FINANCE BILL.

HL Deb 13 July 1943 vol 128 cc407-28

Order of the Day for the Second Reading read.

THE LORD CHANCELLOR (VISCOUNT SIMON)

My Lords, I beg to move the Second Reading of this Bill. When from time to time during the last three and a half years I have been given the task of moving the Second Reading of the Finance Bill, I have followed the practice of trying to present to the House in brief form the main principles upon which our current finance is based, and have avoided giving the House a multitude of figures which are more easily studied in documents and do not necessarily require the detailed consideration of your Lordships. I will do my best to follow the same course today, and I will be brief, and all the more so because, as we all know, there is interesting and important business to be taken later, which indeed has been transferred to today in order to provide further time for its discussion.

This Finance Bill gives statutory effect to the sixth Budget of the war—six Budgets in three and a half years. Two years ago, when I spoke about an earlier Finance Bill, I used the phrase "the Battle of the Budget," and it is an essential part of the battle which we are waging. It is a battle which never ceases, and it will only be ended when the day of victory arrives. Our expenditure has continued to rise to enormous heights; the supply of goods available for civilian consumption has continued to fall. Those two circumstances, taken in combination, produce the situation in which the danger of inflation becomes constant, perilous and very close to us, and it is, therefore, of the very first importance that our finances should be so managed as to control the situation and provide barriers against that danger. And on the issue of this Battle of the Budget depends that economic stability which is vital to the whole of our war effort and in particular to the workers on whom that effort so largely depends. That is why, for example, the stabilization as far as possible of the prices of necessaries and the taking of all other possible steps against the development of inflationary tendencies are so tremendously important and should be treated as major objects of our financial policy.

I will not delay by dwelling upon details which will be within the knowledge of the House, but will just call attention to one or two present facts. We are now, for example, providing from the Exchequer subsidies to keep down the price of some of the most essential commodities that are running at the rate of £200,000,000 a year. £200,000,000 a year is not far short of the total cost of all the Social Services provided by the Central Government. Of course, some rise in prices was inevitable when war broke out. For one thing, there was a sharp fall in foreign exchange rates; but what we have succeeded in doing is this. After allowing that first rise, we can claim that for the last two years we have kept the cost of living in this country, in the very pinch of the war, practically stationary—practically level. That is certainly a very remarkable achievement. Again, each war Budget in turn, as we note, has to attack this same problem from another angle. It must reduce or sterilize the purchasing power free to be used in the hands of the public. In that connexion we operate not only through the powerful instrument in the hands of the Treasury which is applied by continually increasing our taxes, but also in combination with our colleagues such as the Minister of Food with his rationing and the President of the Board of Trade with his points and other restrictions on purchases.

The concrete problem of this year's Budget can be put in two or three large figures which I may be permitted to mention. The total expenditure which we have to provide in the year 1943 is made up of many items, of course, but the major item is the Vote of Credit Expenditure—those vast sums authorized by the House of Commons without details being given because of the circumstances of the war. Note the total. The Vote of Credit Expenditure for this year is put at £4,900,000,000. That is an immense sum, but it might easily have been more and it would have been more if it had not been for at least two other circumstances which we must not fail to note in passing. Our war costs exclude the value of Lend-lease supplies received from the United States. The farsighted statesmanship of the United Stales of America is very clearly seen when one considers the figures we have to provide by taxation or by borrowing in this year's finances. In the same way our Vote of Credit Expenditure would have been appreciably higher if it were not for the very generous assistance we are receiving from Canada. Canada has appropriated no less than 1,000,000,000 dollars to help us. Out of that she will supply this country and the other United Nations with essential war supplies in kind. She has taken over the whole cost of the Royal Canadian Air Force squadrons serving overseas, as well as the pay and allowances of the Royal Canadian Air Force personnel serving with the Royal Air Force. She has also purchased from us certain assets in Canada concerned with war production which we previously financed. I feel sure that for these very generous measures of assistance given to us across the Atlantic, you would wish to join in the thanks which have been expressed in the House of Commons.

I mentioned the figure of the Votes of Credit—£4,900,000,000. If you add to that what is called for in order to serve the debt and the normal civil votes—because life has to go on—the Chancellor of the Exchequer was, this year, faced with the problem of making provision for a total expenditure of £5,756,000,000. Let me express in a single sentence the character of the achievement which this Finance Bill represents. This year, for every pound that we raise by borrowing we raise another pound by taxation. Something like £6oo,ooo,ooo can be got without any inflationary risk by borrowing sterling balances here in London which overseas countries are accumulating. Take that out of the total and you are left with the figure of £5,156,000,000 requiring domestic finance, either taxation or borrowing, one or the. other—there is no third course. Taxation on the existing basis, on what we must look back to as the comparatively modest basis of last year, would produce only £2,800,000,000, which is less than half of the total figure I have given. It was necessary, therefore, to increase taxation and, as your Lordships know, the Chancellor of the Exchequer decided that he ought to aim at a yield of revenue which involved finding another £100,000,000 in additional taxation. That has been done this year by indirect taxation with extraordinarily little criticism or complaint.

