§ THE EARL OF DESART had the following Notice on the Paper—
§ To ask the Secretary of State for the Colonies whether his attention has been drawn to a statement made by President Cosgrave on June 1 in the Dail to the effect that the 4 per cent. War Loan Securities which were issued by the Imperial Government as "free of 697 Income Tax" will be subject to Free State Income Tax; and also that "it was hoped that some financial arrangement could be arrived at with the British Government which would warrant the Free State Exchequer in continuing this exemption, but the Government (the Free State Government) has now been informed that the British Government does not propose to enter into any such arrangement;" and what, if any, steps are proposed to be taken by His Majesty's Government to give effect to the contract made by them with the holders of the securities who are now resident in the Free State.
§ The noble Earl said: My Lords, the purpose of the Question that I have put upon the Paper is apparent from its terms. It arises as one of the consequences of the creation of the Free State, as it has always appeared to me, without any or at any rate without much, consideration for the possible consequences to British subjects and to persons who were formerly, if I may so express it, citizens of the United Kingdom, of such a transfer. You will remember that during the war there were frequent issues of War Bonds and War Loan Stock—that there was an appeal made by the Government to the patriotism of its citizens to subscribe to these War Bonds and War Loans, and there was offered to those who did so the security of British credit, which was unassailable, the certainty, or practical certainty, of interest, and a fixed period during which any Bonds issued would be redeemed at par. Among those issues were 4 per cent. War Bonds and stock of 4 per cent. War Loan. They were all short-dated, though the War Loan was longer dated than the War Bonds. Everyone knows that they were largely subscribed, and I do not suppose that any human being who bought that stock had any doubt that he was absolutely and entirely secured, both in his interest and in the ultimate redemption of the stock.
§ I may say, of course, that I am perfectly aware that they were only exempt from British taxation. That is in accordance with the specific terms of the issue. With regard to the 4 per cent. War Loan and the 4 per cent. War Bonds the terms were identical, and were published with the issue—namely, "Interest on the 4 per 698 cent. Bonds will be exempt from liability to assessment to British Income Tax other than Super-Tax"; and the dates of redemption were duly set out. At that time, of course, the union of Great Britain and Ireland was complete. The United Kingdom was in existence, and therefore those resident in Ireland who bought these Bonds had not to look to the possibility of the Bonds being taxed in Ireland as they might have been in one of the then existing Dominions. The holders were subject only, as citizens of the United Kingdom, to taxation in the United Kingdom, and they were by the terms of the issue secured against Income Tax.
§
Therefore, I was rather surprised when, on June 2, I read in the Irish newspapers a report of a speech by President Cosgrave, in which he made this statement. Referring to these securities he said:
These securities are the tax-compounded securities on which the British Government compounded for payment of Income Tax in the future, and in consideration for this composition contracted to pay a lower rate of interest. It was hoped that some financial arrangement could be arrived at with the British Government which would warrant the Free State Exchequer in continuing this exemption, but the Government has now been informed that the British Government does not propose to enter into any such arrangement. In these circumstances, we have no alternative but to tax these dividends in the ordinary way to Free State Income Tax, and the charging provision of Clause 4 of the Finance Bill will accordingly operate in regard to such dividends receivable by residents in the Free State.
I suppose the Free State have the power to impose this taxation, there having been, I presume, no provision made to secure those who invested in these Bonds in the rights they thought they had acquired, but it did give one to think when one read that statement.
§ I put down this Question at once, in order to ascertain what view the Government took of this matter, because it will be noticed that, rightly or wrongly, President Cosgrave put, or endeavoured to put, the responsibility on the British Government for the result that the Free State was unable to exempt these securities from Income Tax. But, however it came about, the result was that persons, citizens of the United Kingdom, who had entered into this contract with the 699 British Government, in which both the financial security and the honour of the British Government were pledged, found themselves deprived of that security and not able to enforce in any legal way the obligations into which the British Government had entered at that time. That appeared to me, I confess, a very serious matter and I put the Question down almost immediately. I should like to say that I hold none of these Bonds. I did not raise the Question at once because the noble Duke asked me to put it off so that he might have some further communications with the Free State Government. Obviously, there had been previous communications. On June 13 President. Cosgrave, in the Senate I think, made a speech in which he proposed, or said he was going to give, so to speak, a breathing time to the holders of these stocks, and they would not be taxed before some subsequent date, in order that they might have relief until that date and an opportunity of disposing of the stock. On the following day, I think in the Dail, there was an Amendment of the Finance Bill, to the effect that "British 4 per cent. War Loan, tax compounded, will not be liable to Income Tax until after October 1, 1923," and that is the position so far as I know-it at the present moment.
