skills and financial backing to launch a considerable innovation. For example, the whole business of container shipping was a development from the old liner and freight operations.

Since it is becoming more widely recognised that there is this major disadvantage to setting up consortia on this basis, it is probable that others will not come about in other industries. Consortia came about in shipping which has had a bad time, and therefore many of the parent companies have suffered losses which cannot be relieved by the profits of their common consortium.

If there are other major changes in industries such as heavy engineering, motor cars, oil and nuclear power there could be examples of older technologies finding it more and more difficult to make profits but still having the resources to pool for a major step forward. This would be important for the economy as a whole. If this problem over taxation of consortia continues it will be a deterrent to this happening. The only other possibility would be an amalgamation of all the companies concerned which would inevitably mean a concentration of vast and sometimes disparate interests, for other purposes.

This case is very critical for OCL. Up to now the problem affects only shipping and so the effect of the clause would be concentrated on shipping. However, it would be wrong to deceive ourselves that it could not be of wider application. It is hard to measure the deterrent effect of a piece of legislation which put a certain course of action out of court. Once it is noticed in industry that there are major tax disadvantages in a certain way forward, it is hardly surprising if other exemples do not come about. The limited application of the clause at the moment should not blind us to other possibilities in the future.

Mr. Cronin

The hon. Member for Gloucestershire, South (Mr. Cope) moved the new clause most lucidly. I hope that he did not think that my intervention meant anything to the contrary.

I am a little concerned about the new clause, and I hope that the Financial Secretary will explain its effects. Generally, corporations seem to have rather favourable taxation treatment. Certainly on this side of the House we should look with some doubt at giving corporations further tax advantages.

The problem of consortia could be overcome by using a different method altogether—a different form of capital structure, by amalgamation. It is not necessary to have this favourable treatment. I am particularly worried that it seems to open the door to all kinds of companies to obtain tax advantages in future by using the mechanism of consortia. That would be eroding the Revenue's receipts to a substantial extent.

If a company which is in a consortium is successful and the parent company is unsuccessful, there is no reason, either economically or in the national interest, why the parent company should be, in effect, subsidised by the Revenue. Although I would not go so far as to say that I object to the new clause, or indeed to anything that helps British shipping, I believe that OCL is a deserving case and a good example of a consortium. However, I am concerned whether this provision will be an open door to all kinds of taxation abuse.

Will the Minister consider whether these provisions should apply only to shipping and to nothing else? Nobody has yet put forward any argument for this mechanism to be used for anything other than shipping.

8.30 p.m.

Mr. Arthur Blenkinsop (South Shields)

I intervene only briefly, and I apologise to the House for coming in late.

In common with other hon. Members with shipping interests in their constituencies, I have had various representations on this subject. I do not wish to say that all hon. Members have been wholly convinced by the arguments advanced, but I believe that strong sympathy has been expressed in the present situation. Those affected argue that by reconstituting themselves as a partnership these benefits could be obtained in any case. Clearly, there are great disadvantages for such firms in taking this action on one side, and that has to be weighed against the loss suffered in tax terms. It would be serious if a less satisfactory way of conducting business was in a sense forced upon them against their wish and against their natural trading desire, if that could reasonably be avoided.

On the other hand, I appreciate that we are dealing with considerable sums of money, and no doubt there will be implications in other areas. I emphasise that there is real concern on this matter and that everybody is anxious to find a satisfactory solution.

Mr. Brooke

In responding to the remarks of the hon. Member for Loughborough (Mr. Cronin), I believe that there is a problem involving organisation. It is desirable that a company's organisation should mirror the objectives of the organisations that participate in it. The hon. Member for South Shields (Mr. Blenkinsop) said that there would be offsetting disadvantages in moving to a partnership basis. I agree with him that there are disadvantages and obviously considerable expense would result.