The Chancellor of the Exchequer has, it would appear, appeased the concern of many minds by pointing out that this indirect taxation is, at any rate, all of a kind which any of us can avoid by the simple process of abstaining from the use of tobacco, intoxicating spirits, and other forms of indulgence. At any rate, there it is, and in the result you have what is nothing less than a monument of the resolution of the British people to pay their full share of the war as they go. There has never been anything in the history of this country or, I venture to say, in the history of any country, to compare with the achievement that is involved when you get half the enormous expense of war this year raised deliberately, cheerfully, without cavil or complaint, out of the taxation of the people of this country. I cannot help thinking that we are very nearly reaching the point when the Chancellor of the Exchequer may be disposed to reflect that the heavier the taxation is, the easier it is to get the consent of Parliament to impose it. No Budget, I suppose, has ever passed with less criticism or more easily. A woman, a dog, and a walnut tree, The more you beat them, the better they'll be. I am not sure whether I have got my quotation quite correctly.

LORD STRABOLGI

"A spaniel, a woman—,"

THE LORD CHANCELLOR

I thought of that, but it does not seem to scan! At any rate, the British taxpayer will not object to being compared with the noblest of the friends of man. The fact is that the more enormous the taxation becomes, the more obviously do the united British people accept it and, what is more, pay it. That is because, I think we may claim without complacency, our financial policy in this time of war has been based, and is based, on sound principles.

In conclusion, I venture to recite half a dozen of the principles which are involved. The first one is this—it is a principle of vast importance—that financial policy is not addressed to purely financial issues; it is also an instrument for economic policies designed to maintain the strength of the State and to guard the State against dangerous reactions. The office of head of the Treasury would be a great office in any circumstance but it becomes even more responsible and important once that principle is realized. I say the financial policy which we are following is not addressed merely to narrow technical financial questions, but it is an instrument which is used for the purpose of promoting wise economic objects and to guard against very anxious economic dangers.

I should put down as the second principle this; that the wise course to take in a great war is to get the enormous expense of war as far as we possibly can out of current taxation. That is a proposition which by no means has been regarded as self-evident in all the wars of the past, but it is a most important proposition and its importance lies in this. It is not merely that war is such a frightfully expensive thing in modern times that unless you tax people at once as much as ever you can you will not get a sufficient contribution from taxation and will be burdened by a really impossible figure in borrowing now and hereafter. There is a second reason. It is not done only to reduce borrowing and to reduce the burden after the war, but it is done as a bulwark which contributes to resistance against inflation. The current income of the people at present is very high—with no unemployment, and a high standard of wages. It is by securing in the first instance that the great part of it, or as much as ever you can manage, is recovered in the form of taxation, that the Finance Bill of the year can make its contribution against the danger of inflation.

The third proposition I would venture to formulate would be this. There must be in several ways also a restriction of private spending insisted upon by every means that is possible, not only by heavy taxation but by the control of consumption through rationing and through all sorts of ingenious methods of which some Departments of the Crown are showing many examples. Fourthly, there is the cost of living. Manifestly one of the most important things you can do in a great war—important to provide the best influences for unity in the country, important as a means of reducing industrial friction, important as a further security against inflation which would follow further rises in wages—is to keep down the cost of living. I remember very well when I was Chancellor of the Exchequer at the beginning of the war and began this plan of subsidizing certain essential commodities, the plan was not everywhere approved and there were some who posed as experts who criticized it. As a matter of fact this system has abundantly justified itself. As I have reminded the House, we are now spending at the rate of £200,000,000 a year for this purpose. What is the result? We subsidize bread, flour, meat, milk, potatoes and eight or nine other things, with the result that we are able by these methods to keep the cost of living, as I have said, steady. It has not moved for more than two years, with great benefits to the community as a whole. The ease with which difficulties are surmounted make the spending of this money well worth while.

