§ Mr. HattersleyI beg to move amendment No. 35, in page 12, line 6, leave out from 'year' to end of line 17 and add
'1983 be 40 per cent. and for the financial year 1984 be 38 per cent. for the financial year 1985 be 31 per cent. and for the financial year 1986 and subsequent years be 27 per cent.'.The amendment has been proposed in the hope of ending an injustice to co-operative societies, housing associations and building societies, which would have been evident if the clause were passed unamended.
Due to the lateness of the hour and the amount of ground that the Committee must cover, I shall describe the 284 problem in terms of the co-operative societies. Hon. Members who are familiar with such matters will know that the problems that I describe are common to the other two institutions that — dare I say it? — hover between being commercial organisations and something akin to friendly societies.
Should clause 20 become law unamended these societies would lose a distinctive status, which they were intentionally afforded to give recognition to their special position in the economy. Co-operative societies form a substantial part of the economy, certainly a large part of the retail sector, holding 6 per cent. of the total with an annual turnover of £4.2 million and 97,000 employees, putting aside their special interest in and control over the large Co-operative Wholesale Society.
The co-operative societies hold a numerical position of strength in the economy as well as possessing a distinction that makes them different in many ways from their commercial competitors. Like all such institutions, they have the need and the duty to run a viable enterprise, but they take on other obligations arising from the fact that their customers are also their shareholders.
Because of that, first by tradition and then according to the law, practice and proceedings of the Registrar of Friendly Societies, some method of organising capital and tax thereof apply to the co-operative societies but do not apply to companies competing with them in the same market. Their share capital does not appreciate with the market. Dividends do not arise from their share capital. There are no scrip issues or bonus shares to increase an individual holding. Each society's rule book defines the rate of share interest that is paid to members, who are the shareholders. Now, both tradition and the Registrar of Friendly Societies enforce the practice whereby the rate of interest paid on share capital is adequate merely to offer a small return, and in no way offers an excessive reward or forms the basis of a capital gain.
10 pm
Because of that and the other obligations that the cooperative societies have always accepted, the House of Commons has traditionally believed that their liability for corporation tax should be different from that of the rest of the retail trade. That was acknowledged in 1971, when the Select Committee's report on corporation tax suggested that a special rate was necessary for co-operative societies. Indeed, they paid a special rate that was appreciably below what was given to other companies that were apparently similar.
Now other companies are to have a reduction in their rate, but they will regard that reduction as in some way a compensation for penalties that the Budget imposes on them—
§ Mr. HattersleyThe Financial Secretary shakes his head. The previous debate was concerned with the fact that this was a package—the reduction in corporation tax had to be balanced against other alterations, such as the change in stock relief. The hon. Gentleman must tell us whether the Government have changed their policies since the previous debate. If they have not, I shall repeat my point. Co-operative societies will not enjoy the same benefits as companies, shops and retail outlets that appear to be their direct competitors. A package applies to those competitors, in that the penalties that I have described 285 balance a reduction in their obligations on corporation tax. However, the co-operative societies are already on a beneficial level of corporation tax. Unless that beneficial level is reduced, they will lose their previous traditional advantage, and begin to pay the other penalties exacted from private companies in the retail trade.
In the amendment, which I move with brevity, out of respect for the Committee, perhaps not doing justice to the cause that I argue, we simply suggest that the co-operative retail societies should be returned to the special position that their nature and tradition previously gave them. However, I confess, with a frankness that I hope might be endearing, that possibly the figures in the amendment are not the percentages that would return the co-operative societies to their traditional advantage. They may be miscalculated by 1 or 2 per cent., but the issue that we are debating is whether the co-operative societies should have that advantage.
Were the Financial Secretary to say that he agreed with the principle but rejected the figures, we would accept that with joyous acclaim, as well as his assurance that he would improve on our amendment on Report. The principle is what we are after, not the decimal point. The principle is that, because of their specific and special financial organisation and nature, the co-operative societies have always had a beneficial position. It is removed in the Budget, and we believe that it should be replaced.