It seems ironical that we should be making consortium arrangements unattractive at exactly the moment when in the Middle East we have seen how relevant consortium arrangements are in carrying out business in that area. Although the examples of consortia quoted in the shipping world may be composed of British companies, there will be other circumstances in which British companies may participate in a consortium consisting of companies of mixed nationalities. It would be a pity if British companies were put at a disadvantage in entering that kind of arrangement because that participant suffered from different tax arrangements compared with the other participants.

Mr. David Hunt (Wirral)

I apologise for the fact that I was not in the Chamber to hear the start of the debate, but wish to make what I believe to be a few important points about a crucial new clause so far as it affects shipping.

The anomaly created by the existing law is quite easily overcome by this clause in a most harmless way. At present the business of liner shipping is facing a number of important and strategic obstacles which are making life extremely difficult.

In an earlier debate on shipping we had a lengthy exposition of the Russian threat as it affects liner shipping. The Minister in that debate said that firm action was now being taken to protect British shipping and in particular the liner trades. Unless this clause is passed, one of the country's major liner shipping groups, OCL, will be in a most difficult position. If the new clause is defeated. OCL will be forced to take certain steps that will be detrimental to that company. If it is necessary for OCL to become a partnership, as already mentioned, then it would not, as it does now, own its ships or have independent control of its own finances and policies.

In the shipping industry the consortium is a vital form of organisation because it enables companies to come together with a wide variety of interests to mount a joint operation in a particular trade or trades. Yet at the same time it allows the parent companies to maintain their separate identities. When a shipping operation is beyond the resources of a single company, the consortium arrangement can provide the capital investment on the scale required. This is where Overseas Containers Limited is so important. The company was formed in the late 1960s and suddenly now finds itself in this difficult position wholly as a result of an absurd anomaly that the new clause seeks to put right.

I do not want the House to underestimate the importance of the new clause to the liner industry and to shipping generally. Let me repeat the facts. OCL operates a fleet of 15 cellular container ships on trade routes linking the United Kingdom and Europe with Australia, New Zealand, the Far East and southern Africa. The fleet and its associated terminals ashore represent an investment of nearly £500 million. In fact, OCL is the largest British liner company and probably the largest ocean liner group in the world. Last year it delivered more than 250,000 containers and earned nearly £300 million in freights. It represents about 10 per cent. of the entire British fleet and 25 per cent. of the British liner fleet.

This great company deserves support and should not have its valuable activities damaged by an anomaly that the clause seeks to put right. The proposal would be of great benefit to an important part of the shipping industry in maintaining its ability to cope with some very harsh trading conditions.

The industry has pointed out that if the consortium group relief provisions are not altered some companies may be forced into making the arrangements to which I have referred, which would make their position more difficult and would do what this clause seeks to do in a simpler and more just way. For those reasons, I hope that the House will accept the new clause.

Mr. Robert Sheldon

My hon. Friends the Members for South Shields (Mr. Blenkinsop) and for Liverpool, West Derby (Mr. Ogden) were concerned about the possible effect of the new clause on the shipping industry. My hon. Friend the Member for West Derby asked whether the clause would be confined to shipping. The subsequent debate has answered that question. The arrangements for tax relief for consortia would be widened as a result of the new clause and would apply generally. Shipping is the example selected because of a case in which a number of hon. Members have been taking an interest.

My hon. Friend the Member for Loughborough (Mr. Cronin) pointed out some of the problems that might arise if consortia were to become more popular in the way that a number of Conservative Members, particularly the hon. Member for Hitchin (Mr. Stewart), suggested. The hon. Member for Cornwall, North (Mr. Pardoe) asked the direct question whether it was the Government's intention to force consortia into partnerships or groups by means of tax law. I can tell him that that is not the Government's intention.

I shall make clear where the Government stand on the new clause and in relation to consortia generally, but I shall start by referring to groups and their relationships to consortia so that we may see the two in relation to each other.