Fifthly, I return to the item of borrowing. I think it used to be thought by certain economists in time past, or it may be by certain administrators, that you must expect in war to raise money at a rather high rate of interest. Why? There is no reason why you should do so at all. One of the results of war is, and necessarily so, that the Government must secure a considerable control of the capital market and must prevent the misuse of our capital resources, must secure as far as they can that their use occurs only in ways which really help to win the war and strengthen the State. You are bound also under conditions of modern war to keep a very strict hold over exchange transactions—extremely aggravating and annoying to individuals who have to get the necessary licences are are, maybe, refused what they think they ought to get. By many means under conditions of war it is possible to control this side of our finances much more strictly than in times of peace, and as far as the Government are the borrowers in the market, experience has shown that we could do what we said we would do when the war began; that we could maintain this frightful struggle year after year and yet borrow sums of money at three per cent, or under. Look at the advantage that is to us. It adds to the reputation of this country in the world, proves the confidence of this country in the issue of the war, and relieves the burden which inevitably will fall upon us all when the war is over.

But there is one thing more under that head which really is the most significant and striking of all, and that is the success of the appeal for small savings contributed not by the great financiers and business houses so much as by a mass of small decent citizens who have thoroughly grasped the point that their contributions week by week are one of the most valuable aids to victory. I suppose most of us have during the last year taken part in some of those demonstrations called War Weeks or Wings for Victory Weeks. I see here my noble friend Lord Bennett, who devotes himself weekly to that purpose and we are deeply obliged to him and others. I can only say that I do not know a more moving or heartening experience. I went not long ago to a large industrial town in the northern part of this island not in peace-time perhaps especially distinguished except for the one or two useful products from its mills. I there saw march past, men from the mills and girls from the mills, all well set up, in such a way as would do credit to many a volunteer force, all cheerful, determined and putting a massive effort into the business of collecting the small savings which we should have thought a few years ago to have been miraculous and impossible. That is going on all over the country with the result, as your Lordships know, that now enormous sums are being raised by that means.

We do not want to praise ourselves at the expense of any who have gone before, but I cannot altogether forget that in the last great war the rate of interest for Government borrowing went up to 5 per cent, or even 6 per cent, soon after the war was over, and that in the third year of the war the Chancellor of the Exchequer of that day thought it right to pat the British taxpayer on the back because, as he said, he was producing 26 per cent, of the whole of the cost of the war in that year—far more than any other belligerent was able to do. There is, I think, no doubt, that we have learnt some of the lessons of experience. Let us continue to apply them. There must be no relaxing in this business. We have such a heavy task before us as will call for greater financial effort yet, but let us as a House of the Legislature as we pass the Finance Bill acknowledge, as we are entitled to acknowledge, the immense effort willingly made by the British people to bear their share, great as it is, of the burdens of this conflict. I beg to move.

Moved, That the Bill be now read 2^a.—(The Lord Chancellor.)

LORD MOTTISTONE

My Lords, if I detain your Lordships for a moment it is on account of what the noble and learned Viscount the Lord Chancellor said about the result of the great efforts to secure that small savings should be contributed by the mass of the people. My noble friend Lord Kindersley tells me that frequently he hears people saying that these great efforts are not entirely savings and that much of the money raised comes really from high finance and great houses. Believe me, that is not the case. During the last three and a half months the huge sum of £600,000,000 or a little more has been raised by the National Savings workers. That was partly due to the eloquence of the noble Viscount, Lord Bennett, which has already been acknowledged, and here I would acknowledge also the debt we are under to many members of your Lordships' House who have given much of their time to the Wings for Victory effort. The question is whether all the money, or how much of it, has come from the mass of the people. I can give your Lordships figures which I think are more or less conclusive.

What we call "small savings" form a great proportion of the whole, but of course large savings also come in a great measure from small contributions. Contributions from banks, insurance companies and building societies are largely composed of the small savings of small people, but apart from that small savings are a great proportion of the whole. Probably more than half this vast total will turn out to be small savings. Certainly the increase of the small savings included in the £600,000,000 raised by the Wings for Victory effort, as compared with £500,000,000 for Warships Week, is not less than 25 per cent. I am sure your Lordships will be glad to know that is so That is due not only to those whose services have been already acknowledged, but to the great mass of voluntary workers. Those people who really give up a serious amount of time to this work number no fewer than 600,000 and an interesting fact is that of that 600,000 people who give up an appre- ciable amount of time—many of them most of their time—to this work, no fewer than 500,000 are women. I am sure your Lordships realize how valuable their efforts are not only in providing money for the State but, as the noble and learned Viscount indicated, in helping to avoid inflation. It is the women who understand these things in small houses and it is they who will render yeoman service in that regard. I should like to add that the Royal Air Force did an immense amount of work in connexion with this campaign. One cannot exaggerate the astonishing efforts that the men in the Royal Air Force, from the highest to the lowest, put into this campaign. We had a conference on this matter only today and from all parts of the country people voiced the sentiments of us all in gratitude to those who made such a glorious success in raising this great sum.