§ Sir William Clark (Croydon, South)I should like to speak about the building societies. I declare a vested interest in that I am a vice-president of the Building Societies Association. I assure the Committee that it is purely an honorary position.
I agree with the right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley). My hon. Friend the Financial Secretary will recollect that in 1972 we changed the basis of corporation tax to what was known as the imputation system. That system, with advance corporation tax and the distribution possibilities of ordinary companies, gave them an advantage. However, as the constitutions of institutions such as the building societies and, as the right hon. Gentleman said, the co-operative societies gave them no right to distribute profits, the imputation system acted against them. Because of this Government of the day introduced a lower rate of tax than the 50 per cent. corporation tax. The tax for building societies was set at 40 per cent.
I am speaking on these amendments because when corporation tax comes down from 50 per cent. to 45 per cent. or 40 per cent., if one accepts the principle of the differential between imputation, where one can and cannot distribute, there should be a lower rate for building societies, and presumably co-operative societies, so that we still maintain the justice effected in 1972.
In 1972, the Finance Bill was introduced by a Conservative Chancellor and it was seen that equity should be carried through. I hope that my hon. Friend will either now — if he can say it now, all well and good—or between now and Report, say that when corporation tax comes down from 50 per cent. to 40 per cent. the differential, whether it is 31 per cent. or something else—I shall not argue the percentage—will be between the top rate of corporation tax and the rate that building societies pay. If it is not, there will be an injustice because building societies and co-operative societies do not have the right to distribute their profits.
§ Mr. MooreI did not seek to question the figures given by the right hon. Member for Birmingham, Sparkbrook (Mr. Hattersley) because I took him on his frank reflection on his own pesonality and assumed that he would want me to address myself to the substance. I shall try to be brief, but it is an issue about which there is some confusion, as my hon. Friend the Member for Croydon, South (Sir W. Clark) said.
My first reaction when I saw the amendment was one of astonishment. In the face of a Budget making a number of radical reforms to the corporation tax regime, the Opposition have picked on this point. The right hon. Member for Sparkbrook has stated clearly that the purpose of the amendment would be to prescribe special rates of corporation tax on the profits of certain industrial and provident societies, housing associations and building societies, which would broadly preserve under the new corporation tax regime the relative advantage that the Opposition see them as having had in the past.
When I thought about it a little further, I realised that this was not untypical—I should perhaps not say this so clearly, as my hon. Friend the Member for Croydon, South has spoken in support of the amendment—of what I would call the rigid fiscal conservatism of the Opposition in these matters. With some care, I sought to address myself to the amendment, which is what one would want Ministers to do in responding to addresses, as well as listening carefully to the debate.
Presumably, the Opposition want to put a preservation order on the tax system, with all the ossification of the past, whatever today's needs. Even allowing for the fact that the Opposition regard this amendment as important—I accept that—they are basing their case, as my hon. Friend did, on a fundamental misconception. There is no theoretical reason why industrial and provident societies and building societies should have a relative advantage over other companies. The 40 per cent. rate was not introduced for that purpose but as a ceiling on the changeover to the imputation system because, as my hon. Friend rightly said, such societies do not pay distribution and so could not benefit from the change. The 50 per cent. rate was introduced as a ceiling to stop the societies from being disadvantaged on the change to the new system.
The Opposition may have failed to appreciate that the purpose of the imputation system, as my hon. Friend said, was to alleviate the double taxation of distributed profits, not to alter the basis of the taxation of the companies themselves. The industrial and provident societies cannot distribute their profits and so could not benefit from the change over to the imputation system. However, the 40 per cent. rate was not introduced to give them a competitive advantage but to prevent them from being disadvantaged as a result of the change. Before the imputation system, they were taxed on the same basis as other companies. The practice makes the opposition to this even more difficult to comprehend because, as it happens, most societies have had no differential from comparable companies—in other words, companies entitled to the special rate of tax on profits of small companies.