Group relief was brought in as a result of considerable pressure. I applied part of it myself in the 1960s because I felt that it was right that groups should be treated for many purposes as single companies. The hon. Member for Gloucestershire, South (Mr. Cope) pointed out that groups may spread relief both tip-wards and downwards. That is quite proper because, to all intents and purposes, their structures are similar to those of single companies operating by means of divisional structure.

Consortia are quite different from groups. They are allowed a certain kind of relief because of the underlying purposes of setting up consortia. In the early years of a consortium there can be losses, but when companies come together in this way they can pool their expertise and financial strength, and provisions for tax relief for consortia therefore allow losses to be set off against the profits of the parent companies. The rule for consortium relief is that no participant can own more than 75 per cent. and that there can be up to five participants. As a result, there is no overlap between consortia, as defined for the purposes of tax relief, and groups, because, of course, the consortium is not comparable to the single company, which is the basic model for the group.

The new clause would introduce a new principle, and it is right that, before we accept so wide ranging a principle, we should give it much closer examination than has been possible between the Committee and Report stages of this Bill. Under existing legislation, the minority shareholder in a group may own up to 25 per cent. of it and still get no group relief. Under the clause, therefore, there would be certain tax advantages for consortia as compared with groups. Clearly, groups are like single companies, while consortia are not. There would, therefore, be a major anomaly if this clause were accepted. It would lead to a need for fundamental changes in group relief to take account of the changes in consortium relief.

We must understand that the kind of examination my right hon. Friend promised is bound to take some time. We need to consider the various ways in which companies can be linked. For example, group relief is available for participants owning more than 75 per cent., while consortium relief is available with up to five participants, none of which can have more than 75 per cent. of the shareholding; the rest of the companies must operate like ordinary shareholders.

There are certain advantages in consortium operation, and I think that it is reasonable that it should be made easier to set up consortia with the tax advantages attaching thereto. But, as I have said, this proposal needs rather more examination than has been possible in the time available.

Mr. Cronin

As this matter practically affects only shipping companies, will my right hon. Friend consider having legislation introduced to confine the relief to shipping companies in the same way as agriculture and forestry, for instance, have relief?

Mr. Sheldon

I was much taken with the comments of the hon. Member for Hitchin, who rightly pointed out that there could be major moves in the direction of consortia now that expertise is often spread over new and important fields. There could be a major move in this direction in that large and powerful firms which in the past would not have needed to operate in this way may now need to do so, in the way foreseen by the hon. Member for Hitchin. If that were to become an important trend—and the hon. Gentleman used good arguments about pooling of the wide range of experience and strength of finance that would be required—there would be a great deal of validity in the case, but this whole matter then becomes quite fundamental, and I do not think that we could have considered it satisfactorily in the short period that we have had.

Mr. Cope

The right hon. Gentleman is speaking as though this matter first appeared in Committee on this Bill. Yet I am advised that the CBI has for a number of years made this point in its submissions to the Chancellor of the Exchequer. The matter has not simply arisen this year. It has been put before to the Chancellor of the Exchequer.

8.45 p.m.

Mr. Sheldon

It is interesting that it is the only case of its sort to have come before the Inland Revenue and to show the disadvantages to which hon. Members have referred. As the hon. Member for Hitchin observed, the case may be the precursor of others. That is why I think it right to have a wider examination of the sort that I have suggested. It is not a matter that we want to consider hastily. That is mainly because of the implications for group relief. We could find ourselves accepting some anomalies because of the way in which group relief has to operate alongside consortium relief. It is a complicated area. I hope that hon. Members who have some understanding of it will accept that it is right that we carry out an investigation in the manner to which I have referred and return with some further information in time for next year's Budget.

Mr. Ogden

Does my right hon. Friend agree that the organisation of any company, especially a shipping company, should be related primarily to its operations and practice and not to any tax advantage that a system may or may not offer? Is he talking about two inquiries, one into the effect on the industry of the clause or a similar clause—presumably he is having talks with shipping interests—and a much longer one into the possible effects of the clause throughout the whole of British industry, which we cannot expect for another 12 months? Is he thinking of any retrospective legislation? If he decides that shipping should have had help tonight, will he back-date such help until last April? What help is coming?