LORD BARNBY

My Lords, the noble and learned Viscount in selecting so happily the illustrations he made of the majestic financial achievement of the last year presented the picture in a way which was appropriate to the Bill which he was submitting to your Lordships. I should not have intervened were it not for the fact that I fail to see in their places those noble Lords who habitually present the agricultural case in your Lordships' House. We had recently a debate which must have impressed members of the House as to the danger to agriculture resulting from present taxation. The fact that the noble Duke who replied for the Government conveyed to the House the feeling that this was not a matter for the Ministry of Agriculture but a matter for the Chancellor of the Exchequer, makes it more surprising that those who urged the case for agriculture so strongly in that debate are not here to raise it today when, I think, attention should be drawn to it. The point made in that debate was that because of the prevention of repair work and the proper keeping up of property, capital was being drained out of the agricultural industry, whether in the case of landlords or owner-occupiers or tenants, to the danger of the country as a whole. I have read the report of the proceedings on this Bill in another place and the Chancellor of the Exchequer refrained from dealing with the point at that time. I think it would be incorrect that it should go by default.

It is a parallel problem to that so forcibly urged by speakers for industry. I do not presume to take the time of your Lordships to say more than that the point is that there is anxiety lest the methods of taxation, or taxation and the methods of its application, may have the result of denuding industry of capital or not permitting the accumulation of reserves, so that the solution of the problems which the postwar situation will present in the matter of employment may be endangered if sufficient reserves are not left in the hands of industry to enable plant to be properly and rapidly turned from war use to peace use and to enable equipment effectively to be introduced and capital made available to ensure employment. I have read with care what the Chancellor of the Exchequer said. He referred sympathetically to the speeches of two members who particularly dealt with this subject; and I think these two points should be linked together and mentioned at this stage in your Lordships' House. There is anxiety in the country lest the methods of taxation now being followed should have the effect of preventing the building up of reserves in the hands of firms who may be relative newcomers to industry, so that there may be discouragement of small enterprise, which after all was the basis to a great extent of the industry in the Victorian era which made this country strong.

Those are the two points with which I wish to deal, and permit me to ask the indulgence of your Lordships' House. My noble friend Lord Mottistone would, I am sure, have mentioned the matter had he thought of it, and the House will have noted the expression by the Lord Chancellor of gratitude for the readiness of the United States to assist, and for the generosity shown by Canada, in meeting the situation in which we found ourselves. The Lord Chancellor emphasized that the Battle of the Budget was being effectively dealt with. He also emphasized that the interests of the workers were vitally affected here. I hope that I may have the indulgence of the House if I express the happiness one feels that the Chancellor of the Exchequer should have agreed that something which was urged in this House in the early part of the year, at a time when it was regarded with a good deal of ridicule, the system of pay as you go, the Ruml plan adopted in the United Stales, is something which is worthy of, and is to receive, examination.

The Lord Chancellor emphasized that great matters of financial policy were involved in addition to the question of taxation. I hope that perhaps today he may add some reference to indicate as to whether we may hope that the two plans put forward, plans on which the whole future trade of this country must depend, are making some progress. I refer to what are known as the Keynes plan and the American plan. We should be glad to know, I am sure, whether there may be some further statement in this connexion before the Recess. I may add that recently I have read that the Canadian Government, through the Minister of Finance, have tabled an entirely supplementary plan and I hope that this may be presented for the benefit of the people in this country in the form of a White Paper.

LORD SALTOUN

My Lords, I never thought that I should feel it my duty to make some remarks in your Lordships' House on a Finance Bill. But the provisions of Clause 24 of this Bill are so unusual, and they have caused so much anxiety to perfectly innocent and inoffensive people that I feel it my duty to tiring the matter before the Government and to ask if they can give some kind of reassurance as to the effect of this clause. I should state straight away that I myself am involved in the meshes of this clause, and I shall have to explain to your Lordships in some detail how I came to be so involved in order that you may understand the nature of my anxiety. The object of (his clause is to stop a racket by which ill-disposed persons get control of a company, in. this case a distillery, and by selling stocks at prices below market value manage to get the benefit of them without paying Excess Profits Duty. I want to say that I have absolutely no sympathy at all with such people. Indeed I am most anxious to do all in my power to help to lay such gentlemen by the heels. But the unfortunate thing is, I think, that this clause will be more severe on the innocent than it actually will be on the guilty.