The lack of differential applies to over 99 per cent. of industrial and provident societies, and to approximately 60 per cent. of all building societies. All these have been paying at the same rate of tax as small companies, currently 38 per cent., because their profits are below £100,000. When we took their rate of tax down from 40 per cent. last year, I do not recall any objections having 287 been made to the lack of differential about which the hon. Member for Birmingham, Perry Barr (Mr. Rooker) was concerned when he raised the matter on Second Reading. He admitted, as he put it, that the co-operatives have been rather quiet on the subject, perhaps because they realise the advantages that they will derive under our proposals from their being taxed like any other company.
Therefore, the argument of the Opposition essentially must be that a few societies, rather less than 30 industrial and provident societies, and perhaps over 50 building societies, all by definition large, merit for some reason a lower rate of tax than big companies generally because of their nature when they are acting as equals in the market place competing for funds and business. If that is the proposition, the Government do not accept it. Our policy is to offer equality of treatment to all companies, and to remove unnecessary distortions. If one of the societies is large, it should pay at the same rate of tax as large companies generally. This is what is being done in clause 20, in such a way as not to disadvantage any of the groups covered by the amendment. For the large societies, which, as I have said, are less than 1 per cent. of all industrial and provident societies, and 40 per cent. of building societies, the rate of tax, under my right hon. Friend's proposal, will fall eventually from 40 per cent. to 35 per cent., while the vast majority, over 99 per cent. of industrial and provident societies, and the smaller building societies, will see a fall from 38 per cent. to 30 per cent. immediately. A majority of industrial and provident societies will benefit immediately under the Finance Bill from the reduction in the small companies' rate, the remainder will benefit when the rate falls to 35 per cent., but all will benefit from the healthier climate for enterprise that the Bill creates.
For too long we have had a system of high nominal rates of tax, and an extensive and complex system of allowances and reliefs which has placed a premium on investment for tax efficiency rather than for market reasons. All companies, large and small, will be able, we hope, to take their investment decisions free from the earlier distortions. The reductions in the tax rates provide the best possible incentive for investment in profitable enterprise.
§ Mr. HattersleyThe Financial Secretary began by saying that he was astonished by the amendment. I am always rather sceptical about astonishment which is read from a typewritten script. The two issues to which I endeavoured to draw his attention are issues to which he did not turn his mind. First, he says that, when the cooperative societies and others were given their differential and advantageous rate, it was to avoid their being penalised by a tax change. I was arguing for that tonight, as, I think, was my hon. Friend the Member for Birmingham, Perry Barr (Mr. Rooker). Certain penalities in the Budget are supposed to be compensated for, in the case of other firms, by the reduction in corporation tax. The penalities will be imposd on these institutions, but they will not receive the compensation. They are disadvantaged by comparison with the position before the introduction of the Budget. The second point about which the Financial Secretary said not a word is that there are limitations on the use of profit in these institutions which are not placed on the use of profit in apparently 288 competitive industries and companies which are limited liability companies, and are not governed by the Registrar or Friendly Societies.
I do not flatter myself that we will persuade the Financial Secretary or the Government to change their mind. We have heard the paragraphs of orthodoxy about competition so that firms performing similar functions must be taxed on an identical base. The Financial Secretary must stick to his dogmatism, and we must divide the House against it.
§ Question put, That the amendment be made:—
§ The Committee divided: Ayes 126, Noes 224.