Mr. Sheldon

I cannot comment on that in advance of the examination that I promise the House. I agree with my hon. Friend when he—fairly—said that taxation should not dictate the operation of the industry. Taxation should, instead. reflect the changes that are needed to make effective the operations of companies.

Mr. Peter Rees

If hon. Members had been under the illusion that we were debating a technical matter of some complexity and little importance, that must surely have been dispelled by the most interesting debate that has developed.

The Financial Secretary appeared to concede the importance of the principle even though he seemed a little doubtful about its application and how it should be clothed in legislative form. The debate has demonstrated that we are not entirely concerned with the shipping industry. Whether we should be so concerned is another matter. I do not think that we should ever entirely tailor our fiscal legislation to one industry but should be concerned with the wider principles. I hope that it has emerged with clarity that we are not concerned only with one consortium—namely, OCL.

The Financial Secretary did less than justice to the arguments advanced by my hon. Friends when he suggested that there was only one consortium likely to be affected. The right hon. Gentleman cannot possibly say—probably none of us can say—what an inhibiting effect the provisions have had on various other companies, or groups of companies, that might have attempted to adopt a consortium relationship for a certain operation.

Shipping is probably uppermost in our minds. We can pray in aid what was said in the Rochdale report, which suggested that consortia were a useful vehicle for the shipping industry and should be encouraged. I do not think that the right hon. Gentleman devoted any attention to the recommendations contained in the Rochdale report, to which we referred in Standing Committee.

It has emerged clearly from the informed interventions of my hon. Friends that various types of company might well be moved to take advantage of the consortium relationship. It is because of the scale of modern industry and because of the scale of ventures that are undertaken, especially in public works, that very often no one company has the expertise or the capital resources to undertake them, especially in the Middle East. The most obvious vehicle is a consortium.

Not ignoring the speeches made by my hon. Friends, the point was well made by the hon. Members for South Shields (Mr. Blenkinsop) and Liverpool, West Derby (Mr. Ogden) that a business organisation should not be dictated by fiscal considera- tions. That is the principle underlying the debate. I hope that there is common ground within the House that business organisations should be adopted that are most likely to lead to successful commercial conclusions.

After all, we are no longer such a strong country industrially and commercially that we can afford to discard certain forms of business organisation. They must be encouraged, or at least not deterred, which is what the existing legislation does. I should point out to the Financial Secretary and, indeed, to his hon. Friend the Member for Loughborough (Mr. Cronin) that it is a question not of creating an anomaly or giving consortia special treatment, but of putting them on the same basis as group companies which have a 75 per cent. shareholding relationship. No door is being opened. It is merely, as it were, eliminating an anomaly which affects consortia at present and giving them precisely the same relief as group companies.

The matter was put graphically by my hon. Friend the Member for Gloucestershire, South (Mr. Cope): the losses of companies in the consortium should be surrendered upwards or downwards to one consortium company just as the loss of the consortium company can now be surrendered upwards to the companies which own its shares. That is the way that the relief operates in group companies. We are asking the Government not to accept an anomaly or specially to favour consortia, but to put them in the same position as group companies.

In effect, the Financial Secretary con ceded the principle. Therefore, I am a little surprised that he adopted such an unco-operative and unhelpful attitude. He said that there must be time to consider these matters. As my hon. Friend the Member for Gloucestershire, South pointed out, representations were made months ago. A new clause to this effect stood on the Amendment Paper in Standing Committee. There has been plenty of time had there been the will on the part of the Government.

As we have learned to our cost in many debates, the Financial Secretary is far quicker to impose than to moderate the burden of tax. I hope that my hon. Friend the Member for Hitchen (Mr. Stewart) in order to inject some urgency into the Government's deliberations, will press this matter to a Division. I hope that it will command support not only on this side, but on the Government side of the House.