§ It is true that in the circumstances in which the Government have been placed—by inheritance, not by their own fault—they are, possibly, not able to do anything with the Free State Government. It is, I apprehend, true that President Cosgrave is under no obligation in the matter. I think he ought to have been, but, as I understand, he is not. It might have been wiser of him, for the purposes of Irish credit, not to have imposed any tax on these Bonds, and to have given honourable effect to the obligations of the British Government. However, he has not done so, and the result to the stockholder and bondholder is that, although it is possible that, between now and October, they may be able to dispose of their Bonds without loss, they most certainly have not got the benefits of the contract into which they entered with the British Government, because that contract was for freedom from Income Tax as long as they held the stock, and certainty of redemption at par. They now have only freedom from Income Tax 700 at the pleasure of the Free State Parliament for a limited period, and they have to take the chances of the market as to whether they lose or not by the sale of their stocks. An any rate, they have not got that which was given them on the faith of the British Government—the finest security and the most certain obligation in the world as they thought.
§ I recognise that the Government have done something to relieve financially the position of the stockholders, but that is not the same thing, and I think it is very unfortunate that it should be possible for people to be handed over in this way without some thought being given of the consequences. This is far from being the only case, but I do not want to go into other matters; there are some which are far more serious to some of us. But this is an instance of the somewhat light-hearted way in which we are handed over to a new system without numerous problems which were [...]ound to arise being guarded against. I make no complaint of the Free State Government—the exigencies of their position may have forced them to such a course—and I make no attack on the British Government, but I ask them what is their attitude to people who have made this contract with them and who are now, by the action of the British Government, left without the benefit of it, unable to enforce it, and in the position of having to accept whatever is offered to them. I hope they may not lose, but certainly they have not got that which they paid for and which they firmly believed was secured for them.
§ THE SECRETARY OF STATE FOR THE COLONIES (THE DUKE OF DEVONSHIRE)My Lords, in the first place I hope my noble friend will accept my thanks for his kindness in having postponed the Question, which he had put down for an earlier day. I asked him to postpone it in order that I might have a further opportunity of seeing what I could do for those on whose behalf he has spoken so eloquently this evening. The facts which he relates in the Question are correct. This stock was issued free of Income Tax. It was impossible for His Majesty's Government to ensure that any holder who was domiciled in one of the Dominions should have that same privilege extended to him in that 701 Dominion. I think your Lordships will agree that, whether or not it was wise and justifiable, at any rate the Free State Legislature had the right of imposing taxation, if it thought fit to do so, on this class of security. It is not a very large quantity of this stock which is held in Ireland, hut I appreciate that questions of this character are not solved by amounts, but by principles.
The only way in which, as I understand, we could have assured the holders of this class of stock of the full benefits and rights to which they might be legally entitled was by repayment, either to them or to the Irish Government, of the difference. That would have entailed a further charge upon the British taxpayer. We have endeavoured to do what we could to sec that the holders of this class of stock are not placed financially in a worse position, and President Cosgrave, who was also Minister of Finance in the Free State Government, gave an undertaking, in response to a request made by a considerable number of Members of the Senate, that a further opportunity of selling this stock should be granted to holders. That undertaking has been carried out by the insertion in the Finance Bill in the Irish Legislature of a provision that no taxation should be levied on this security till October 1. I understand that Members of the Senate who are interested in this matter, and who spoke on behalf of the holders of this stock, expressed themselves as satisfied. I can only trust that the arrangement which has been arrived at will save holders of that stock from any loss.