For very many years past I have been a shareholder in a small local distillery, the shares of which are held by people scattered about the district, and it is my belief that most of these shareholders have held their shares ever since the distillery was started. Last year I received an offer to purchase my shares. I received a circular from the directors saying that an offer of £9 for the shares was made subject to acceptance by 90 per cent, of the shareholders. The directors added that contracts of service had been given to all officials of the company and that the company was going to be carried on in the same way as in the past. They stated that the distillery would be assured of the services of well-tried and competent men in the future as in the past, and they recommended acceptance. I subsequently learnt that the buyers had taken great pains to ensure the continuance of all contracts into which the distillery had entered. If the noble and learned Viscount who sits on the Woolsack would like to see the circular, I shall be very happy to let him, have a copy of it. It is in perfectly common form.

I did not like the offer and I did not accept it. But, as the period ran out I was rung up on behalf of the company and asked if I was going to accept. I was told that 90 per cent, of acceptances had been received. On that, not wishing to be left in an ineffective minority, I sold my shares. I heard no more till I read the report of the debate in another place on this clause which, at that time, gave the Special Commissioners power to proceed against shareholders who had sold shares in distilleries and such companies jointly and severally for the Excess Profits Duty estimated to be lost to the Revenue. The mover of the Amendment wished to cut out this joint and several liability of the shareholders on the ground that the man who sold his shares would not, in all probability, know why they were being bought and so would really not be guilty. In rejecting the Amendment the Solicitor-General made it clear that the intention of the Government was to use this power ruthlessly against shareholders who sold, and he also made it clear that they were regarded by the Government as accomplices in what was done.

I may here say that I propose to refer in my subsequent remarks to these people as the shareholders and to the other people, the people who buy, as buyers. Your Lordships will find that speech in the Commons Official Report on the 2nd June, columns 309 and 310. The debate was wound up by the Chancellor of the Exchequer who expressed surprise that more members had not got up and suggested criminal instead of civil penalties. He added that they must not be led away by their feelings to do anything that was unfair or calculated to bring misfortune on innocent people. He had looked, he said, with great care at all the details of these cases, and found it difficult to imagine anyone connected in any way with them being able for a moment to pretend that there was anything innocent about any of them. I may say straight away that that is absolutely inaccurate and misleading and quite unjustified by anything I have done, and by anything my fellow shareholders have done. But I realized that the position was very serious. We have not forgotten, in the North, the disaster of the City of Glasgow Bank. That was a joint and several liability of the shareholders who were hunted for a whole generation and ruined again and again.

For the moment I thought about my own position, and then I realized that the authorities must have been misinformed, and that they could not realize the true position. I therefore went to London and saw the Chancellor of the Exchequer. These things having been said, I wanted to come out into the open and state my position perfectly frankly, and I asked the Chancellor of the Exchequer whether he could make arrangements to bring me to the Bar of the House of Commons, where I should be willing to answer any questions on this transaction which any member wished to put to me, because I had absolutely nothing to conceal. The Chancellor of the Exchequer heard what I had to say, and discussions ensued. One of the results was that the joint and several liability against the shareholders was cut out of the Bill, and there was also the suggestion of some further Amendments. I went straight home and got in touch with as many shareholders as I could. It will be realized that, the shareholders having sold their shares, there was no organization to assist me in getting in touch with them, but I got in touch with them as far as possible, and we prepared a memorial for the Chancellor of the Exchequer, stating exactly what had occurred and the facts as we knew them.

Now I want to turn for a moment to the position of the buyers. I should men- tion that 96 per cent, of the shareholders accepted the offer, and 4 per cent, did not. When the buyers got hold of the shares of the company, one of the first things that they did was to sell all the stock which the company owned at a very cheap rate to what I think is called some "conjunct and confident person," who was able to get rid of it later. The auditor of the company refused to pass that transaction without comment, and, as a good auditor should, acted in the interests of the 4 per cent, of the old shareholders who were left; and the result was that he lost his position. I can quite see that the directors could have argued with him, and they would probably have pointed out that, if they sold the whisky at its market value, the minority shareholders would still not get anything out of it, because it would all go in Excess Profits Duty. That was not the case, however, in this particular company, because this company's stocks of whisky were only sufficient to keep it going and to keep its business alive until better times returned, and would never have paid Excess Profits Duty. I want to emphasize the fact that when the buyers bought these shares they did nothing wrong, and nothing wrong was done at all until they started to play monkey tricks with the company. That was when the wrongdoing began, and it was quite impossible for shareholders scattered all over the country to have any idea, from the documents which I have handed to the noble and learned Viscount on the Woolsack, that there was any racket in prospect. I am certain that none of the shareholders knew about it, or, if they did, I did not know of it.