Division No. 258] AYES [8.53 p.m.
Adley, Robert Gow, Ian (Eastbourne) Moate, Roger
Aitken, Jonathan Gower, Sir Raymond (Barry) Monro, Hector
Alison, Michael Grant, Anthony (Harrow C) Montgomery, Fergus
Arnold, Tom Gray, Hamish Moore, John (Croydon C)
Atkins, Rt Hon H. (Spelthorne) Grieve, Percy Morgan, Geraint
Atkinson, David (B'mouth, East) Grylls, Michael Morgan-Giles, Rear-Admiral
Banks, Robert Hall-Davis, A. G. F Morris, Michael (Northampton S)
Beith, A. J. Hamilton, Archibald (Epsom & Ewell) Morrison, Charles (Devizes)
Bendall, Vivian Hamilton, Michael (Salisbury) Morrison, Hon Peter (Chester)
Bennett, Sir Frederic (Torbay) Hampson, Dr Keith Neave, Airey
Bennett, Dr Reginald (Fareham) Hannam, John Nelson, Anthony
Benyon, W. Harrison, Col Sir Harwood (Eye) Neubert, Michael
Berry, Hon Anthony Harvie Anderson, Rt Hon Miss Newton, Tony
Biffen, John Haselhurst, Alan Normanton, Tom
Biggs-Davison, John Hawkins, Paul Nott, John
Blaker, Peter Hayhoe, Barney Onslow, Cranley
Body, Richard Hicks, Robert Oppenheim, Mrs Sally
Boscawen, Hon Robert Hodgson, Robin Page, John (Harrow West)
Bottomley, Peter Holland, Philip Page, Rt Hon R. Graham (Crosby)
Bowden, A. (Brighton, Kemptown) Hordern, Peter Page, Richard (Workington)
Boyson, Dr Rhodes (Brent) Howe, Rt Hon Sir Geoffrey Pardoe, John
Braine, Sir Bernard Howell, David (Guildford) Parkinson, Cecil
Brittan, Leon Howell, Ralph (North Norfolk) Pattie, Geoffrey
Brocklebank-Fowler, C. Howells, Geraint (Cardigan) Penhaligon, David
Brooke, Hon Peter Hunt, David (Wirral) Percival, Ian
Brotherton, Michael Hunt, John (Ravensbourne) Pink, R. Bonner
Brown, Sir Edward (Bath) Hurd, Douglas Powell, Rt Hon J. Enoch
Buchanan-Smith, Alick Hutchison, Michael Clark Prentice, Rt Hon Reg
Buck, Antony Irving, Charles (Cheltenham) Price, David (Eastleigh)
Budgen, Nick James, David Prior, Rt Hon James
Butler, Adam (Bosworth) Jenkin, Rt Hon P. (Wanst'd & W'df'd) Pym, Rt Hon Francis
Carlisle, Mark Jessel, Toby Raison, Timothy
Chalker, Mrs Lynda Johnson Smith, G. (E. Grinstead) Rathbone, Tim
Channon, Paul Johnston, Russell (Inverness) Rees, Peter (Dover & Deal)
Churchill, W. S. Jopling, Michael Rees Davies, W. R.
Clark, Alan (Plymouth, Sutton) Joseph Rt Hon Sir Keith Rhodes James, R.