289| Division No. 266] | [10.13 pm |
| AYES | |
| Adams, Allen (Paisley N) | Harman, Ms Harriet |
| Anderson, Donald | Hart, Rt Hon Dame Judith |
| Archer, Rt Hon Peter | Hattersley, Rt Hon Roy |
| Ashley, Rt Hon Jack | Hogg, N. (C'nauld & Kilsyth) |
| Atkinson, N. (Tottenham | Holland, Stuart (Vauxhall) |
| Bagier, Gordon A. T. | Hoyle, Douglas |
| Banks, Tony (Newham NW) | Hughes, Dr. Mark (Durham) |
| Barron, Kevin | Hughes, Robert (Aberdeen N) |
| Beckett, Mrs Margaret | Hughes, Sean (Knowsley S) |
| Bell, Stuart | Janner, Hon Greville |
| Benn, Tony | Kaufman, Rt Hon Gerald |
| Bennett, A. (Dent'n & Red'sh) | Lamond, James |
| Bermingham, Gerald | Leadbitter, Ted |
| Bidwell, Sydney | Leighton, Ronald |
| Blair, Anthony | Lewis, Ron (Carlisle) |
| Boyes, Roland | Litherland, Robert |
| Bray, Dr Jeremy | Lofthouse, Geoffrey |
| Brown, R. (N'c'tle-u-Tyne N) | Loyden, Edward |
| Caborn, Richard | McCartney, Hugh |
| Callaghan, Jim (Heyw'd & M) | McDonald, Dr Oonagh |
| Campbell-Savours, Dale | McGuire, Michael |
| Clark, Dr David (S Shields) | McNamara, Kevin |
| Clay, Robert | McWilliam, John |
| Cocks, Rt Hon M. (Bristol S.) | Madden, Max |
| Cohen, Harry | Marshall, David (Shettleston) |
| Coleman, Donald | Maynard, Miss Joan |
| Conlan, Bernard | Michie, William |
| Cook, Frank (Stockton North) | Mikardo, Ian |
| Corbett, Robin | Milian, Rt Hon Bruce |
| Corbyn, Jeremy | Miller, Dr M. S. (E Kilbride) |
| Cowans, Harry | Mitchell, Austin (G't Grimsby) |
| Cox, Thomas (Tooting) | Morris, Rt Hon A. (W'shawe) |
| Craigen, J. M. | Morris, Rt Hon J. (Aberavon) |
| Crowther, Stan | O'Brien, William |
| Cunliffe, Lawrence | Park, George |
| Dalyell, Tam | Patchett, Terry |
| Davies, Ronald (Caerphilly) | Pike, Peter |
| Davis, Terry (B'ham, H'ge H'I) | Powell, Raymond (Ogmore) |
| Dixon, Donald | Randall, Stuart |
| Dobson, Frank | Redmond, M. |
| Dormand, Jack | Rees, Rt Hon M. (Leeds S) |
| Dubs, Alfred | Richardson, Ms Jo |
| Duffy, A. E. P. | Robertson, George |
| Dunwoody, Hon Mrs G. | Robinson, G. (Coventry NW) |
| Eadie, Alex | Rooker, J. W. |
| Evans, John (St. Helens N) | Sedgemore, Brian |
| Ewing, Harry | Sheldon, Rt Hon R. |
| Fatchett, Derek | Short, Ms Clare (Ladywood) |
| Faulds, Andrew | Short, Mrs R.(W'hampt'n NE) |
| Field, Frank (Birkenhead) | Skinner, Dennis |
| Fisher, Mark | Smith, C.(Isl'ton S & F'bury) |
| Flannery, Martin | Snape, Peter |
| Foster, Derek | Soley, Clive |
| Fraser, J. (Norwood) | Stott, Roger |
| Freeson, Rt Hon Reginald | Strang, Gavin |
| Garrett, W. E. | Thomas, Dr R. (Carmarthen) |
| George, Bruce | Tinn, James |
| Godman, Dr Norman | Wardell, Gareth (Gower) |
| Gould, Bryan | Weetch, Ken |
| Hamilton, James (M'well N) | Welsh, Michael |