The argument of the Inland Revenue on that point is, I think, this. They say: "Yes, but this racket was in prospect, and you surely would not wish to retain any portion of the price which you received for your shares which was in excess of the true value, due to the fact that there was this racket in prospect." I am not sure that I agree with that argument. This was a fair transaction, a sale for value, in good faith as far as the sellers were concerned; and, once you start affecting contracts of sale by retrospective enactment, you do not know where you are. Are you to take action against an ironmonger for the sale of a knife, because that knife is afterwards used by the buyer to commit murder? If you do that, nobody will be safe. Moreover, this is going to cause a great deal of distress to innocent people. I have been told by my accountants that the levy on these shares may be very high. Some of these people have spent their money in reestablishing bombed-out children—I know two who have done that—and cannot recall it. What will happen if this levy is made, and one of these wretched shareholders has to sell his house? Is the Chancellor of the Exchequer going to give him a certificate that he will not in some future Finance Bill proceed against the seller of the house for the price, on the ground of the misuse of that house by the buyer? That is the position which we are in.

There is a further reason why I do not agree with what is proposed. After what has been said, any assessment on these shareholders will infallibly pin to them the disparaging words used in another place. It is impossible to get away from that. There are a great many people who do not understand these things, and, as soon as any levy is laid on the shareholders, they will say: "Yes, the Chancellor was too clever for them." The words which have been used will stick to these wretched sellers, who knew nothing about the racket which was in prospect. But even if I admit that there is something to be said for the argument of the Inland Revenue, I am sorry to say that Clause 24 (1) (b) does not accord with that argument. If it provided that the amount to be handed back was the difference between the amount received for the shares and the value of the business as a going concern, there would be something to be said for it; but that is not the definition which is adopted. In parenthesis, I would say that the value of a business at any time as a going concern is the value of the net assets plus the value of the good will. I think that in this case we might have taken out the good will, and taken the value of the assets as shown under the rules laid down in the Finance Act, 1930, Section 37, which is the value on which private companies pay Estate Duty. The value in this Bill is, in effect, the value of the lands and buildings and cash, without taking any account of the stocks; and the stocks of the company represent the reserves of the savings of sixty years.

The answer of the Inland Revenues to that is: "Yes, that is perfectly true, but, under the rules for assessment for Excess Profits Duty, when a distillery or other business is bombed and the stocks are burned, then we compel the business to bring the insurance money received into the trading account for the year, and, having done so, we take it all away under Excess Profits Duty." There is one great experience which I share with most of your Lordships. I was here during the whole of the bombing of London, from September, 1940, to May, 1941. I remember, and shall remember all my life, the magnificent spirit of the Londoners, their imperturbable cheerfulness and good humour, and how nothing took them aback or made them lose courage when their businesses were bombed; they managed to carry on somehow. But I did not know at that time that the Inland Revenue were watching every bomb, and that, when a timber business, for example, was bombed and burnt out, and the whole of the reserves of the business invested in timber were consumed, then, when the insurance money was paid, the whole of it was taken away in Excess Profits Duty, while a neighbouring wine business, which escaped bombing, could carry on in comparative prosperity.

I should like to take that a little further. If the neighbouring wine business, which was left in moderate prosperity, reduced the value of its insurance, it was told: "No, you must keep your insurance going, although we shall take away the value of it if you happen to be hit." That may be the law, but I do venture to say that it is unjust. And there is no reason for extending a law like that—it should really rather be amended.

But there is another point. I cannot help feeling that this clause was really drafted in anger, not only because of the joint and several liability, but also because of another reason. I have pointed out how unfairly subsection (4) (b) of Clause 24 will work for the people who have sold. What about the people who did not sell? The people who did not sell and who remained in the company surely have done nothing wrong; yet in subsection 1 (b), coupled with subsection (2), the Commissioners are directed to assess the company as well as the delin- quents. Whoever else they assess they must assess the company jointly and severally with the delinquents if E.P.T. is assumed to have been lost. And further, no account is to be taken of any relief for deficiency of profits. That is a vindictive penalty, and while I have no objection to this being put into force against the people who worked the racket, I think to put it on the company is very shortsighted, because that means that the wretched 4 per cent, who did not sell are also going to be penalized through their company for not selling. So that the shareholders are going to get it in the neck whether they sold or whether they did not.

I am taking up more of your Lordships' time than I wished to do, but I should like to turn for one moment to another side of this matter. I do not think that the Inland Revenue can really be very happy about the effect of these particular provisions, because when all is said and done, as far as I can make out, the whisky in question has been moved out of the country and both the whisky and the people who have got away with it are beyond their reach. The people who will be punished under these clauses are people who have had no connexion, or no willing connexion, with the matter at all. At an interview with the delinquents, or rather the representatives of the delinquents, last year, the Inland Revenue are supposed to have said that they regarded the whole affair as a global transaction, in which the various liabilities would be assessed upon the selling shareholders and the racketeers. The word "global" always arouses my suspicions, but in the case of a crime—and this is a crime—the word "global" should never be applied. In the case of a crime you want to make sure who is guilty and to punish him. You do not want to say, "Oh we regard the crime as a global transaction" and rake in everybody within range whom you can get at, whether he is guilty or not.