Clarke, Kenneth (Rushcliffe) Kabberry, Sir Donald Rhys Williams, Sir Brandon
Cockcroft, John Kellett-Bowman, Mrs Elaine Ridley, Hon Nicholas
Cooke, Robert (Bristol W) Kershaw, Anthony Ridsdale, Julian
Cope, John Kimball, Marcus Rifkind, Malcolm
Cormack, Patrick King Evelyn (South Dorset) Roberts, Wyn (Conway)
Corrie, John Kitson Sir Timothy Ross, Stephen (Isle of Wight)
Costain, A. P. Knight, Mrs Jill Rost, Peter (SE Derbyshire)
Crowder, F. P. Knox, David Royle, Sir Anthony
Davies, Rt Hon J. (Knutsford) Lamont, Norman Sainsbury, Tim
Dean, Paul (N Somerset) Langford-Holt, Sir John St. John-Stevas, Norman
Dodsworth, Geoffrey Latham Michael (Melton) Scott Nicholas
Drayson, Burnaby Lawrence, Ivan Scott-Hopkins, James
du Cann, Rt Hon Edward Lawson, Nigel Shaw, Giles (Pudsey)
Durant, Tony Le Marchant, Spencer Shaw, Michael (Scarborough)
Eden, Rt Hon Sir John Lester, Jim (Beeston) Shelton, william (Streatham)
Edwards, Nicholas (Pembroke) Lewis, Kenneth (Rutland) Shepherd, Colin
Elliott, Sir William Lloyd, Ian Shersby, Michael
Emery, Peter Loveridge, John Silvester, Fred
Eyre, Reginald Luce, Richard Sims, Roger
Fairbairn, Nicholas McCrindle, Robert Sinclair, Sir George
Fairgrieve, Russell Macfarlane, Neil Skeet, T. H. H.
Farr, John MacGregor, John Smith, Dudley (Warwick)
Fell, Anthony MacKay, Andrew (Stechford) Smith, Timothy John (Ashfield)
Finsberg, Geoffrey McNair-Wilson, M. (Newbury) Speed, Keith
Fisher, Sir Nigel McNair-Wilson, P. (New Forest) Spence, John
Fletcher, Alex (Edinburgh N) Madel, David spicer, Jim (W Dorest)
Fletcher-Cooke, Charles Marshall, Michael (Arundel) Spicer, Michael (S Worcester)
Forman, Nigel Marten, Neil Sproat, Iain
Fox, Marcus Mates, Michael Stainton, Keith
Fraser, Rt Hon H. (Stafford & St) Mather, Carol Stanbrook, Ivor
Gardiner, George (Reigate) Maude, Angus Stanley, John
Gardner, Edward (S Fylde) Maxwell-Hyslop, Robin Steen, Anthony (Wavertree)
Gilmour, Sir John (East Fife) Mayhew, Patrick Stewart, Ian (Hitchin)
Glyn, Dr Alan Meyer, Sir Anthony Stokes, John
Godber, Rt Hon Joseph Miller, Hal (Bromsgrove) Stradling Thomas, J.
Goodhart, Philip Mills, Peter Tapsell, Peter
Goodlad, Alastair Miscampbell, Norman Taylor, R. (Croydon NW)
Gorst, John Mitchell, David (Basingstoke) Taylor, Teddy (Cathcart)