| Hamilton, W. W. (Central Fife) | Wigley, Dafydd |
| Hardy, Peter | Winnick, David |
| Woodall, Alec | Tellers for the Ayes: |
| Young, David (Bolton SE) | Mr. Frank Haynes and |
| Mr. Allen McKay. | |
| NOES | |
| Ancram, Michael | Howarth, Alan (Stratf'd-on-A) |
| Ashby, David | Howarth, Gerald (Cannock) |
| Ashdown, Paddy | Howell, Ralph (N Norfolk) |
| Atkins, Robert (South Ribble) | Howells, Geraint |
| Baldry, Anthony | Hubbard-Miles, Peter |
| Batiste, Spencer | Hunter, Andrew |
| Beaumont-Dark, Anthony | Jessel, Toby |
| Bellingham, Henry | Johnson-Smith, Sir Geoffrey |
| Berry, Sir Anthony | Jones, Gwilym (Cardiff N) |
| Biffen, Rt Hon John | Jones, Robert (W Herts) |
| Boscawen, Hon Robert | Joseph, Rt Hon Sir Keith |
| Bowden, Gerald (Dulwich) | Kellett-Bowman, Mrs Elaine |
| Braine. Sir Bernard | Key, Robert |
| Brandon-Bravo, Martin | King, Roger (B'ham N'field) |
| Browne, John | Kirkwood, Archibald |
| Bruce, Malcolm | Knight, Gregory (Derby N) |
| Budgen, Nick | Lamont, Norman |
| Butterfill, John | Lang, Ian |
| Clark, Dr Michael (Rochford) | Latham, Michael |
| Clark, Sir W. (Croydon S) | Lawler, Geoffrey |
| Clegg, Sir Walter | Lawrence, Ivan |
| Cockeram, Eric | Leigh, Edward (Gainsbor'gh) |
| Colvin, Michael | Lennox-Boyd, Hon |
| Conway, Derek | Mark Lester, Jim |
| Coombs, Simon | Lewis, Sir Kenneth (Stamf'd) |
| Cranborne, Viscount | Lightbown, David |
| Crouch, David | Lilley, Peter |
| Dorrell, Stephen | Lloyd, Ian (Havant) |
| du Cann, Rt Hon Edward | Lloyd, Peter, (Fareham) |
| Emery. Sir Peter | Lord, Michael |
| Evennett, David | McCrindle, Robert |
| Favell, Anthony | McCurley, Mrs Anna |
| Finsberg, Sir Geoffrey | McCusker, Harold |
| Fletcher, Alexander | MacKay, Andrew (Berkshire) |
| Forman, Nigel | MacKay, John (Argyll & Bute) |
| Forsythe, Clifford (S Antrim) | Maclean, David John |
| Forth, Eric | McNair-Wilson, P. (New F'st) |
| Fox, Marcus | Maginnis, Ken |
| Franks, Cecil | Major, John |
| Fraser, Peter (Angus East) | Malins, Humfrey |
| Freeman, Roger | Maples, John |
| Fry, Peter | Marland, Paul |
| Galley. Roy | Mather,Carol |
| Gardiner, George (Reigate) | Maude, Hon Francis |
| Glyn, Dr Alan | Mawhinney, Dr Brian |
| Goodhart, Sir Philip | Maxwell-Hyslop, Robin |
| Goodhart, Alastairr | Meadowcroft, Michael |
| Grant, Sir Anthony | Merchant, Piers |
| Greenway, Harry | Meyer, Sir Anthony |
| Gregory, Conal | Mills, lain (Meriden) |
| Griffiths, E. (B'y St Edm'ds) | Mills, Sir Peter (West Devon) |
| Griffiths, Peter (Portsm'th N) | Miscampbell, Norman |
| Ground, Patrick | Moate, Roger |
| Hamilton, Hon A. (Epsom) | Molyneaux, Rt Hon James |
| Hamilton, Neil (Tatton) | Moore, John |
| Hampson, Dr Keith | Morris, M. (N'hampton, S) |