I hope that the noble and learned, Viscount on the Woolsack will give some sort of reassuring reply on this matter, because there are a great many other points to which time will not allow me to draw your Lordships' attention but which I am sure he will have in his mind in connexion with this matter. There is, particularly, the question of trustees, which is a very serious one, because the trustees have apparently consented to a sale which has been condemned as improper by the Chancellor of the Exchequer, and those words have never been withdrawn. That being so, I feel very seriously unhappy about this business, because my fellow shareholders are perfectly prepared, as I am, to prove to and satisfy anybody of their complete innocence of any complicity in this racket whatsoever. Your Lordships in this House have a great privilege, and it is one that you probably enjoy more fully than they do in another place. It is that anybody in the country, whoever he may be, who has a genuine grievance, can have it brought forward in your Lordships' House and ask the Government for a reply. I wish that time would permit me to explain this grievance in even greater detail, but I have said enough to do my duty to my constituents, and I sincerely trust that the noble and learned Viscount on the Woolsack will give me a sympathetic reply.

THE LORD CHANCELLOR

My Lords, I think it is due to the noble Lord, Lord Saltoun, that I should say a few words on the matter which he has just brought to the attention of the House. I think he has done very rightly, if I may say so, in telling the House quite frankly that this particular matter is one that touches himself, and at the same time in stating his own attitude in regard to it, and I am sure all of your Lordships have listened to my noble friend with respect and attention. If I deal with it at all (and I will be very brief) I think I must really begin by explaining to the House what the racket was—not that I am for a moment suggesting that my noble friend is the author of it or a guilty party to it. The racket in simple terms was this, and as in this particular case whisky comes in, I will talk of whisky, though it might apply to other things too.

You have a company with a large stock of whisky which it owned before the war, and the price at which the whisky was acquired would, of course, be very much less than the price at which it could at present be sold—it may be only a tenth of it. Of course, if the company proceeded to sell the whisky at current prices it would make a very large profit, and there would be in consequence the application of Excess Profits Duty, which is 100 per cent., and therefore, so far as there was excess profit, the whole of it would be taken by the Exchequer. That would be the straightforward and ordinary situation. One result of that would be that the shares in such a company would not necessarily have a very great value because such a company is going to have the whole of its excess profits taken away, and it will not necessarily have the prospect of much of a dividend even though it has sold its whisky at a very high figure. My noble friend told us that the offer he got for his shares was, I think, £9, and the other shareholders the same. He did not happen to mention, but it is relevant to mention, that that was far above the price at which the shares stood on the Stock Exchange. I think the Stock Exchange price was something like £3 10s. One can therefore understand the circular offering to buy shares which would, of course, greatly increase the price.

That is what would have happened if things had gone forward in the ordinary way, but instead of that a number of persons offered to buy the shares of the company at a very attractive price and by that means the principal conspirator, whoever he may be, acquired the shares. It was worth his while paying the very high price if he had a scheme which would avoid paying Excess Profits Duty, but of course it would be perfect folly to pay such a price if, when the whisky was disposed of, the Excess Profits Duty took all the profit. The racket consisted in arranging that the Excess Profits Duty should not be paid. The purchaser of the shares then passed them to a second person, and the second person to a third person and so on to a man of straw. As the shares were entirely owned by the racketeers, they could make the company do what they liked. What they made the company do was to sell the whisky to the racketeers at the old price, and then they employed the company as their agents to sell the whisky at the high price. Of course, that was not a sale by the company, it was a sale by the racketeers, and therefore the company was not liable to pay any Excess Profits Duty.