Question Put, That the clause be read a Second time:—

The House divided: Ayes 244, Noes 268.

Tebbit, Norman Viggers, Peter Wiggin, Jerry
Temple-M[...], Peter Wakeham, John Winterton, Nicholas
Thatcher, Rt Hon Margaret Walder, David (Clilheroe) Wood, Rt Hon Richard
Thomas, Rt Hon P. (R[...]ndon S) Walker, Rt Hon P. (Worcester) Younger, Hon George
Townsend, Cyril D. Walker-Smith, Rt Hon Sir Derek
Trotter, Neville Warren, Kenneth TELLERS FOR THE AYES:
van Straubenzee, W. R. Weatherill, Bernard Sir George Young and
Vaughan, Dr Gerard Wells, John Lord James Douglas Hamilton.
Abse, Leo Ewing, Harry (Stirling) MacFarquhar, Roderick
Allaun, Frank Faulds. Andrew McGuire, Michael (Ince)
Anderson, Donald Fernyhough, Rt Hon E. Mackenzie, Rt Hon Gregor
Armstrong, Ernest Fitch, Alan (Wigan) McMillan, Tom (Glasgow C)
Ashley, Jack Flannery, Martin McNamara, Kevin
Ashton, Joe Fletcher, Ted (Darlington) Madden, Max
Atkins, Ronald (Preston N) Foot, Rt Hon Michael Magee, Bryan
Atkinson, Norman (H'gey, Tott'ham) Ford, Ben Mallalieu, J. P. W.
Bagier, Gordon A. T. Fowler, Gerald (The Wrekin) Marks, Kenneth
Barnett, Guy (Greenwich) Fraser, John (Lambeth, N'w'd) Marshall, Dr Edmund (Goole)
Barnett, Rt Hon Joel (Keywood) Freeson, Rt Hon Reginald Marshall, Jim (Leicester S)
Bates, All Garrett, John (Norwich S) Mason, Rt Hon Roy
Bean, R. E. Garrett, W. E. (Wallsend) Maynard, Miss Joan
Bennett, Andrew (Stockport N) George, Bruce Meacher, Michael
Bidwell, Sydney Gilbert, Rt Hon Dr John Mellish, Rt Hon Robert
Bishop, Rt Ron Edward Ginsburg, David Mikardo, Ian
Blerkirsop, Arthur Golding, John Millan, Rt Hon Bruce
Boothroyd, Miss Betty Gould, Bryan Miller, Dr M. S. (E Kilbride)
Boyden, James (Bish Auck) Gourlay, Harry Mitchell, Austin (Grimsby)
Eradley, Tom Grant, John (Islington C) Mitchell, R. C. (Soton, Itchen)
Bray, Dr Jeremy Grocott, Bruce Molloy, William
Brown, Hugh D. (Provan) Hamilton, James (Bothwell) Moonman, Eric
Brown, Robert C. (Newcastle W) Hamilton W. W. (Central Fife)
Brown, Ronald (Hackney S) Hardy, Peter Morris, Alfred (Wythenshawe)
Morris, Rt Hon Charles R.
Buchan, Norman Harrison. Rt Hon Walter Morris, Rt Hon J. (Aberavon)
Buchanan, Richard Hart, Rt Hon Judith Moyle, Rt Hon Roland
Callaghan, Jim (Middieton & P) Hattersley, Rt Hon Roy Murray, Rt Hon Ronald King
Campbell, Ian Hayman, Mrs Helene Newens, Stanley
Canavan, Dennis Healey, Rt Hon Denis Noble, Mike
Carmichael, Neil Heller, Eric S. Oakes, Gordon
Carter, Ray Henderson Douglas O'Halloran, Michael
Carler-Jones, Lewis Hooley, Frank Orbach, Maurice
Cartwright, John Horam, John Orme, Rt Hon Stanley
Clemitson Ivor Howell, Rt Hon Denis (B ham, Sm H) Ovenden, John
Cocks, Rt Hon Michael (Bristol S) Hoyle, Doug (Nelson)
Cohen, Stanley Hucklield, Les Owen, Rt Hon Dr David
Coleman, Donald Hughes, Mark (Durham) Palmer, Arthur
Concannon, Rt Hon John Hughes, Robert (Aberdeen N) Park, George
Cook, Robin F. (Edin C) Hughes, Roy (Newport) Parker, John
Corbett, Robin Hunter, Adam Parry, Robert
Cowans, Harry Irvine, Rt Hon Sir A. (Edge Hill) Pavitt, Laurie