| Hanley, Jeremy | Morrison, Hon C. (Devizes) |
| Hargreaves, Kenneth | Morrison, Hon P. (Chester) |
| Harris, David | Mudd, David |
| Havers, Rt Hon Sir Michael | Murphy, Christopher |
| Hawkins, C. (High Peak) | Neale, Gerrard |
| Hawkins, Sir Paul (SW N'folk) | Needham, Richard |
| Hawksley, Warren | Nicholls, Patrick |
| Hayes, J. | Nicholson, J. |
| Hayhoe, Barney | Normanton, Tom |
| Hayward, Robert | Norris, Steven |
| Heathcoat-Amory, David | Oppenheim, Philip |
| Henderson, Barry | Oppenheim, Rt Hon Mrs S. |
| Hill, James | Osborn, Sir John |
| Hirst, Michael | Ottaway, Richard |
| Hogg, Hon Douglas (Gr'th'm) | Page, Richard (Herts SW) |
| Holland, Sir Philip (Gedling) | Parkinson, Rt Hon Cecil |
| Holt, Richard | Parris, Matthew |
| Hooson, Tom | Pawsey, James |
| Howard, Michael | Peacock, Mrs Elizabeth |
| Penhaligon, David | Stokes, John |
| Percival, Rt Hon Sir Ian | Stradling Thomas, J. |
| Pollock, Alexander | Sumberg, David |
| Powell, Rt Hon J. E. (S Down) | Tapsell, Peter |
| Powell, William (Corby) | Taylor, John (Solihull) |
| Powley, John | Taylor, Teddy (S'end E) |
| Prentice, Rt Hon Reg | Tebbit, Rt Hon Norman |
| Proctor, K. Harvey | Temple-Morris, Peter |
| Rees, Rt Hon Peter (Dover) | Terlezki, Stefan |
| Rhodes James, Robert | Thomas, Rt Hon Peter |
| Rhys Williams, Sir Brandon | Thompson, Donald (Calder V) |
| Ridsdale, Sir Julian | Thompson, Patrick (N'ich N) |
| Roberts, Wyn (Convey) | Thurnham, Peter |
| Roe, Mrs Marion | Townend, John (Bridlington) |
| Ross, Wm. (Londonderry) | Trotter, Neville |
| Rowe, Andrew | Twinn, Dr Ian |
| Ryder, Richard | van Straubenzee, Sir W. |
| Sackville, Hon Thomas | Vaughan, Sir Gerard |
| Sainsbury, Hon Timothy | Viggers, Peter |
| Shaw, Giles (Pudsey) | Wainwright, R. |
| Shelton, William (Streatham) | Wakeham, Rt Hon John |
| Shepherd, Colin (Hereford) | Walker, Cecil (Belfast N) |
| Shepherd, Richard (Aldridge) | Waller, Gary |
| Sims, Roger | Ward, John |
| Skeet, T. H. H. | Wardle, C. (Bexhill) |
| Smith, Sir Dudley (Warwick) | Wells, John (Maidstone) |
| Smith, Tim (Beaconsfield) | Wheeler, John |
| Smyth, Rev W. M. (Belfast S) | Whitfield, John |
| Soames, Hon Nicholas | Wilson, Gordon |
| Spencer, Derek | Winterton, Mrs Ann |
| Squire, Robin | Winterton, Nicholas |
| Stanbrook, Ivor | Wolfson, Mark |
| Steen, Anthony | Wood, Timothy |
| Stern, Michael | Woodcock, Michael |
| Stevens, Lewis (Nuneaton) | Young, Sir George (Acton) |
| Stevens, Martin (Fulham) | |
| Stewart, Allan (Eastwood) | Tellers for the Noes: |
| Stewart, Andrew (Sherwood) | Mr. Tristan Garel-Jones and |
| Stewart, Ian (N Hertf'dshire) | Mr. David Hunt. |
§ Question accordingly negatived.
§ Clause 20 ordered to stand part of the Bill.