The result of all that is that the persons involved—I am not in the least saying that my noble friend was necessarily in it; I do not know—the persons who were in it were enabled to scoop the whole of the profit made on the whisky and left the revenue whistling for the Excess Profits Duty. The final man of straw was not even to be found within the confines of this island. That was the plan. I reveal it not only because I do not suppose there is anybody in hearing who is likely to wish to imitate it, but because the present Finance Bill will make the racketeers very sorry they ever entered into that transaction at all. The provision of the Bill is: Where any of the stock in trade of a company is disposed of otherwise than for at least its full market value and is so disposed of cither to. or directly or indirectly for the benefit or by the procurement of, any persons who directly or indirectly hold, or are in a position to obtain, a controlling interest in the company, and any of that stock is disposed of by any person at a profit but in circumstances in which, apart from this section, the full tax (as hereinafter defined) is not payable or, in the opinion of the Commissioners, is unlikely to be recovered, the Commissioners may direct— Your Lordships need not trouble about the language of the clause. It is really addressed to the present case and to similar cases, and therefore general language is used. The direction is, first of all, that the amount shall be the amount of Excess Profits Duty if the matter had taken its ordinary course; and secondly, that this sum shall be a "joint and several liability." Those are the words which my noble friend has expressed concern about, that such persons may be specified in the direction, being those who, in the opinion of the Commissioners, obtained financial benefit as the result of the transactions. My noble friend's anxiety—and that of others who are in the same position—is, I gather, lest he should be regarded as among the persons jointly and severally liable, because admittedly he did come in at the beginning of this business in that he accepted a favourable offer for the shares.

LORD SALTOUN

May I say a word? I should like to say there are two points. One is that there never was a real market in these shares. The quotation on the Stock Exchange was entirely nominal. I had been trying to buy these shares myself at any price from 1930 to 1938. I had a standing order in the market, and I only succeeded in scraping together 125 shares. The price quoted was a purely nominal one. As a matter of fact there have been circulars sent round the country offering for these shares at any time in the last twenty years, and few shareholders have ever accepted the offers because they knew the value of the shares. The second point is regarding my anxiety. My anxiety is not really financial. My anxiety is that the original shareholders and myself are being taxed and penalized, and a stigma is being attached to us because of the words used by the Solicitor-General and the Chancellor of the Exchequer. I would willingly give the Inland Revenue my whole interest in the thing if that could be avoided.

THE LORD CHANCELLOR

I am anxious not to say a word which would reflect on my noble friend. It is natural that he should feel deeply about the matter. If my noble friend is right when he says he did not get a higher price than the shares are worth, then he is perfectly safe. If, as I understand, the shares were either not quoted, or quoted at the price of £3 10s., then his anxiety begins. My noble friend makes a perfectly good point. He says, "I do not want to be held jointly and severally liable for the loss of Excess Profits Duty because the real blame for this attaches to other people and not to myself." In the course of the proceedings of the Finance Bill in the Commons, a clause was put in for the purpose of providing some protection. The clause is this. I omit a few unnecessary phrases in order to state the sense of it briefly: Where any person has … obtained financial benefits as aforesaid, but only by reason of the transfer by him of shares which he did not obtain under any such transaction as aforesaid"— that is my noble friend's position—then the direction settling the amount of Excess Profits Duty will apportion the said sum so that there is apportioned to him no greater part thereof than is equal to the amount by which he is … deemed to have … financially benefited. That is to say, by the difference between the proper value of the shares and £9. Whether that is satisfactory to him or not, at any rate it does not expose my noble friend to the position he fears that he might be gathered together with these other people and regarded as jointly and severally responsible for the whole thing. The provision made by the House of Commons is designed to limit any personal liability of that sort.

I understand my noble friend's desire both to explain his own position, which he has done frankly and fairly, and to secure that there is not put upon him an improper burden. I would ask him to believe that there is no intention at all of dealing wrongly with people who are innocent. I certainly would be the first to hold that nobody should be regarded as guilty until he is proved guilty. It may well be that in the circular which he received, he was offered a price which he thought worth taking; 96 per cent, of the shareholders thought so; they thought they were getting a good bargain. The utmost liability attaching would be such portion of the Excess Profits Duty as is represented by the difference between these two prices. I cannot say more, but I hope I have shown to the House that some care has been taken to provide for my noble friend's anxiety. We could hardly undertake to amend the Finance Bill, and I am sure my noble friend does not desire that we should do so.

There were two other speeches to which I should like to say a word in reply. My noble friend Lord Barnby asked a question, but as he is not here I shall tell him privately what the answer is. My noble friend Lord Mottistone has apologized for having to leave the House, but I promised him I would give the two or three further figures which I have here regarding small savings. The total amount that has been raised in small savings since the war began is, in round figures, £2,000,000,000. The total borrowings of all kinds since the war began is £9,500,000,000. It follows that these small savings have accounted for something like 22 per cent, of the whole borrowing—a most amazing result. For the rest, 34 per cent, comes from subscriptions from non-Government sources to our longer-term loans; 22 per cent, by short-term borrowings from the money market and the banks, and the balance of 22 per cent, from a variety of other sources. It is therefore quite plain that we have got a most appreciable proportion of our loans from the general public, and more particularly is it plain that the part played by the small saver in this essential business is nothing short of magnificent. May it go on with increasing success until the war comes to an end!

On Question, Bill read 2^a; Committee; negatived.