Craigen, Jim (Maryhill) Irving, Rt Hon S. (Dartford) Pendry, Tom
Crawshaw, Richard Jackson, Colin (Brighouse) Phipps, Dr Colin
Cronin, John Jackson, Miss Margaret Lincoln) Prescott, John
Crowther, Stan (Rotherham) Janner, Greville Price, C. (Lewisham W)
Cryer, Bob Jay, Rt Hon Douglas Price, William (Rugby)
Cunningham, G. (Islington S) Jeger, Mrs Lena Radice, Giles
Cunningham, Dr J. (Wh[...]teh) Jenkins, Hugh (Putney) Richardson, Miss Jo
Dalyell, Tam John Brynmor Roberts, Albert (Normanton)
Davidson, Arthur Johnson, Jamos (Hull West) Roberts, Gwilym (Cannock)
Davies, Bryan (Enfield N) Johnson, Walter (Derby S) Robertson, George (Hamilton)
Davies, Rt Hon Denzil Jones, Alec (Rhondda) Robinson, Geoffrey
Davies, Ifor (Gower) Jones, Dan (Burnley) Roderick, Caerwyn
Davis, Clinton (Rackney C) Judd, Frank Rodgers, George (Chorley)
Deakins, Eric Kaufman, Rt Hon Gerald Rodgers, Rt Hon William (Stockton)
Dean, Joseph (Leeds West) Kerr, Russell Rooker, J. W.
de Freitas, Rt Hon Sir Geoffrey Kilroy-Silk Robert Roper, John
Dell, Rt Hon Edmund Kinnock, Nell Rose, Paul B.
Dempsey, James Lamble, David Ross, Rt Hon W. (Kilmarnock)
Dewar, Donald Lamond, James Rowlands, Ted
Doig, Peter Latham, Arthur (Paddington) Ryman, John
Dormand, J. D. Leadbitter, Ted Sandelson, Neville
Duffy, A. E. P. Lee, John Sedgemore, Brian
Dunnett, Jack Lever, Rt Hon Harold Selby, Harry
Dunwoody, Mrs Gwyneth Lewis, Ron (Carlisle) Sever, John
Eadie, Alex Litterick, Tom Shaw. Arnold (Ilford South)
Edge, Gerff Loyden, Eddie Sheldon, Rt Hon Robert
Edwards, Flobert (Wolv SE) Luard, Evan Shore, Rt Hon Peter
Ellis, John (Brigg & Scun) Lyon, Alexander (York) Short, Mrs Renée (Wolv NE)
English, Michael Lyons, Edward (Bradford W) Silkin, Rt Hon S. C. (Dulwich)
Evans, Fred (Caerphilly) Mabon, Rt Hon Dr J. Dickson Silverman, Julius
Evans, Gwynfor (Carmarthen) McCartney, Hugh Skinner, Dennis
Evans, Ioan (Aberdare) McDonald, Dr Oonagh Smith, Rt. Hon. John (N Lanarkshire)
Evans, John (Newton) McElhone. Frank Snape, Peter
Spriggs, Leslie Tinn, James Whitlock, William
Stallard, A. W. Tomlinson, John Willey, Rt Hon Frederick
Stewart, Rt Hon M. (Fulham) Tomney, Frank Williams, Rt Hon Alan (Swansea W)
Stoddart, David Torney, Tom Williams, Rt Hon Shirley (Hertford)
Stott, Roger Tuck, Raphael Williams, Sir Thomas (Warrington)
Strang, Gavin Urwin, T. W. Wilson, Gordon (Dundee E)
Summersklll, Hon Dr Shirley Walker, Harold (Doncaster) Wilson, Rt Hon Sir Harold (Huyton)
Swain, Thomas Walker, Terry (Kingswood) Wilson, William (Coventry SE)
Taylor, Mrs Ann (Bolton W) Watkins, David Wise, Mrs Audrey
Thomas, Dafydd (Merioneth) Watkinson, John Woodall, Alec
Thomas, Jeffrey (Abertillery) Watt, Hamish Woof, Robert
Thomas, Mike (Newcastle E) Weetch, Ken Wrigglesworth, Ian
Thomas, Ron (Bristol NW) Weitzman, David Young, David (Bolton E)
Thompson, George Wellbeloved, James
Thorne, Stan (Preston South) White, Frank R. (Bury) TELLERS FOR THE NOES:
Tierney, Sydney White, James (Pollok) Mr. Thomas Cox and
Tilley, John Whitehead, Phillip Mr. Ted Graham.

Question accordingly negatived.